Aspen City Council has weighed in on two land-use code changes recently that are sure to have profound effects on local development and real estate values. But how exactly will the third floor ban and housing mitigation changes impact the market? Randy Gold, a principal with the Aspen Appraisal Group who has 35 years of local experience, has some pretty educated guesses. (Gold spoke along with Andrew Ernemann last week at a joint event of the Aspen Board of Realtors and Aspen Business Luncheon, and we followed up with him on these two particular issues.)
Last Monday, City Council considered legislation that would have raised by about threefold the amount new development would have to pay toward affordable housing mitigation. The proposed “market-affordability gap” methodology, which would have resulted in approximately $1 million in mitigation fees to build a 5,000-square-foot house, foundered in the face of stiff opposition and a reluctant council. But council members made it clear that the discussion was not over—most favor some kind of hike in housing mitigation fees (currently about $77 per square foot)—and they directed city staff to come back with more information and a new proposal.
Given the tenor of the conversation, “There’s no question those fees are going up,” said Gold. And when they do, it will have widespread impacts.
“It will probably bring land sales in the city to a screeching halt,” he said, because it will cost much more to build a home on a vacant lot than to buy an existing home that isn’t subject to those fees.
That in turn will bring more value to existing homes and condos, said Gold. And, because the cost of building will become that much greater in Aspen, “it will push a lot of people to buy in Pitkin County or in Snowmass.”
After a few years, Gold says, the market will likely absorb the changes, but in the short term, “this is just one more thing Council is doing to drive up prices.”
Within the same bundle of changes, Council is also considering more stringent rules on employee occupation of accessory dwelling units, a move that is sure to push more property owners to consider paying cash-in-lieu rather than building an ADU, said Gold. But with higher housing fees, “it’s going to be a really hard decision,” he added.
The second land-use code modification has to do with the lower height limits City Council approved for downtown buildings last year—which essentially froze the possibility of third-floor residential units. In January, Council modified the new rule to allow for third-floor development on the north sides of city streets, but only for hotel-type uses.
“There’s not going to be a lot of that, I’m pretty certain,” said Gold, who explained that the economics of building a small, third-floor hotel in Aspen don’t work. “It’s basically a way to stop development.”
But there’s a certain irony to the situation, Gold explained. The move to limit or ban third-floor penthouses gained traction after a high-profile redevelopment application that included one was approved last winter. Then, before the resulting height-limit legislation took effect, the city was flooded with a dozen or so redevelopment applications that preserved that option.
So, “by clamping down on the supply, they (the council) gave a nice little value hit to those guys that really pissed them off in the first place,” Gold explained. “Those units are going to have a premium; they just gave them a huge present.”
Unintended consequences, indeed.