Council may be stealing economic opportunity

If you are like a lot of people, your eyes may start to glaze over at the mere mention of “Opportunity Zones,” but stick with me as there is a fascinating story of apparent desperation, questionable motives, and possibly deceitful tactics in order to stem any growth in Boulder.

What are Opportunity Zones anyway?

Opportunity Zones were created by the 2017 federal tax reform package, the Tax Cuts and Jobs Act, as a way to incentivize investors to improve and revitalize communities across the country that have languished while the rest of the US enjoyed a terrific boom.  Specifically, an Opportunity Zone is a census tract that Congress designated as eligible (read struggling) to receive private capital investments through “Opportunity Funds,” which allow investors to receive a deferral, reduction, or possibly even elimination of federal capital gains taxes, depending on how long they keep their money invested in a qualifying property and how much they improve it.

So what?

This is where the story gets interesting.  Gov. Hickenlooper, seemingly with support from Boulder at the time, designated a Boulder census tract that runs from 28th to 55th Streets and from Iris to Arapahoe Avenue as an Opportunity Zone.  While virtually every other municipality welcomed these designations as an opportunity to revitalize their struggling communities, the Boulder City Council placed a moratorium on its Opportunity Zone, blocking investment.  And did I mention that this is a limited time offer?

If you are new to the area or have not been following local politics closely (and who could blame you?), it might seem surprising that Boulder would block such investments.  However, as discussed in a previous column, a majority of the Boulder City Council appears to be beholden to Boulder’s CAVE people (Citizens Against Virtually Everything) who do not want growth of any kind.  It seems they want things to be like it was “back then,” an apparently bygone era with fewer people, fewer businesses, etc.  When viewed through this lens, their actions, though by definition counter productive, make sense.

And now for the master stroke of the CAVE people: make it look to the public like they are lifting the moratorium, when they are actually downzoning large parts of the city.  Under the guise of lifting the Opportunity Zone moratorium and updating “use table standards,” the city will effectively downzone thousands of properties (not just in the Opportunity Zone), limiting office uses to 25 percent of floor area in the BR, BMS, and TB business zones, and limiting small office uses in residential zones.  This will make any existing building in an affected business zone with more than 25 percent office space a “non-conforming use,” meaning that changes or expansions to this use would require city approval through a non-conforming use review.  And what do you think the chances of getting approved would be?

This proposal by the city council runs counter to its stated positions on the environment, not to mention its own Boulder Valley Comprehensive Plan policies supporting creation of 15-minute walkable neighborhoods and other policies favoring mixed-use planning, smart growth, and pedestrian uses.

If you are so inclined, you can share your opinion with the city council at council@bouldercolorado.gov, or if you are really motivated, you can attend the council’s public hearing at 6 p.m. on Sept. 3 at 1777 Broadway.

Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on September 4, 2019 at 3:00 pm
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City housing proposal may be Faustian bargain

There is a serious shortage of homes in Boulder, as is evidenced by the roughly 65,000 people who commute in and out of Boulder on a daily basis.  About half of these people would live in Boulder if they could, but are forced to “drive until they qualify” for a home, which increases their carbon footprint, commute times, and overall stress level.  It is clear that creative solutions are needed to address this crucial issue.

The Boulder City Council’s proposed pilot program to “help” middle income families purchase market rate homes is, while creative, a Faustian bargain, in my opinion.  In the current iteration supported by members of the city council, the city would use a “loan-loss reserve fund” to guaranty second mortgages that would allow people to purchase more home than they would qualify for by themselves.  (An earlier version from a 2016 white paper would have had the city use its bonding power to raise money to buy a percentage of a purchaser’s home, which the city would get back at closing, plus some amount of appreciation).

 

If the program stopped there, I would applaud the city’s effort for trying to get more families into homes that would be owner occupied.  But here is where the Faustian bargain sets in.  In exchange for the city’s assistance, the buyer would have to “voluntarily” agree to deed restrict the home they just purchased to be permanently affordable.

