City Council Tuesday night reviewed updating its maximum sales price formula for for-sale homes provided under the inclusionary housing program.
The new formula includes changes in calculating the program’s affordable and middle-tier homes sales prices for single family, townhome and condo products. The current formula does not accurately account for all ancillary housing costs and results in prices that cause households to pay more than 33% of their gross monthly income for housing, Molly O’Donnell, the city’s community investment division director, told the council.
Ancillary housing expenses are homeowner association (HOA) dues, private mortgage insurance, property insurance and property taxes, O’Donnell said.
“This could put them at risk for financial struggles if they take on new debt, defaulting on their mortgages and foreclosure,” she said.
The new formula takes into account the ancillary costs. The city also must begin looking back at the interest rate calculation methodology to ensure Longmont is responsive to change in the market, O’Donnell said. A new 15-month “look back” ended up being a good balancing point that uses prior data but that can still provide some flexibility for changing market conditions, according to a city staff report.
The city decided to change its sales price formula because in almost four years of starting the IH program, no developers outside of Habitat for Humanity have opted to provide for-sale affordable units to meet their program requirements, O’Donnell told the city council. Two developments opted to provide for-sale middle-tier or attainable units that kicked in the incentive for a reduced affordable requirement, she said.
City staff members say that since 2021, the sales price formula does not accurately account for the total cost of a housing payment for low-to-moderate-income households and could be putting vulnerable populations at risk of losing those homes.
“We also heard that the existing prices were cost-prohibitive for developers and builders; they could not make the numbers work when considering the complex financial stack needed to obtain equity investment and lending order to construct,” the city staff report states.
