Attachment B - Nexus Study Report

Regular Meeting, October 16, 2025 · item 3B: Introduction, first reading, and consideration of a motion to order published by title only Ordinance 8712 amending Section 4-20-62, “Capita… · 54 pages

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AFFORDABLE HOUSING NEXUS ANALYSIS FOR SIGNIFICANT SINGLE-FAMILY HOME DEMOLITIONS, REPLACEMENTS AND EXPANSIONS IN BOULDER

CITY OF BOULDER

From GRUEN GRUEN + ASSOCIATES Urban Economists, Market Strategists & Land Use/Public Policy Analysts

February 2025

C1678

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HIGHLIGHTS AND RECOMMENDATIONS (TEAR-SHEET) PURPOSE This nexus report assesses how demolishing smaller single-family homes and replacing them with larger, more expensive homes (or significant additions to existing homes) impacts the need for additional affordable housing in Boulder. This is referred to as a “demand nexus.”

DEMAND NEXUS SUMMARY • • • •

•

Since 2018, Boulder has experienced about 50 -75 single-family home demolitions, replacements, or major home additions (of 500 or more square feet) annually. New and expanded homes typically increase in value by $875,000 to $3.5 million. The average annual income required to purchase these homes is $200,000 to $640,000 higher than for the smaller homes they replace. Higher incomes and local spending among expanded single-family housing occupants contribute to increased workforce demand. Each single-family home replacement or expansion generates approximately 0.75 to 2.25 additional jobs. The estimated need for affordable units to house this additional workforce ranges from about 0.15 to 0.45 units per home expansion project.

MAXIMUM NEXUS FEE • • • •

Affordable housing financing gaps: $81,000 (rental) and $141,000 (ownership) per unit. Maximum nexus fees: $14,000 to $44,000 per expanded single-family home (about $15–$20 per added square foot of above-ground living area). These fees equate to about fourth tenths of one percent (0.4%) to eight tenths of one percent (0.8%) of typical expanded home sale prices. Most replacement or expansion projects will remain financially viable even with a maximum fee.

POLICY RECOMMENDATIONS • • • • •

Implement one fee of $15-per-square-foot, applied to above-ground living space added on an existing lot. Phase in the fee and periodically adjust for economic/market conditions. Provide exemptions for: (1) smaller projects resulting in less than 500 net new square feet; (2) Accessory Dwelling Units; and (3) homes destroyed or lost to disaster. Estimated annual revenue: $1,200,000 of affordable housing funds. The fee for a prototypical larger-lot teardown/replacement in Boulder would be $38,000.

COMPARABLE FEES • •

Few municipalities impose fees on single-unit housing projects. Policies that do exist vary significantly in scope, applicability, exemptions, and fee structure. Comparable fees in other communities (for a larger-lot teardown in Boulder) would be: $16,000 in Evanston, IL; $20,000 in Portland, OR; $36,000 in Denver, CO; $56,000 in Los Angeles, CA (for “High Cost” market areas); and $181,000 in Aspen, CO.

TABLE OF CONTENTS

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CHAPTER I: EXECUTIVE SUMMARY ........................................................................................... 1 INTRODUCTION AND PURPOSE ...................................................................................................................... 1 PROTOTYPICAL SCENARIOS .............................................................................................................................. 2 KEY FINDINGS AND CONCLUSIONS ............................................................................................................. 3 AFFORDABLE HOUSING FEE EXAMPLES .................................................................................................... 9 POLICY RECOMMENDATIONS .......................................................................................................................... 9 ANNUAL FEE REVENUE ESTIMATE ............................................................................................................. 10 CHAPTER II: WORK COMPLETED, APPROACH, AND OVERVIEW OF HOUSING MARKET CONDITIONS IN BOULDER ......................................................................................... 11 WORK COMPLETED.............................................................................................................................................. 11 APPROACH ................................................................................................................................................................ 11 RECENT TRENDS RELATED TO NEW SINGLE-FAMILY HOME CONSTRUCTION AND SIGNIFICANT ADDITIONS ................................................................................................................................. 18 CHARACTERISTICS OF SINGLE-FAMILY HOME DEMOLITIONS AND REPLACEMENTS .... 20 CHAPTER III: EMPLOYMENT IMPACTS OF HOUSEHOLDS THAT OCCUPY EXPANDED SINGLE-FAMILY HOMES ....................................................................... 24 INTRODUCTION ..................................................................................................................................................... 24 PROPERTY VALUE CHANGES RESULTING FROM EXPANDED HOMES DUE TO REPLACEMENTS OR ADDITIONS ................................................................................................................... 24 HOUSEHOLD INCOME CHANGES RESULTING FROM EXPANDED HOMES ............................. 26 ESTIMATED EMPLOYMENT IMPACTS BY INDUSTRY SECTOR ........................................................ 28 CHAPTER IV: AFFORDABLE HOUSING DEMAND NEXUS CALCULATIONS .................... 29 INTRODUCTION ..................................................................................................................................................... 29 WORKFORCE HOUSEHOLD FORMATION BY INCOME LEVEL ....................................................... 29 AFFORDABLE HOUSING FEASIBILITY GAPS ............................................................................................ 32 ESTIMATES OF THE NEED FOR AFFORDABLE HOUSING UNITS .................................................. 34 MAXIMUM NEXUS FEES...................................................................................................................................... 36 CHAPTER V: NEXUS FEE FEASIBILITY ANALYSIS ................................................................. 38 INTRODUCTION ..................................................................................................................................................... 38 SUMMARY .................................................................................................................................................................. 39 DEVELOPMENT COSTS ....................................................................................................................................... 40 DEVELOPMENT FEASIBILITY ANALYSIS RESULTS ............................................................................... 42 APPENDIX A: AFFORDABLE HOUSING FEE EXAMPLES ...................................................... 43 APPENDIX B: ANNUAL FEE REVENUE ESTIMATE ............................................................... 46 APPENDIX C: SUPPORTING DATA AND TABLES ................................................................... 47

LIST OF TABLES TABLE I-1: TABLE I-2: TABLE I-3: TABLE I-4: TABLE II-1: TABLE II-2: TABLE II-3: TABLE II-4: TABLE II-5: TABLE II-6: TABLE III-1: TABLE III-2: TABLE III-3: TABLE III-4: TABLE IV-1: TABLE IV-2: TABLE IV-3: TABLE IV-4: TABLE IV-5: TABLE V-1: TABLE V-2: TABLE V-3: TABLE A-1:

