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Stagnant wage growth one key to affordable housing conundrum 

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click to enlarge Habitat for Humanity volunteer U.S. Navy Petty Officer 2nd Class Robert Herbst - JESSICA KUHN
  • Jessica Kuhn
  • Habitat for Humanity volunteer U.S. Navy Petty Officer 2nd Class Robert Herbst
What do a security guard, construction worker and school receptionist have in common? They can’t afford to buy a home in the Colorado Springs area, says Kris Medina, executive director and CEO of Pikes Peak Habitat for Humanity.

“Those are just some examples of the occupations of our residents here in our affordable housing community in Fountain,” she says. “With what wages they make, there is no way they could afford to buy a home in our local market without some sort of assistance.”

Colorado’s growing population and lack of wage growth are two main contributors to the state’s rental and single-family housing affordability gap, says Jerilynn Martinez, director of marketing and community relations for the Colorado Housing and Finance Authority.

“Wages just haven’t kept pace in terms of increasing at the same scale that rent and home prices have in the state the past few years,” she says.

The state’s median home price increased an average of 8.7 percent annually from 2014 to second quarter 2018 while statewide wage growth was 3 percent each year during the same period, according to CHFA’s 2018 Affordable Housing Tax Credit report.

Martinez says CHFA considers someone “costburdened” if their housing costs total 30 percent or more of their income.

In the second quarter of 2018, the median rent for Colorado Springs was $1,030, which means a household would need an income of $41,200 to afford it, the AHTC report stated.

The median home price in Colorado is about $368,000, Martinez says, explaining a two-person household would need to make $92,500 to afford that price without being considered cost burdened.

Tatiana Bailey, director of the UCCS Economic Forum, says wage growth hasn’t kept up with inflation due to rising health care costs for employers.

“Businesses are constantly talking about how much they are having to pay in order to offer health insurance to their employees,” she says. “That really makes it harder for employers to give those 4 or 5 percent wage increases like they have traditionally in the past when the labor market has been this tight.”

The Colorado Division of Insurance’s most recent Health Insurance Cost Report revealed that from 2008 to 2017, employee-sponsored insurance premiums increased 50 percent for individual coverage and 60 percent for families.

For the latter, that totals nearly $20,000 per year. Employers on average cover about two-thirds of that annual premium cost, according to the report.

It’s estimated by the United States Census Bureau that Colorado Springs’ population reached 450,000 in 2017 — an increase of more than 46,000 residents in eight years.

“We, in Colorado, are in a unique position because most of our population increase is because of in-migration and not because people are having babies,” Bailey says. “Why do people move here? Well, it’s because we have a lot of growth in terms of economic or gross state product.

“Yes, we have mountains; yes, we have sunshine, but we also have a lot of jobs. That of course creates a huge demand for housing.”

The ideal number of single- and multi-family permits needed to be issued by the Pikes Peak Regional Building Department to meet the area’s projected growth is about 4,500 a year, Bailey says.

In 2018, the department reported a total of 5,585 permits, which included the most single-family permits in more than 10 years.

Kevin Walker, public policy advisor for the Housing and Building Association of Colorado Springs, says homebuilders are building as fast as they can.

“If we had more land available, more lots available, more workers available, we would build more because there is a demand for new housing,” he says.

While there’s a demand for new affordable housing, Walker says there are several reasons it’s not being built.

For instance, Colorado’s construction defect laws have increased costs related to litigation as well as the cost and impacted availability of construction insurance for attached housing projects such as townhomes, he says.

“The builders are liable for defects for many, many years and it’s just become too much of a liability. And insurance companies won’t bond builders to build lowerincome attached housing,” he says.

Another reason more affordable housing isn’t being built is rising construction costs, Walker says.

“If builders could build for lower prices and sell them, they would do that,” he says. “But it’s a combination of the price of land, price of materials and the price of labor pushing the prices up and making that not possible.”
click to enlarge Pikes Peak Habitat for Humanity’s Kris Medina, - touring its Fountain community. - JESSICA KUHN
  • Jessica Kuhn
  • Pikes Peak Habitat for Humanity’s Kris Medina,touring its Fountain community.
Meanwhile, Bailey also has been watching the number of issued multi-family permits rise to 1,505 last year after hitting a low of 20 in 2009.

