Housing Summit Island Housing Solutions Research Performed and Initial Ideas Put Forward A Report by the Orcas Research Group June 4, 2005

The Underlying Problem Expected increases in house price and mortgage rates produce an increasing gap between salaries and affordability. At current rates of appreciation, that house will cost $486,000 in 2011!

What do we seek? Solutions that assure that our working families can live in our communities. Solutions that are perpetually affordable. Solutions that are consistent with our values and culture: –our sense of self-sufficiency, –our respect for the environment, –our sense of community and –the self-actualizing power of home ownership.

Financing

Financing: Conventional Mortgages Conventional Mortgages are now and will continue to be the primary form of financing. Homeowner Bank Seller

Financing only 6 years ago: Mortgage rates were higher and income limits were lower, BUT houses cost a lot less than what they do today!

Financing: Baseline Figures At today’s mortgage rates and house prices, few families can afford a home using only conventional mortgages.

Financing: Local Decisions Recommendation #1: Form a local mortgage company.

Financing: Adding a Co-owner. Homeowner Bank Seller 3 rd Party Investor Secure Investment Modest Return Inflation Protection Tax Deferred Gain Homeowner Buyback Recommendation #2: Encourage conservative 3rd party investments

Finance: Land Rich, Tax Poor Recommendation #3: Make use of tax breaks Land as Investment Avoid Property Tax Tax-free Transfer Modest Income Inflation Protection Depreciation Allowance Tax Deferred Gain Homeowner Bank Builder 3 rd Party Land Owner

Financing: Joint Ownership

Financing: Land Trusts Homeowner Bank Builder Land Donor

Financing: Land Trusts Recommendation #4: Take the cost of the land out of the equation.

Financing: Bring solutions together Recommendation #5: Combine financing approaches when they make sense.

How are we doing so far?

Life Cycle Costs: Energy Efficient Mortgages Recommendation #6: Use sound conservation policy to reduce cost Model Energy Code DoE Building America Projects Note especially:

Life Cycle Costs: Maintenance Recommendation #7: Build housing that will outlast the investment cycle. Asphalt Shingles Metal Roofing

Life Cycle Costs: Financial Impact Reduce Risk that:1)The homeowner can service the debt 2)The value of the home is retained

Life Cycle Costs: Planning Aerial View Land Use Forest Resources Water Resources Geology Time is money. Reduce risk through public awareness.

Changing How We Do Business: Time is money Modular Design Focus on Quality Get Subs Involved Control Schedule Control Costs Eliminate Callbacks Make a profit so that you can do it again!

Changing How We Do Business Recommendation #8: Remove risk from the entire process.

Are you still with me?

The Housing Bank: Bringing it Together. Recommendation #9: Pull organizations together around use of tools.

Funding: Alternatives Recommendation #10: There is no practical alternative except a transfer tax to fund moderate income homes. Federal, State, and Local Programs Fee-Based Approaches –Mitigation Fees – Aspen req. 60% - 70% affordable –Permitting Fees – Limit growth at the top –Planning Fees – Key West limit on transient rentals Tax-Based Approaches –Exemptions and Incentives – 3 rd party investments –Real Estate Transfer Tax – Taxes demand side –Property Tax – Not likely except as last resort –Sales Tax – Aspen 0.045% sales tax, also not likely Other Approaches

What happens if we delay? Many households again out of luck!

Our 10 Recommendations: 1.Form a local mortgage company 2.Encourage conservative 3 rd party investments 3.Make use of tax breaks for land rich, cash poor investors 4.Take the cost of land out of the equation 5.Combine financing approaches when they make sense 6.Use sound conservation policy to reduce life cycle cost. 7.Build housing that will outlast the investment cycle 8.Remove risk from the entire process 9.Pull organizations together around the use of tools 10.There is no practical alternative except a transfer tax to fund moderate income homes

Summary Identified the problem. Attributes of a solution. 10 Recommendations. Small window of opportunity. Now, we need to engage in a public dialog about these and hopefully other ways that we can work together.