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MARGINAL CHANGES IN HOME VALUE, HOUSEHOLD INCOME, AND LOCAL EMPLOYMENT .................................................................................. 4 AFFORDABLE HOUSING NEEDS GENERATED PER PROJECT FROM ADDED EMPLOYMENT .................................................................... 6 MAXIMUM AFFORDABLE HOUSING NEXUS FEE CALCULATIONS ........................ 7 FEE COMPARISON FOR SINGLE-FAMILY HOME REPLACEMENT AND EXPANSION SCENARIOS ............................................................... 9 PROTOTYPICAL HOUSING DEMOLITION, REPLACEMENT, AND ADDITION SCENARIOS ................................................................................................... 12 AFFORDABLE HOUSING PRICES AS PERCENTAGE OF AREA MEDIAN INCOME ..................................................................................................... 13 DETACHED SINGLE-FAMILY HOUSING SALES IN CITY OF BOULDER BY SIZE OF HOME ............................................................................... 15 DETACHED SINGLE-FAMILY HOUSING SALES IN CITY OF BOULDER BY YEAR HOME BUILT...................................................................... 17 CHARACTERISTICS OF RECENT SINGLE-FAMILY HOME REPLACEMENTS ..... 21 CHARACTERISTICS OF PROPOSED OR APPROVED SINGLE-FAMILY HOME DEMOLITIONS ............................................................................. 22 PROTOTYPICAL SINGLE-FAMILY HOME EXPANSIONS AND ESTIMATED VALUE CHANGES ................................................................................... 25 ORIGINATED HOME PURCHASE LOAN STATISTICS FOR SINGLE-FAMILY DWELLINGS IN CITY OF BOULDER CENSUS TRACTS ............. 26 HOUSEHOLD INCOME CHANGES RESULTING FROM PROTOTYPICAL EXPANDED HOMES.................................................................... 27 LOCAL EMPLOYMENT1 IMPACTS RESULTING FROM PROTOTYPICAL EXPANDED HOME ...................................................................... 28 NEW WORKFORCE HOUSEHOLDS BY INCOME LEVEL ............................................. 31 ESTIMATED FEASIBILITY GAP FOR AFFORDABLE RENTAL HOUSING AT 50 TO 60 PERCENT OF AREA MEDIAN INCOME (AMI).................. 32 ESTIMATED FEASIBILITY GAP FOR AFFORDABLE OWNERSHIP HOUSING (CONDOS/TOWNHOMES) AT 80 TO 120 PERCENT OF AREA MEDIAN INCOME ................................................... 33 NEW AFFORDABLE HOUSING UNITS BY INCOME LEVEL ....................................... 34 MAXIMUM AFFORDABLE NEXUS FEE CALCULATIONS ............................................ 36 IMPACTS OF DEMOLITION FEE ON SINGLE-FAMILY UNIT PROJECT FEASIBILITY .................................................................................................... 39 SINGLE-FAMILY HOME REPLACEMENT AND EXPANSION PROJECT COST ESTIMATES .......................................................................... 41 SINGLE-FAMILY HOME REPLACEMENT AND EXPANSION PROJECT FEASIBILITY RESULTS ............................................................................................ 42 EXAMPLE COMMUNITIES WITH AFFORDABLE HOUSING TAXES OR FEES ON SINGLE-UNIT RESIDENTIAL PROJECTS ................................. 45

TABLE B-1: TABLE C-1: TABLE C-2:

POTENTIAL ANNUAL AFFORDABLE HOUSING FUNDING FROM DEMOLITION FEE REVENUES FROM SINGLE-FAMILY HOME REPLACEMENTS OR EXPANSIONS ....................................................................................... 46 HOUSEHOLD SECTOR EMPLOYMENT MULTIPLIERS FOR BOULDER COUNTY ........................................................................................................... 47 HOUSEHOLD INCOME DISTRIBUTION OF WORKERS IN THE BOULDER LABOR SHED BY INDUSTRY OF EMPLOYMENT ..................................... 48

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

CHAPTER I EXECUTIVE SUMMARY INTRODUCTION AND PURPOSE The city of Boulder commissioned Gruen Gruen + Associates (GG+A) to identify and estimate the nexus between the demolition and replacement of smaller existing single-family homes with new, larger, more expensive homes and/or significant additions to the existing homes and the resulting need for affordable housing. Affordable housing needs are defined to include: (i)

Rental units affordable to Low- or Moderate-Income households with incomes below 80 percent of the Area Median Income (AMI); and

(ii)

For-sale ownership units affordable to Middle-Income households with incomes ranging from 80 percent to 120 percent of AMI.

Two types of nexus or causal connections may exist between the demolition and replacement of smaller housing units and/or significant additions to existing housing units and the demand for affordable housing in Boulder: one is a “demand” nexus, and the other is a “supply” nexus. In the context of the nexus study summarized in this report, “demand nexus” means the extent to which expanded single-family homes create the demand for additional affordable housing. “Supply nexus” means the extent to which the demolition of or expansion to existing single-family units result in a direct loss of previously affordable housing units. The Demand Nexus The demand nexus works through a chain of economic events that leads to increased demand for affordable housing in Boulder. This chain of linkages begins with the addition of higher-income households that purchase and occupy newer, larger single-family homes either via demolitions and replacements or significant additions to existing single-family structures. As higher-income households spend a portion of their incomes on goods and services available within Boulder, these expenditures stimulate demand for additional jobs; and as more local employment opportunities become available, an increase in demand for affordable workforce housing occurs. GG+A estimates that each prototypical single-family home replacement or expansion project will generate approximately 0.75 to 2.25 additional jobs within Boulder. About one-half of jobs created are estimated to be held by workers residing in households with annual incomes below 120 percent of the AMI. Such households will be challenged to afford market-rate housing in Boulder.

GRUEN GRUEN + ASSOCIATES

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

The Supply Nexus The construction of new replacement homes on existing single-family lots, as well as the expansion of smaller homes, adds larger and more expensive housing to the market. However, this process also removes comparatively more affordable homes from the housing stock. As a result, a supply nexus emerges, where housing opportunities for lower income households are reduced. The removal of existing single-family units priced below that of a new, larger home, however, does not equate to a direct loss of affordable housing in most instances. PROTOTYPICAL SCENARIOS Estimates of the demand nexus are modeled for three prototypical situations that result in expanded single-family homes: •

Scenarios A and B described in this study involve demolishing existing single-family homes and replacing them with larger structures. Scenario A reflects an 8,000-square-foot lot where a 1,200-square-foot home is replaced with a 2,800-square-foot home, increasing the floor-area ratio (F.A.R.) from 0.15 to 0.35. Scenario B, on a larger 20,000-square-foot lot, replaces a 2,000-square-foot home with a 4,500-square-foot home, increasing the F.A.R. from 0.10 to 0.23.

•

Scenario C focuses on a significant home addition rather than demolition. On a 10,000square-foot lot, a 1,600-square-foot home is expanded by 600 square feet to 2,200 square feet, with the F.A.R. increasing from 0.16 to 0.22.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

KEY FINDINGS AND CONCLUSIONS Overview of Single-Family Housing Prices in Boulder •

New or expanded single-family homes in Boulder command significantly higher prices than smaller, older, existing homes - not only because of their larger living spaces but also due to their newer construction.

•

Single-family homes originally built prior to 1980 dominate the resale market in Boulder. These older homes, averaging about 1,600 square feet of above-grade living area 1, sold for an average price of about $1,400,000 or $860 per square foot (Sept 2023-Aug 2024).

•

Larger homes in Boulder tend to be newer, with more recently built homes commanding a significant premium per square foot of living space. Detached single-family homes built since 2000, averaging nearly 3,100 square feet in size, sold for approximately $3,200,000 or $1,040 per square foot on average. Newer and larger homes sell on average for about a 20 percent premium to older homes.

Frequency of Single-Family Housing Demolitions, Replacements, and Significant Additions and Their Characteristics •

Certificates of Occupancy for 255 new detached single-family homes were issued from 2018 through November 2024, ranging from 33 to 45 units per year. About three-quarters of these new homes are estimated to have replaced smaller existing homes through teardowns. Singlefamily teardowns and replacements have been predominately concentrated in North Boulder and Central Boulder over the past five years.

•

Two relatively distinct categories of single-family teardown and replacement projects are differentiated in terms of lot size, home size, and home value: − On smaller single-family lots (less than 10,000 square feet), the average replacement home size is nearly 2,700 square feet of living area with an average of 3.9 bedrooms. The average 2024 market value is over $2,500,000 with a per square foot living area value of $962. The typical floor-area ratio is about 0.35. − For larger lots (greater than 10,000 square feet), the average replacement home size is nearly 3,900 square feet of living area with an average of 4.2 bedrooms. The average 2024 market value is approximately $4,300,000 or $1,086 per square foot of living area. The typical floor-area ratio is about 0.18.