“We underbuilt in multifamily for so many years, including in downtown, that now we are sort of playing catch-up,” she says. “We have a lot of construction going on, but we seem to be absorbing it — even the higher end, newer units coming online.”

Bailey says a lot of the people moving here are coming for better paying professional and technical jobs and can afford higher housing costs.

“That adds to the affordable housing problem as well because if you have people who are willing to pay for higher-end homes, what do you think the builders are going to build?” she says. “[Homebuilders] have almost no incentive to build a lower-end product right now.”

Walker says it has little to do with incentives or profits and more to do with the increased cost of building homes.

“We are trying to supply as much as we can,” he says, “but because of land prices and lack of construction work- ers and that sort of thing, it’s become very difficult to get the supply needed done. [Builders], of course, build new houses and that’s our contribution to helping moderate price increases is to build as many houses as we can as fast as we can to supply the market.”

Medina says the number of applications they’re receiving for future Pikes Peak Habitat for Humanity homes has increased substantially in the last few years.

“Across the country, we’re in a crisis for more affordable housing,” she says. “The main reason people are giving us on their applications is, ‘My rent keeps going up. I can’t afford it anymore.’”

Each year, the nonprofit builds six to eight houses that cost about $150,000 to erect, Medina says, but just as it is for area homebuilders, that cost is going up.

“Land here is at a premium because of the demand,” she says. “Developers and land owners are trying to make money, and they need to while the market is hot — I get that.”

The nonprofit has six available open lots at its affordable housing community in Fountain, which will be filled next year, Medina says. She added they are in the process of looking for about 5 acres to build another neighborhood.

“We have eight families that have qualified for those but only six will have a place to go to after the final selection process,” she says. “It’s hard. I know we all have stories, but our homeowners have tear-jerking stories and can tell you how having this home will set their lives for them, their kids, their grandkids and move them forward.”

Martinez says CHFA also has experienced a rise in participation in its homeownership assistance programs as a result of the affordable housing issue in the state.

“Over half of our home mortgage customers are millennial buyers,” she says. “There was a rumor going around that millennials aren’t interested in home ownership and we have not found that to be true.”

Millennials want to purchase their first homes, Martinez says, but oftentimes can’t because they don’t have enough saved for a down payment in most of Colorado’s real estate markets — including in Colorado Springs.

“They are needing help with the upfront costs, which is where our down payment assistance program comes into play,” she says.

Bailey says homeownership rates in the U.S. are at a historic low, citing student debt as part of the reason.

“Our country already is seeing a high amount of student loans in default and that’s during these good economic times we’ve been experiencing,” she says. “Imagine what’s going to happen when the next downturn occurs — things will likely get worse.”

Bailey says it’s also harder for younger generations to save for a down payment after college when they are having to pay high rental costs.

“With what people in their early to mid-20s have to pay for housing, it’s almost impossible for them to save any type of money to buy their first home,” she says.

Medina believes affordable housing is going to be an issue in the Pikes Peak region and nationally for at least the immediate future, she says.

“I just don’t see the country being able to get wages up where they need to be,” she says. “Teachers can’t afford to buy in this market. Entry-level law enforcement and first responders can’t afford it.”

Both Medina and Bailey say the cities or communities tackling affordable housing with multiple solutions are the ones that will fare best over time.

“There is not a magic silver bullet type fix-all for this problem,” Medina says. “Habitat says, ‘Build a home for everyone,’ but I don’t think that’s really going to work. It needs to be that and everything else: affordable rentals, tiny homes, small auxiliary units — we should be doing all of it.”

Bailey says interested parties and organizations could benefit from appointing a person to research, help implement and oversee affordable housing projects.

“My general conclusion is that the cities that are rocking it in terms of addressing the affordable housing issue are the ones that are tackling it from all different angles,” she says. “They are like, ‘Let’s change the zoning laws so that it’s easier to repurpose buildings and we can have more infill. Let’s allow modular homes. Let’s do every possible thing that we can think of.

“They go after every single methodology that they can because they realize it’s going to take a lot to beat this affordable housing problem.”

Editor’s note: This is the first installment of a two-part collaboration with the Independent’s sister publication, the Colorado Springs Business Journal, exploring in depth the region’s affordable housing challenges.

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