May 30, 2009
Summit County can provide an annual benefit of $6,500 to low-income essential workers while simultaneously increasing the wealth of the entire county through the immediate cancellation of the current deed-restricted affordable housing plan. This plan provides homes to qualified low-income buyers at sub-market values while limiting resale appreciation to inflation based rates through deed restrictions. Approximately 600 units are planned by requiring new residential developments contain at least 20% of available units as deed-restricted.
Ostensibly, the plan is intended to provide affordable housing to essential workers (teachers, police, firefighters, etc.). Inherently the economics of deed-restrictions requires appreciation be less than market-rate mortgage interest; a guaranteed capital loss. By excluding home buyers from a free-market gain while incurring free-market expenses, the plan assures a negative return on investment that will financially rout these families and harm the economic growth of entire community.
Upon the initial sale, buyers enjoy the immediate gratification of purchasing a home in Park City at a fraction of neighboring properties while land developers profit from the increased densities necessary to offset higher costs. Plan advocates might also enjoy a brief sense of good samaritanism. However, from the moment the purchase is closed, the owner and the entire community become trapped in government-imposed losses that exceed hundreds of millions of dollars and span generations.
A $200,000 home financed with 20% down, a 30-year fixed rate loan of 5% per year and deed-restricted to the U.S. average rate of inflation of 2.87% yields a first-year loss after mortgage expenses of $4,580. Comparatively, the same home allowed a market-rate appreciation of 6% (for example) would yield a first year gain of $2,000. Were the buyer to choose the market-rate house, this difference in net wealth exceeds $6,500 the first year and increases due to compounding thereafter. At the end of 10 years the difference in sale values would be over $92,000, compounding to $680,000 by the end of the loan.
At the IRS rate of 50.5 cents/mile an owner would have to extend his commute an additional 25 miles each way to negate the gain of a free-market home (and likely enjoy a house much larger than the 1,100 square foot units proposed for a family of 4). With the plan’s inherent return of around minus 10%, renting is a better option. Even by setting fire to their initial down payment instead of buying a deed-restricted home (limiting losses to 100% of the initial investment), buyers would still come out ahead in less than 10 years.
In 30 years, the planned 600 deed-restricted housing units would cost Summit County over $400 million in property-value losses, reducing property tax revenue and paradoxically placing further burden on the source of income for the very workers the plan is intended to help. Recent events demonstrate losses in real-estate value also propagate through the remaining sectors of our economy (consider our school district’s $4.8 million budget cut).
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Though specific values will vary using different mathematical assumptions, this plan inescapably incurs an immense economic penalty on all parties, particularly its "beneficiaries," and increases exponentially over time. I urge the Summit County Council and its citizens perform their own comparative analysis and recognize any way it is added up, a deed-restricted approach to affordable housing is a lose-lose scenario that the community as a whole cannot afford. With the number of new developments currently planned and decline in staffing for many essential positions, this plan should be immediately rescinded, or at the very least suspended for further consideration.