1 Synonymous with “Gross Living Area” in residential appraisal standards. Livable, above ground square footage is the

most valuable part of a single-family home. Throughout this report, all references to home sizes refer to finished abovegrade living area (i.e., excluding garages, basements, covered patios).

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

•

The characteristics of existing homes which have been approved or proposed for demolition show a much lower average home size, market value, and floor-area ratio than recent singlefamily home replacements. − For existing homes on lots smaller than 10,000 square feet of land, the average existing home size is about 1,200 square feet of living area with an average 2024 market value of $1,100,000 or $966 per square foot of living area. The floor-area ratio is 0.16 (versus 0.35 for newer home replacements). − For existing homes on lots larger than 10,000 square feet of land, the average home size is nearly 2,600 square feet of living area with an average 2024 market value of approximately $2,400,000 or $940 per square foot of living area. The floor-area ratio is 0.10 (versus 0.16 for newer replacement homes).

•

An estimated 150 additions of more than 500 square feet, and with a permit valuation exceeding $250,000, were made to existing homes from 2018 through November 2024. These additions are usually new second stories, main-floor enlargements, garage conversions into finished living spaces, and sometimes a combination of all three.

Employment Impacts of Households that Occupy Expanded Single-Family Homes •

Marginal increases in household earnings (income) will tend to result in an increase in personal consumption and spending within a local economy. Additional dollars circulating throughout a local economy generate additional employment (jobs) as sales to both basic and “non-basic” businesses increase.

•

For each of the prototypical single-family home expansion scenarios, Table I-1 summarizes the estimated marginal changes in home value, household income, and local employment generated. TABLE I-1: Marginal Changes in Home Value, Household Income, and Local Employment

Estimated Increase in Typical Home Value/Price Difference in Required Annual Household Income Local Employment Impact (# Jobs Generated) 1

Scenario A: Demolition + Replacement

Scenario B: Demolition + Replacement

Scenario C: Significant Addition

$2,000,000 $360,000 1.28

$3,475,000 $640,000 2.27

$870,000 $200,000 0.71

Estimate of total new employment (part-time and full-time jobs) generated in Boulder from additional household income and associated spending. Source: Gruen Gruen + Associates 1

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

•

As described in detail in Chapter III, marginal increases in the expected sales prices or home values resulting from the prototypical replacement or expansion projects are estimated to range from a low of $870,000 (for a 600-square-foot home addition) to a high of $3,475,000 (for a larger-lot teardown and replacement with a new 4,500-square-foot home).

•

Home price-to-income ratios (ranging from 4.16 to 4.95, as suggested by mortgage lending statistics for Boulder) are used to estimate the annual household income required to purchase existing homes in comparison to the new or expanded homes. The difference in required annual income for each of the three scenarios ranges from $200,000 up to $640,000.

•

Based on RIMS II employment multipliers from the U.S. Bureau of Economic Analysis and the estimated net increases in household income associated with each scenario summarized above, the total number of jobs created in Boulder ranges from 0.71 jobs per household (for the home addition scenario) and up to 2.27 jobs per household for the larger sized home demolition and replacement scenario.

•

For every 50 single-family home demolitions and replacements or significant additions, which is about the average number of such projects completed in a year, the estimated per-project impacts indicate that an additional 50 to 75 jobs would be created in Boulder.

•

Jobs in finance, insurance, and real estate, education and healthcare, retail trade, and leisure and hospitality comprise about three quarters of the added jobs.

Affordable Housing Needs Generated by Additional Employment in Boulder •

Approximately 32 percent of all required workers are expected to live in a Low- or ModerateIncome household, based on the characteristics of labor force participants living within Boulder’s primary labor shed. An additional 23 percent of workers are expected to live in a Middle-Income household.

•

Workers in certain industries - such as retail trade, leisure and hospitality, other services, and education and healthcare - are more likely to belong to households with incomes below 80 percent of AMI.

•

Most workforce households include more than one wage earner. Estimates of household formation reflect an average of 1.37 to 1.88 workers per household, depending upon income level. Two-thirds of new workers are assumed to form or locate their households within Boulder, provided an assumption that housing is available and affordable. One-third are assumed to commute in for employment in Boulder, whether for lifestyle preferences or other economic reasons.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

•

Table I-2 summarizes the resulting estimates of new workforce households formed in Boulder and the number of affordable units required to house them. Workforce households with incomes above 120 percent of AMI are not assumed to generate any of the need. TABLE I-2: Affordable Housing Needs Generated Per Project from Added Employment

New Workforce Households in Boulder Affordable Rental Housing Need (# Units) 1 Affordable Ownership Housing Need (# Units) 2 Combined Affordable Housing Need (# Units) 1 2

Scenario A: Demolition + Replacement

Scenario B: Demolition + Replacement

Scenario C: Significant Addition

0.51 0.20 0.06 0.26

0.82 0.36 0.11 0.47

0.28 0.11 0.03 0.14

Related to Low- and Moderate-Income households (annual income less than 80% AMI). Related to Middle-Income households (annual income 80-120% AMI). Source: Gruen Gruen + Associates

•

For Scenario A, the smaller-lot home demolition and replacement scenario, an additional 0.51 new workforce households are estimated to result in Boulder with approximately 0.26 affordable housing units required to house households with incomes below 120 percent of AMI. In other words, for every four demolition and replacement projects with characteristics like Scenario A, about one additional affordable housing unit would be needed in Boulder.

•

For Scenario B, the larger-lot home demolition and replacement scenario, an additional 0.82 new workforce households are estimated to result in Boulder which generates a need for approximately 0.47 affordable housing units. Thus, for every two larger demolition and replacement projects, about one additional affordable unit would be needed.

•

For Scenario C, the addition to an existing home, an additional 0.28 new workforce households are estimated to result in Boulder, generating a need for approximately 0.14 affordable housing units. This suggests that about one additional affordable unit would be needed for every eight (8) significant home addition projects.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Affordable Housing Nexus Fee Calculations •

The average feasibility “gap” between a market-rate unit and affordable unit, weighted with a 20 percent allocation to units at 50 percent of AMI and 80 percent allocation to units at 60 percent of AMI, is estimated to be approximately $81,200 per affordable rental unit.

•

On average, the feasibility gap for an ownership unit affordable to 80 percent to 120 percent of AMI is estimated to be approximately $141,200 per unit.

•

Table I-3 summarizes the maximum nexus fee calculations which reflect the estimated affordable housing needs (Table I-2 previously) multiplied by the estimated per-unit feasibility gaps. TABLE I-3: Maximum Affordable Housing Nexus Fee Calculations

Affordable Housing Needed (# Units) Average Financial Gap Per-Unit Maximum Fee Per Expanded Home Maximum Fee per Square Foot of Added Living Area1

Scenario A

Scenario B

Scenario C

0.26 $94,900 $24,600 $15

0.47 $94,900 $43,800 $18

0.14 $94,900 $13,700 $23

For the Scenario A prototype net additional living area of 1,600 square feet is used to calculate a nexus fee per square foot. For the Scenario B prototype net additional living area of 2,500 square feet is used to calculate a nexus fee per square foot. For the Scenario C prototype net addition of approximately 600 square feet of living area is used to calculate a nexus fee per square foot. Source: Gruen Gruen + Associates

•

Under the smaller replacement Scenario A, for every smaller lot demolition of an existing smaller home and replacement with a larger home, the maximum nexus fee is estimated to be approximately $24,600. This equates to a maximum fee of about $15 per square foot of net additional living area.

•

Under the larger replacement Scenario B, for every larger lot demolition and home replacement, the maximum nexus fee is estimated to be approximately $43,800. This equates to a maximum fee of about $18 per square foot of net additional living area.