Let us consider the consequences of this for the individual or family who purchases a home under this program:

  1. All of the burdens. The buyers now have all of the burdens of homeownership.  For example, if the furnace breaks or the roof wears out, the burden falls on the homeowner to replace them.  If the home loses value, it is ostensibly the homeowner who bears the loss when they look to resell.  And remember, in this fantasy, a lender is going to agree to loan buyers more money than the lender thinks they can reasonably afford because the city is going to guaranty a portion of the loan, which means the buyers will likely have more financial strain and be at a higher risk of default.  Whether the city can sufficiently incentivize a bank to overlook that they would likely be overextending buyers financially remains to be seen.
  2. Limited rewards.  While the homeowner is saddled with the burdens and risks of ownership, they do not reap the full reward of their home’s appreciation — the city sees to this through its deed restriction.  Suppose homeowners do an outstanding job of upgrading and maintaining their home, and the market rises over the 10 years they own their home, the owners will not receive the fruits of their labor and good fortune of an appreciating market.  Instead, the city will cap their appreciation at some percentage likely well below the market. 

For the majority of Americans, their home is their biggest asset and primary source of wealth creation.  The effect of the city’s program, then, is to make families who avail themselves of this program poorer over time relative to those who purchased homes on the open market.

It is, in my opinion, this asymmetry of unlimited risk and handicapped reward underlying the program that makes it so insidious.

If this wasn’t bad enough, let us now consider the consequences of this for the housing market in Boulder in general.  The more unfortunate souls the city “helps” via this program, the fewer homes will be available on the open market.  If the supply of homes is further restricted via this program, and demand for housing remains strong (remember the 30,000 commuters who would like to live in Boulder?), then the result will be home prices rising even faster.  So, in an effort to create a number of “permanently affordable” homes, the city will make the rest of Boulder much more expensive. 

Originally posted on BizWest.  Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on March 5, 2019 at 3:00 pm
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What it’s like to be a first-time homebuyer in 2018

“Ever since we moved out here, we’ve been keeping an eye on the market,” Gibson says. “We see new houses go on the market, but that for-sale sign goes down and a for-rent sign takes its place, and so we’re competing with people that have the ability to buy multiple homes just to rent them out.”

The Gibsons live just north of Boulder in the town of Longmont, Colo. The Boulder area is one of the toughest markets for first-time buyers — and the epicenter of a growing housing affordability crisis.

“The country as a whole has been generally appreciating since coming out of the recession in 2011, 2012. Boulder has definitely led the way in a lot of ways,” says RE/MAX of Boulder’s Jay Kalinski, who is also the chair-elect of the Boulder Area Realtor Association. “Since 1991, we’ve appreciated more than anywhere else in the country — I think for over 400% appreciation since then. Our average single-family house in the city of Boulder now is around $1.2 million.” (The average price of a new home in the U.S. is $377,200, as of September, according to the Census.)

Yahoo Finance visited Boulder for HuffPost’s Listen to America town hall series installment on housing affordability and to talk to residents and local officials about the issues facing potential buyers in a market that serves as a snapshot of what’s happening across the country.

When you look at the affordability index, we’re getting less and less affordable as a community,” Kalinski says. “We’re becoming more akin to something like an Aspen or a Silicon Valley, where our home prices just are not going to support people who are making an average or even a good income.”

Watch the full HuffPost Listen to America town hall for To Develop Or Preserve: A Conversation About Affordable Housing In Boulder, CO.

Boulder City Council member Jill Adler Grano, who spoke at the Listen To America town hall, has been concerned with buyers getting priced out of the Boulder market for some time. “Unless you have money from another source or a lot of money saved up — a trust fund something like that — it’s very difficult to save for that down payment,” she says.

But there are steps the city is taking to address the issue. “As a city, we’re working on a pretty aggressive affordable housing program, so we have a goal of having 10% of our housing stock be permanently affordable,” she says. “At first that was all just for people making below area median income, but now we’ve realized that middle class is actually above area median income, so we’ve added another 5% goal for those making even above area median income but still being priced out of our city.”

But that path to homeownership has its own drawbacks, Kalinski says. “On the bright side, it means you can have a home in Boulder, you can live here at a reduced rate,” he says. “The downside is you don’t get the benefits of homeownership. Your growth is capped at 3% a year, and when the rest of the city is growing it’s a 10% to 15%, you’re giving up all of that upside.”

If income-sensitive housing isn’t an option, there are other routes cash-strapped buyers can take, including a trend Kalinski calls “driving until you qualify” that’s popular in the Boulder area. “First-time home buyers can either look a little further out or they can talk to their friends and family about trying to get a bigger down payment together to get into a market-rate home,” Kalinski says.