•

Under the home addition Scenario C, for every larger significant addition to an existing singlefamily home, the maximum nexus fee is estimated to be approximately $13,700. This equates to a maximum fee of about $23 per square foot of net additional living area.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Impact of Affordable Housing Nexus Fee on Residential Development Feasibility •

As described in Chapter V, the feasibility of developing each prototypical single-family home replacement or expansion scenario was evaluated with- and without- a nexus fee of $15 per square foot of additional living area.

•

Based on the estimates reviewed in this report, the net profit for Scenario A (demolition of a small home on a smaller lot and replacement with a larger unit) is projected to decrease by 8/10ths of one percent (80 basis points), from 14.9 percent ($457,900 per unit) to 14.1 percent ($433,900 per unit), a decline of $24,000.

•

For Scenario B (demolition of a home on a larger lot and replacement with a larger unit), net profit is expected to decline by 7/10ths of one percent (70 basis points), from 13.2 percent ($683,300 per unit) to 12.5 percent ($645,800 per unit), a decrease of $37,500.

•

In Scenario C (significant home addition), net profit is estimated to decrease by 4/10ths of one percent (40 basis points), from 9.8 percent ($227,000) to 9.4 percent ($218,000), a reduction of $9,000.

•

With the demolition fee, considering current and typical development costs and obtainable sales prices for most neighborhoods, the scenarios analyzed are likely to remain financially feasible for most private builders to undertake.

•

For perspective, consider that the average profit on single-family home building (nationwide) was estimated to be about $73,000 per home last year, representing an average profit margin equal to 11 percent of sales prices (source: National Association of Home Builders, 2024 cost survey).

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

AFFORDABLE HOUSING FEE EXAMPLES •

A limited number of municipalities impose fees or exactions on single-unit housing projects. Policies vary significantly in scope, applicability, exemptions, and fee structure. There is no standard analog to what is recommended for Boulder.

•

The matrix included in Appendix A provides examples of affordable housing-related taxes and fees that apply to individual single-family home projects in other communities.

POLICY RECOMMENDATIONS 1. Based on the results of this nexus analysis, if Boulder decides to impose a fee, GG+A recommends establishing one per-square-foot fee for all housing demolition and replacements and significant additions. The fee should be no more than $15 per square foot of added space. This fee would be applied to the net increase in above-ground livable space resulting from single-family home demolitions and replacements, or significant expansions/additions. For example: a. A new home replacing a demolished structure with 2,000 net additional square feet (relative to the prior home) would incur a maximum fee of $30,000. b. A second-story addition of 1,000 square feet would be subject to a maximum fee of $15,000. Consideration should be given to phasing in the fee over time. In addition, to provide for potential increases in development and financing costs and lower obtainable sales prices, it would be appropriate to set a demolition fee at less than the maximum amounts indicated from the nexus analysis. Table I-4 provides a comparative analysis of the recommended fee to single-family projects in other communities. TABLE I-4: Fee Comparison for Single-Family Home Replacement and Expansion Scenarios

Boulder (Recommended) Denver, CO (Linkage Fee) Aspen, CO (Mitigation In-Lieu Fee) Evanston, IL (Demolition Tax) Los Angeles, CA (Linkage Fee) 1 Portland, OR (Excise Tax) Santa Cruz, CA (Impact Fee) 1

Scenario A: Demolition + Replacement

Scenario B: Demolition + Replacement

Scenario C: Significant Addition

$24,000 ($15/sf) $22,400 $112,800 $16,380 $36,048 $11,200 $14,000

$37,500 ($15/sf) $36,000 $181,300 $16,380 $56,325 $20,250 $67,500

$9,000 ($15/sf) $17,600 $24,200 Not Applicable Not Applicable $4,600 $6,600

Fee estimates shown for “High” cost market areas such as Bel Air, Santa Monica, Brentwood, etc. Source: Gruen Gruen + Associates

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

2. Limit the fee to new construction or alteration permits that result in more than 500 square feet of “net new” above-ground living area. The size of a home is the most significant factor linking affordable housing needs in Boulder to modifications of the existing single-family housing stock. Smaller additions of less than 500 square feet are less likely to be associated with increases in the need for affordable housing due to increased demand for lower income workers. Another primary reason for exempting smaller changes in floor area is for administrative efficiency. 3. Moreover, to not discourage the development of another source of comparatively affordable housing, any nexus fee policy should exempt Accessory Dwelling Units. Also consider fee exemptions for the replacement of homes lost or destroyed due to disaster (wildfire, flood, etc.). 4. For clarity and consistency with the original intent of this study, we sometimes use the term “demolition fee” throughout this report. However, it may be more effective to avoid structuring the fee specifically around full or partial home demolitions. While demolitions do represent the most relevant single-family projects, this approach could introduce administrative complexities and encourage homeowners and builders to dispute definitions or calculations of “demolitions” (e.g., if original foundations or walls are retained). Instead, regardless of demolition permit requirements, the fee should function as a nexus-based exaction, applying to any single-family property where the new or expanded home exceeds the previous home’s size by more than 500 square feet. ANNUAL FEE REVENUE ESTIMATE •

As described in Appendix B, based on an analysis of the number of lots/housing units demolished and replaced with larger homes and significant home additions in a typical year in Boulder, the imposition of the recommended fee is projected to provide approximately $1,200,000 in annual funding for affordable housing.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

CHAPTER II WORK COMPLETED, APPROACH, AND OVERVIEW OF HOUSING MARKET CONDITIONS IN BOULDER WORK COMPLETED As described more fully below, the frequency, locations, and characteristics of single-family demolitions, their replacements, and major additions were identified. The type of housing unit replacements and additions potentially subject to a demolition fee are defined. An analysis of home sales, assessed values, and permit values was conducted to determine the difference in values between smaller, existing housing units and new housing units constructed to replace the smaller housing units or housing units expanded following purchases of the smaller housing units. The differences in household income between households in existing smaller homes and owners of larger replacement or expanded homes were estimated. The effects of additional income and associated local spending of households living in expanded single-family homes on Boulder’s employment base and workforce needs are estimated. The resulting number of new workforce households that could be formed in Boulder if sufficient affordable housing were available is estimated. Feasibility shortfall or “financing gaps” to supply the needed affordable workforce housing are estimated, based on the difference between affordable housing costs at the income limits and prevailing market prices in Boulder for existing housing units. The maximum supportable impact fee is calculated by multiplying the financing gap per-unit by the total affordable housing need for each income level. APPROACH The analytical approach and methodology to quantify the Demand Nexus is summarized below. STEP 1: Analyze Recent Trends in Single-Family Home Changes in Boulder City permitting data and Boulder County assessment records are used to identify the frequency and locations of single-family home demolitions, their replacements, and other major additions. Lot sizes, home features, and other key attributes of recently built or expanded single-family homes in the Boulder market are reviewed to develop reasonable assumptions about typical replacements and expansions. Current valuations and recent qualified sales transactions (from the Boulder County Assessor) are summarized to assess market values and sales prices before and after typical changes.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

STEP 2: Define Significant Single-Family Home Expansions Potentially Subject to Demolition Fee The Demand Nexus analysis focuses on (i) demolitions and replacements resulting in a net increase of at least 500 square feet of above ground living area and (ii) major home additions exceeding 500 square feet of above ground living area. Because new or significantly expanded and remodeled singlefamily homes in Boulder currently transact for prices exceeding $1,000 per square foot, and frequently much higher, this minimum threshold roughly equates to a marginal home value increase of about $500,000 or more. Nexus estimates are modeled for three “prototypical” situations that result in expanded single-family homes, including: TABLE II-1: Prototypical Housing Demolition, Replacement, and Addition Scenarios Scenario A: Demolition + Replacement

Scenario B: Demolition + Replacement

Scenario C: Significant Addition

Single-Family Lot Size

8,000 square feet

20,000 square feet

10,000 square feet

Previous Home Size

1,200 square feet

2,000 square feet

1,600 square feet

Previous Home F.A.R.*

0.15

0.10

0.16

Expanded Home Size

2,800 square feet

4,500 square feet

2,200 square feet

Expanded Home F.A.R.*

0.35

0.23

0.22

Net Increase in Home Size

1,600 square feet

2,500 square feet

600 square feet

*Floor-area-ratio expressed in above-ground living area to lot area. Sources: City of Boulder, Boulder County Assessor; Gruen Gruen + Associates.

STEP 3: Quantify Property Value and Household Income Changes Resulting from Expanded Homes To assess the difference in value between existing smaller (and typically older) homes and the housing units constructed in their place or expanded, we reviewed recent single-family home sales data, assessed values, and reported building permit project costs. The analysis focuses on identifying the marginal increase in value resulting from demolition and replacement of existing single-family units, or significant additions, that increase the size of the home by at least 500 square feet. The key factors most influencing the marginal increases in value usually include the size of the existing single-family lot and home. GG+A then uses recent mortgage lending data to quantify the marginal household income increase required to purchase significantly expanded single-family homes (relative to previous homes). STEP 4: Evaluate the Economic Effects of Higher-Income Expanded Home Buyers This step quantifies how additional local spending of households living in expanded single-family homes are likely to affect Boulder’s employment base and workforce needs. Using an economic inputoutput model (RIMS II multipliers from the U.S. Bureau of Economic Analysis), the analysis estimates the jobs created due to increased demand for goods and services in the local economy from higher-

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

income owners or larger expanded homes. Because workers employed in different industries often have very different wage and income levels, the employment impacts are identified by industry sector. STEP 5: Estimate the Resulting Affordable Housing Needs and Financing Gaps Based on the results of Step 4, the Demand Nexus then quantifies the resulting number of new workforce households that could be formed in Boulder if sufficient affordable housing were available. These estimates rely upon Public Use Microdata Samples (PUMS) from the 2023 American Community Survey for the geographic area corresponding to Boulder’s primary labor shed. A conservative adjustment is made for “in-commuting,” recognizing that even with sufficient affordable housing inventory, some new workers and their households will form or locate outside the city of Boulder because of lifestyle preferences or commuting efficiencies (among households with multiple workers). Next, the feasibility shortfall or “financing gaps” to supply the needed affordable workforce housing are estimated, based on the difference between affordable housing costs at the income limits specified below in Table II-2 and prevailing market prices in Boulder for existing housing units: TABLE II-2: Affordable Housing Prices as Percentage of Area Median Income Income Level Range

Average Income Level

Affordable Rental (Low/Moderate Income)

Below 80% AMI

50% - 60% AMI*

Affordable Ownership (Middle Income)

80% - 120% AMI

100% AMI

*Consistent with current Inclusionary Housing (IH) policies, the average affordable rent level is determined with 20% of units at 50% AMI and 80% of units at 60% of AMI. Source: Gruen Gruen + Associates

STEP 6: Calculate Maximum Impact Fee for Residential Demolitions/Significant Additions The final step in the Demand Nexus is to calculate the maximum supportable impact fee by multiplying the financing gap per-unit by the total affordable housing need for each income level. The maximum amounts are then expressed as a fee per square foot of expanded living area for each of the three prototypes. The methodological steps are summarized in Figure II-1.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder FIGURE II-1: Methodology Overview 1. Analyze Recent Trends in Single-Family Home Changes in Boulder Market •Patterns of Change: Identify frequency and locations of demolitions, replacements, and additions. •Lot and Home Characteristics: Document lot sizes, home features, and other key attributes. •Pricing Trends: Examine typical differences in sales prices between smaller/older and larger/newer expanded homes.

2. Define Prototypical and ‘Significant’ Single-Family Home Expansions •Demolitions and Replacements: Focus on cases with a net increase of 500+ square feet (often much larger). •Additions: Include major home additions exceeding 500 square feet.

3. Quantify Value and Household Income Changes Resulting from Expanded Homes • Key Factors: Consider lot size, home size, and age in pricing comparisons. • Buyer Profiles: Examine characteristics of buyers for higher- and lower-priced homes. • Income Requirements: Estimate the marginal household income increase required to purchase expanded homes.

4. Evaluate Economic Effects of Higher-Income Expanded Home Buyers •Local Spending Impacts: Use economic input-output model (RIMS II multipliers) to estimate local job creation from increased demand for goods and services. •Workforce Implications: Translate additional jobs into new workforce households, categorized by income levels.

5. Estimate Resulting Affordable Housing Needs and Financing Gaps •Workforce Housing Demand: Quantify the number of new workforce households unable to afford market-rate housing in Boulder. •Affordability Gaps: Measure the per-unit gap between affordable rents or purchase prices and prevailing market rates. 6. Calculate Maximum Supportable Fee •Nexus Based Fee: Multiply financing gap per-unit by total housing need by income level. •Per Square Foot: Convert maximum amounts to a fee per-square-foot of expanded living area.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

SINGLE-FAMILY HOUSING PRICES IN CITY OF BOULDER Table II-3 summarizes recent detached single-family housing sales prices and characteristics in the city of Boulder. Statistics are drawn from the Boulder County Assessor (for qualified sales) and are presented by size of home. TABLE II-3: Detached Single-Family Housing Sales in City of Boulder by Size of Home1 -------------- Home Size (Quartiles)2 -------------< 1,180 Square Feet

1,180 – 1,669 Square Feet

1,670 – 2,350 Square Feet

> 2,350 Square Feet

Total

149

150

599

$958,750

$1,199,770

$1,636,257

$2,547,999

$1,586,741

Number of Sales Transactions Average Sales Price Average Price Per Square Foot

$951

$845

$816

$821

$842

Minimum Sales Price

$180,400

$233,400

$575,000

$1,050,000

$180,400

Maximum Sales Price

$2,500,000

$2,868,000

$4,650,000

$8,700,000

Average Home Size2

1,009

1,420

2,005

3,103

1,886

Average Number of Bedrooms

3.0

3.4

3.7

4.4

3.7

Average Year Built

1956

1961

1966

1984

1967

1 2

Qualified sales from September 2023 through August 2024. Above-grade residential living area in finished square feet. Sources: Boulder County Assessor; Gruen Gruen + Associates.

The total number of sales of 599 over the past year had an average sales price of over $1,586,000 with an average per square foot sales price of $842. The average home size was nearly 1,900 square feet with an average of 3.75 bedrooms. By quartile, the average sales price ranged from $958,750 to $2,547,999 with an average home size ranging from 1,009 to 3,103 square feet. Figure II-2 includes a plot chart of single-family homes sold in the past year with a linear trend line indicating the typical relationship between home size and sales price.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder FIGURE II-2: Recent Single-Family Sales by Home Size and Sales Price Price x Home Size

Linear (Price x Home Size)

$7,000,000 $6,500,000 $6,000,000 $5,500,000 $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 0 sf

500 sf

1,000 sf

1,500 sf

2,000 sf

2,500 sf

3,000 sf

3,500 sf

4,000 sf

Source: GG+A analysis of qualified sales (Sept 2023 - Aug 2024)

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4,500 sf

5,000 sf

5,500 sf

6,000 sf

Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

A strong correlation between single-family home size and expected sale prices exists in the Boulder market. Differences in home size alone, however, do not fully capture the value differential between smaller existing homes and larger replacement homes. Many of the largest single-family homes in Boulder also tend to be newer, with more recently built homes commanding a significant premium per square foot of above ground living space. Table II-4 summarizes the same detached single-family housing sales (September 2023 -August 2024) in Boulder but categorized by the age of the home, according to its original year of construction. TABLE II-4: Detached Single-Family Housing Sales in City of Boulder by Year Home Built1 Built pre-1960 Number of Sales Transactions

Built 1960-1979

Built 1980-1999

Built Since 2000

189

234

117

Average Sales Price

$1,452,913

$1,329,224

$1,508,117

$3,192,693

Average Home Size 2

1,595

1,636

2,260

3,064

Average Number of Bedrooms

3.3

3.6

3.8

4.6

Average Price Per Square Foot

$911

$812

$667

$1,042

1 2

Qualified sales from September 2023 through August 2024. Above grade residential living area (in finished square feet). Sources: Boulder County Assessor; Gruen Gruen + Associates.