As for the Gibsons, they’re pressing ahead and trying to maintain a positive outlook. “I walk my dog around a lot and look at for-sale signs, look at ads, just trying to get an idea of what the market is,” Gibson says. “And hope that our hopes aren’t dashed when we get into a bidding war with about 10 other couples that are also trying to buy the same home.”

Follow Ned Ehrbar on Twitter.

Originally posted here on Yahoo Finance.

Posted on November 7, 2018 at 11:34 pm
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The importance of property rights and good governance

The Boulder City Council’s recent handling of their attempted “emergency” vote to limit “McMansions” provides an excellent opportunity to step back and consider the importance of property rights and principles of good governance.

Why do we as a society care about property rights?

Primarily, we care about property rights because they are inextricably linked to increasing our collective prosperity.  “On average, GDP per capita, measured in

Blue and Gray Concrete House With Attic during Twilightterms of purchasing power parity, is twice as high in nations with the strongest protection of property than in those providing only fairly good protection,” according to a study of property rights published by the Heritage Foundation.  The reason this is so is because people are more willing to improve their property to its highest and best use when they know their rights are protected.

Conversely, when people do not feel secure in their property rights, when they feel the government can change or remove their rights without due process and fairness, people are not as willing to make improvements to their property and collective prosperity falls.

Good governance

From the above, we see that good governance is critical to protecting property rights and improving collective prosperity, but what is good governance made of?  According to the United Nations, the characteristics of good governance include participation, rule of law, transparency, responsiveness, and accountability, among others. Standing in opposition to good governance are arbitrariness and capriciousness.

Let’s look at the definitions of these words and consider which terms most aptly describe the City Council’s recent actions.

Arbitrary:

• Definition:  based on random choice or personal whim, rather than any reason or system; (of power or a ruling body) unrestrained and autocratic in the use of authority.

• The term arbitrary describes a course of action or a decision that is not based on reason or judgment but on personal will or discretion without regard to rules or standards. An arbitrary decision is one made without regard for the facts and circumstances presented, and it connotes a disregard of the evidence.

• Antonym: democratic

Capricious:

• Definition: given to sudden and unaccountable changes of mood or behavior; unpredictable and subject to whim.

• Antonym: consistent

A summary of the facts

On Oct. 15, Councilwoman Lisa Morzel requested that the council consider the following day an “emergency” temporary ordinance to stop the city from processing permits for homes over 3,500 square feet on lots 10,000 square feet or larger (clearly, a “McMansion” is much smaller than an actual mansion).  At the time, Morzel declined to articulate the cause of the emergency; nevertheless, the council added it to their agenda for the following day.  On Oct. 16, the City Council considered the motion and heard from 22 people, almost all of whom spoke in opposition to the motion.  Apparently because Councilwoman Cindy Carlisle was absent and an emergency motion requires a two-thirds majority to pass, council declined to vote on the measure, but noted that the issue may be considered again in December.

Evaluating the City Council’s actions

It does not appear to me that the above actions were consistent with the good governance principles.  One day’s notice did not allow all interested stakeholders to participate, lacked transparency because no reason for emergency action was articulated, and appears to have been taken in an attempt to avoid accountability.

Instead, the City Council’s apparent ambush-style attack on property rights appears to meet the very definitions of arbitrary and capricious — two terms that most governing bodies would not seek to embody.  First, rather than having an articulated reason that the issue of “McMansions” is suddenly an emergency, the decision to consider the issue on one-day’s notice appears to be based on a “personal whim, rather than any reason,” perhaps better explained by a “sudden and unaccountable change of mood.” Second, applying the moratorium only to homes over 3,500 square feet on lots 10,000 square feet or larger seems arbitrary (disregarding the facts and circumstances) when one considers that a person owning a 9,999 square foot lot could still build a 4,100 square foot home.

An appeal for good governance

Reducing the potential value of people’s property (likely their most valuable asset) is a serious diminution of their rights, and while the City Council likely has the authority to do so, such action should only be taken, if at all, after a process conducted in accordance with the principles of good governance.

 

Originally posted on BizWest. Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on October 31, 2018 at 3:00 pm
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