Single-family homes originally built prior to 1980 dominate the resale market in Boulder, making up approximately 71 percent of qualified sales transactions in the prior 12 months. These older homes sold for an average price of about $1,400,000 or $860 per square foot. In contrast, detached single-family homes built since 2000, averaging nearly 3,100 square feet, sold for approximately $3,200,000 or $1,040 per square foot on average. This reflects a 21 percent premium, on a per square foot basis, compared to older and smaller homes built prior to 1980. In other words, recent sales confirm that new or expanded single-family homes in Boulder are likely to command significantly higher prices not only because of their larger living spaces but also due to their newer construction.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

RECENT TRENDS RELATED TO NEW SINGLE-FAMILY HOME CONSTRUCTION AND SIGNIFICANT ADDITIONS From 2018 through November 2024, the city issued Certificates of Occupancy for 255 new detached single-family homes. Annual completions of new detached single-family homes ranged from 33 to 45 units, excluding the 2020 Covid 19 pandemic shutdown year. Most of these new homes do not represent net additions to the single-family housing inventory as they often replace smaller existing homes through teardowns. For purposes of this nexus analysis, significant single-family home additions are defined as projects with a recorded construction cost exceeding $250,000 and an above-grade living area expansion of more than 500 square feet. Based on this definition, GG+A’s review of permitting records suggests that approximately 150 such additions received Letters of Completion during the 2018-2024 period. These significant additions are usually new second floors above an existing home footprint (“pop tops”), main-floor enlargements, garage conversions into finished living spaces, and sometimes a combination of all three. FIGURE II-3: New Single-Family Homes and Significant Additions Completed in Boulder 80

New Construction Homes

Significant Additions*

60 50

30 24 18

2021

2022

30 20

41 *Project cost > $250,000 and net addition > 500 square feet.

0 2018

2019

2020

2023

2024

Source: GG+A analysis of City of Boulder permitting data

The permit data indicates that approximately 0.3 to 0.4 percent of Boulder’s detached single-family housing stock has been replaced or significantly expanded each year. 2 This housing replacement and expansion activity is predominantly concentrated in Central and North Boulder.

2 According to 2023 American Community Survey estimates, the city of Boulder contains about 17,500

detached single-family housing units: City of Boulder - B25024 - Units in Structure.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder MAP II-1: New Single-Family Homes and Significant Additions Completed (2018-2024)

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Central Boulder comprised 40 percent of single-family construction activity and 38 percent of significant home additions from 2018 through November 2024. North Boulder comprised 27 percent of new construction activity and 11 percent of significant additions from 2018 through November 2024. South Boulder comprised 10 percent of new construction activity and 31 percent of significant additions from 2018 through November 2024. University Hill comprised 11 percent of new construction activity and 13 percent of significant additions. CHARACTERISTICS OF SINGLE-FAMILY HOME DEMOLITIONS AND REPLACEMENTS Since 2018, Affordable Housing Plan (AHP) review cases and waivers for single-family homes have been tracked alongside demolition permits to quantify the number and location of single-family home teardowns and replacements. According to data provided by city staff, 166 cases have been processed during this period, with an additional 33 cases currently pending (in review or awaiting approval) as of November 2024. On average, 37 new detached single-family homes have been completed annually since 2018. The volume of AHP review cases and associated demolition permits—both completed and under review— has averaged approximately 29 homes per year. This suggests that single-family teardowns and replacements probably account for about three-quarters of all new single-family construction permitted in Boulder. Other single-family home inventory has been added through infill lots or the redevelopment of non-residential sites, although this is a much smaller source of new home construction.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Table II-5 summarizes the physical characteristics of the new homes resulting from single-family teardowns. This summary includes AHP review cases where existing single-family homes have been demolished and the replacement homes have been completed or substantially completed, according to county assessment records. TABLE II-5: Characteristics of Recent Single-Family Home Replacements Average

Median

Lot Size in Square Feet of Land Area

7,630

7,500

Above-Grade Residential Living Area

2,689

2,817

Floor-Area-Ratio1

0.35

0.38

Lots < 10,000 Square Feet:

Number of Bedrooms

3.9

4.0

2024 Market Value2

$2,544,585

$2,461,900

$962

$879

Lot Size in Square Feet of Land Area

21,996

17,416

Above-Grade Residential Living Area

3,862

3,621

Floor-Area-Ratio1

0.18

0.21

2024 Market Value Per Square Foot2 Lots > 10,000 Square Feet:

Number of Bedrooms

4.2

4.0

2024 Market Value2

$4,321,900

$3,672,100

$1,086

$994

2024 Market Value Per Square Foot2

Ratio of above-grade finished living area to land area. Boulder County Assessor valuation for 2024 tax year. Excludes some homes recorded as built in 2023-2024 for which value not yet reassessed. Assessor values typically lag effective prices in the market. 1 2

Sources: Boulder County Assessor; City of Boulder; Gruen Gruen + Associates.

About one-half of all teardowns and replacements are on existing single-family lots smaller or larger than 10,000 square feet of land. Therefore, two relatively distinct categories of single-family teardowns are differentiated in terms of lot size, home size, and home value. For newer homes on lots smaller than 10,000 square feet, the average home size is nearly 2,700 square feet of living area with an average of 3.9 bedrooms. The average 2024 market value is over $2,500,000 with a per square foot living area value of $962. The floor-area ratio is 0.35. For newer homes on lots larger than 10,000 square feet of land, the average home size is nearly 3,900 square feet of living area with an average of 4.2 bedrooms. The average 2024 market value is approximately $4,300,000 with a per square foot of living area value of $1,086. The floor-area ratio is 0.18.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Characteristics of Single-Family Homes Planned for Demolition Table II-6 summarizes characteristics for 33 existing single-family homes that have been proposed or approved for demolition and replacement. These include AFH review cases which are still “In Review” and other homes where projects have received approvals in 2023 or 2024, but demolition and replacement of the homes has not been completed. TABLE II-6: Characteristics of Proposed or Approved Single-Family Home Demolitions Average

Median

Lots < 10,000 Square Feet: Lot Size in Square Feet of Land Area

7,584

7,336

Above-Grade Residential Living Area

1,176

1,063

Floor-Area-Ratio1

0.16

0.14

Number of Bedrooms

2.9

3.0

Year Built

1955

1959

$1,136,414

$1,080,150

$966

$1,016

Lot Size in Square Feet of Land Area

26,183

21,882

Above-Grade Residential Living Area

2,577

2,191

Floor-Area-Ratio1

0.10

2024 Market Value2 2024 Market Value Per Square Foot2 Lots > 10,000 Square Feet:

Number of Bedrooms

3.8

4.0

Year Built

1954

1960

$2,428,740

$1,671,500

$942

$763

2024 Market Value2 2024 Market Value Per Square Foot2 1 2

Ratio of above-grade finished living area to land area. Boulder County Assessor valuation for 2024 tax year. Sources: Boulder County Assessor; City of Boulder; Gruen Gruen + Associates.

The characteristics of existing homes which have been approved or proposed for demolition show a much lower average home size, market value, and floor-area ratio than the characteristics of recent single-family home replacements. For existing homes on lots smaller than 10,000 square feet of land, the average home size is nearly 1,200 square feet of living area with an average of 2.9 bedrooms (versus an average home size of 2,700 square feet of living area for newer replacement homes). The average 2024 market value is $1,100,000 with a per square foot living area value of $966. The floor-area ratio is 0.16 (versus 0.35 for newer home replacements). For existing homes on lots larger than 10,000 square feet of land, the average home size is nearly 2,600 square feet of living area with an average of 3.8 bedrooms (versus 3,900 square feet of living area for GRUEN GRUEN + ASSOCIATES

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

newer replacement homes). The average 2024 market value is approximately $2,400,000 with a per square foot of living area value of $942. The floor-area ratio is 0.10 (versus 0.16 for newer replacement homes).

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

CHAPTER III EMPLOYMENT IMPACTS OF HOUSEHOLDS THAT OCCUPY EXPANDED SINGLE-FAMILY HOMES INTRODUCTION Marginal increases in household earnings (income) will tend to result in an increase in personal consumption and spending within a local economy on everything from purchases of retail goods to healthcare services and dining and entertainment. In turn, the effect of the additional dollars circulating throughout a local economy generate additional employment (jobs) as sales to both basic and “non-basic” businesses increase 3. To a much smaller extent, businesses that export most of their products or services (output) out of Boulder will also benefit from the increase in marginal incomes of residents which purchase larger replacement or expanded homes. To estimate the effect of increased household income on employment generation from the replacement of or addition to smaller homes with larger homes, this study uses RIMS II multipliers from the Bureau of Economic Analysis to estimate the number of jobs from an economic “event”. For purposes of this analysis, the economic “event” is the increase in household income associated with an increase in market value by occupants of new or significantly expanded homes in Boulder. RIMS II final demand employment multipliers are used to calculate the number of jobs by industry sector based on the increase in household income associated with each of the three prototypical expanded home scenarios described in the next section. PROPERTY VALUE CHANGES RESULTING FROM EXPANDED HOMES DUE TO REPLACEMENTS OR ADDITIONS Table III-1 summarizes three “prototypical” scenarios of expanded single-family homes. The scenarios are focused on: (i)

demolitions and replacements resulting in a net increase of at least 500 square feet of above ground living area; and

(ii)

major home additions exceeding 500 square feet of above ground living area.

Because new or significantly expanded and remodeled single-family homes in Boulder currently transact for prices exceeding $1,000 per square foot, and frequently much higher prices, this minimum threshold roughly equates to a marginal home value increase of about $500,000 or more. The Basic industries consist of businesses that sell primarily to external customers. Non-basic industries consist of primarily small businesses that sell to local customers, including basic and non-basic businesses. Examples of basic businesses include big manufacturing and mining companies, while non-basic businesses include restaurants, retailers, healthcare, personal service providers, local financial services, and so forth. 3

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

scenarios were developed based on the characteristics of recent single-family home replacements and proposed or approved single-family home demolitions described in Tables II-5 and II-6. TABLE III-1: Prototypical Single-Family Home Expansions and Estimated Value Changes Previous Home

Expanded Home

Net Increase

Scenario A: Smaller Lot Demolition and Replacement Single-Family Lot Size in Square Feet

8,000

---

Home Size in Square Feet1

1,200

2,800

+1,600

Floor-Area-Ratio

0.150

0.350

+0.20

Typical Value Per Square Foot

$900

$1,100

+$200

$1,080,000

$3,080,000

+$2,000,000

Single-Family Lot Size in Square Feet

20,000

---

Home Size in Square Feet

2,000

4,500

+2,500

Floor-Area-Ratio

0.100

0.225

+0.125

Typical Value Per Square Foot

$850

$1,150

+$300

$1,700,000

$5,175,000

+$3,475,000

Single-Family Lot Size in Square Feet

10,000

---

Home Size in Square Feet1

1,600

2,200

+600

Floor-Area-Ratio

0.160

0.220

+0.06

Expected Sales Price Scenario B: Larger Lot Demolition and Replacement 1

Expected Sales Price Scenario C: Significant Home Addition and Remodel

Typical Value Per Square Foot Expected Sales Price 1

$900

$1,050

+$150

$1,440,000

$2,310,000

+$870,000

Above-grade finished living area. Source: Gruen Gruen + Associates

Scenario A shows a change in characteristics of a smaller lot (less than 10,000 square feet of land) home demolition and replacement. Lot size is assumed to be 8,000 square feet of land with the home size increasing from 1,200 to 2,800 square feet of living area, an increase of 1,600 square feet. The floor-area ratio is assumed to increase by 0.20, from 0.15 to 0.35. The home value is assumed to increase by $200 per square foot, from $900 to $1,100 per square foot. Similarly, the total value is assumed to increase by $2,000,000, from $1,080,000 to $3,080,000. Scenario B shows a change in characteristics of a larger lot (greater than 10,000 square feet of land) home demolition and replacement. Lot size is assumed to be 20,000 square feet of land with the home size increasing from 2,000 to 4,500 square feet of living area, an increase of 2,500 square feet. The floor-area ratio is assumed to increase by 0.125, from 0.10 to 0.225. The home value is assumed to increase by $300 per square foot, from $850 to $1,150 per square foot. Similarly, the total value is assumed to increase by nearly $3,500,000, from $1,700,000 to $5,175,000.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Scenario C shows a change in characteristics of a 10,000 square foot lot home with significant expansion and remodel. The home size is assumed to increase by 600 square feet, from 1,600 to 2,200 square feet of living area. The floor-area ratio is assumed to increase by 0.06, from 0.16 to 0.22. The home value is assumed to increase by $150 per square foot, from $900 to $1,050 per square foot. Similarly, the total value is assumed to increase by $870,000 from $1,440,000 to $2,310,000. HOUSEHOLD INCOME CHANGES RESULTING FROM EXPANDED HOMES Table III-2 presents Home Mortgage Disclosure Act data for 2023 single-family home purchase loan originations in City of Boulder census tracts. This data establishes the relationship between (a) home value and (b) household income. The relationship is not linear, as higher priced homes tend to have larger downpayments, so the data is grouped into priced brackets. TABLE III-2: Originated Home Purchase Loan Statistics1 for Single-Family Dwellings in City of Boulder Census Tracts

Property Value

Average Applicant Income2

Average Property Value

Property Value / Income Ratio

Average Mortgage Loan Amount

Average Loan-toValue

Less than $1,000,000

$190,208

$627,108

3.30

$453,291

72%

$1,000,000 - $1,499,999

$292,874

$1,218,208

4.16

$764,371

63%

$1,500,000 - $1,999,999

$401,087

$1,679,058

4.19

$1,025,290

61%

$2,000,000 - $2,499,999

$531,892

$2,236,081

4.20

$1,505,811

67%

$2,500,000 and Above

$824,000

$4,077,115

4.95

$2,268,077

56%

Total

$304,690

$1,234,147

4.05

$785,988

64%

Includes 2023 home purchase loans originated for a primary residence. Excludes about 15% of all home purchase loans which related to a “second residence” or “investment property.” 2 Annual gross (pre-tax) income for mortgage underwriting purposes. 1

Sources: Federal Financial Institutions Examination Council, Home Mortgage Disclosure Act (HMDA) Data; Gruen Gruen + Associates.

The average loan to value ratio for homes valued at $1,499,999 or less ranges from 63 to 72 percent. The property value to income ratio (i.e., average property value divided by average applicant income) ranges from 3.3 to about 4.2. For homes valued between $1,500,000 and $2,499,999, the average loan to value ratio ranges from 61 to 67 percent. The property value to income ratio rises to about 4.2. For homes valued at $2,500,000 or higher, the average loan to value ratio falls to 56 percent and the average property value to income ratio rises to 4.95. Table III-3 shows the net increase in household income resulting from the prototypical expanded homes. The price to income ratios shown above in Table III-2 are used to estimate the annual household income of the expected sales price of the previous home and the expanded home in each of the three scenarios.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder TABLE III-3: Household Income Changes Resulting from Prototypical Expanded Homes Previous Home

Expanded Home

Expected Sales Price

$1,080,000

$3,080,000

Price-to-Income Ratio

4.16

4.95

$260,000

$620,000

Expected Sales Price

$1,700,000

$5,175,000

Price-to-Income Ratio

4.19

4.95

$410,000

$1,050,000

$1,440,000

$2,310,000

4.16

4.20

$350,000

$550,000

Net Increase

Scenario A: Smaller Lot Demolition + Replacement

Annual Household Income

$360,000

Scenario B: Larger Lot Demolition + Replacement

Annual Household Income

$640,000

Scenario C: Significant Home Addition Expected Sales Price Price-to-Income Ratio Annual Household Income 1

$200,000

Annual income rounded to nearest $10,000. Source: Gruen Gruen + Associates

Based on the estimated increase in the price-to-income ratio for the households purchasing expanded homes to 4.95 from 4.16 for the prototypical smaller lot “Scenario A”, the average household income is estimated to increase from $260,000 to $620,000 for a net increase of $360,000. Given the estimated increase in the price-to-income ratio of 4.19 to 4.95 for the prototypical larger lot demolition and replacement “Scenario B”, the average household income is estimated to increase by $640,000 (from $410,000 to $1,050,000). Based on the estimated smaller increase in the price-to-income ratio for the households purchasing expanded homes to 4.20 from 4.16 for the prototypical significant home addition “Scenario C”, the average household income is estimated to increase from $350,000 to $550,000 for a net increase of $200,000.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

ESTIMATED EMPLOYMENT IMPACTS BY INDUSTRY SECTOR Table III-4 summarizes the employment impacts by industry sector in Boulder for each of the three scenarios. The jobs generated by industry sector are derived from the estimated increases in household income shown above in Table III-3. The RIMS II final demand employment multipliers for Boulder County estimate the number of jobs created with each $1,000,000 of earnings (i.e., change in household income). Table C-1 in Appendix C includes the household sector employment multipliers for Boulder County, expressed in terms of jobs (employment) created for each $1,000,000 of household earnings. The estimates assume that 75 percent of the countywide jobs created will occur locally in the city of Boulder. 4 TABLE III-4: Local Employment1 Impacts Resulting from Prototypical Expanded Home Industry Sector

Scenario A # Jobs

Scenario B # Jobs

Scenario C # Jobs

Construction

0.003

0.005

0.002

Manufacturing

0.026

0.046

0.014

Wholesale Trade

0.024

0.042

0.013

Retail Trade

0.199

0.354

0.111

Transportation and Warehousing

0.009

0.016

0.005

Information

0.030

0.053

0.017

Finance, Insurance, and Real Estate

0.369

0.656

0.205

Professional and Business Services

0.084

0.149

0.047

Education and Health Care Services

0.247

0.438

0.137

Leisure and Hospitality

0.180

0.320

0.100

Other/Personal Services

0.082

0.146

0.046

Other

0.027

0.048

0.015

1.279

2.274

0.711

Total Employment 1 2

Employment includes part-time and full-time jobs. Includes unclassified jobs and sectors with small numbers of workers (utilities, natural resources, etc.). Sources: Bureau of Economic Analysis, RIMS II multipliers; Gruen Gruen + Associates.

Based on the RIMS II employment multipliers and estimated net increase in household income associated with each scenario, the total number of jobs created in Boulder ranges from 0.71 jobs for Scenario C, 1.28 jobs for Scenario A, and 2.27 jobs for Scenario B. Jobs in finance, insurance, and real estate, education and healthcare, retail trade, and leisure and hospitality make up about three quarters of the added jobs in Boulder. Boulder represents about one-half of the countywide employment base and likely comprises a somewhat higher share of economic output in the county (with a higher concentration of non-basic “export” industries located in the city). Additionally, by definition, most personal consumption and spending of expanded higherincome home occupants will occur directly within the city of Boulder. 4

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

CHAPTER IV AFFORDABLE HOUSING DEMAND NEXUS CALCULATIONS INTRODUCTION As reviewed in Chapter III, an increase in demand for local goods and services - driven by an increase in household income resulting from purchases of larger replacements or expanded homes in Boulder - will generate additional jobs. This chapter estimates the number of new workforce households formed by these additional workers, based on the distribution of workers by household size and income, as well as the average number of workers per household. An estimate is then presented of the number of new workforce households unable to afford marketrate housing in Boulder. In addition, an estimate is made of the per-unit financial gap between affordable rents or purchase prices and prevailing market rates. WORKFORCE HOUSEHOLD FORMATION BY INCOME LEVEL Table C-2 in Appendix C includes an analysis of workers and workforce households in Boulder’s primary labor shed. The household income distribution of workers is summarized by sector of employment. The analysis is based on GG+A analysis of Public Use Microdata Samples (“PUMS” data) from the 2023 American Community Survey. Figure IV-1 illustrates the results of this analysis. FIGURE IV-1: Distribution of Workers by Industry of Employment and Household Income Share of Workers by Household Income Level 0.0%

5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

Construction Manufacturing Wholesale Trade Retail Trade Transportation and Warehousing Information Finance, Insurance, and Real Estate Professional and Business Services Education and Health Care Services Leisure and Hospitality Other Services < 80% AMI

GRUEN GRUEN + ASSOCIATES

80-120% AMI

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Approximately 40 to 45 percent of workers employed in the Retail Trade, Leisure and Hospitality, and Other Services in the local economy live in a Low- or Moderate-Income household (defined as households with incomes below 80 percent of AMI). About 25 percent and 32 percent of workers employed in the Construction and Education and Healthcare sectors, respectively, also live in a Lowor Moderate-Income household. About 20 to 25 percent of workers employed in the Construction, Retail Trade, Education and Health Care services and Other Services categories live in a Middle-Income household (defined as household incomes from 80 percent to 120 percent of AMI). About 17 percent of workers employed in the Leisure and Hospitality sector live in a Middle-Income household. Commuting Patterns According to the 2022 Boulder Valley Employee Survey for Transportation, 34 percent of the surveyed workers both lived and worked in Boulder. Other secondary data including U.S. Census Bureau estimates suggest that a smaller share of workers employed in Boulder also live in the community – about 18 percent as of 2022 estimates. One factor driving these commutation patterns is the imbalance between jobs and housing units in Boulder, an imbalance that a housing nexus fee is intended to help correct. The nexus analysis assumes that two-thirds of new workers will form or locate their households within Boulder if housing is available and affordable. The remaining one-third of new workers are assumed to commute-in for employment in Boulder, whether for lifestyle preference or other economic reasons. 5 Workers per Household Because most workforce households include more than one wage earner, the estimates of household formation reflect an average of 1.37 to 1.88 workers per household. The estimates of average workers per household are drawn from the 2023 PUMS data for workers living in Boulder’s primary labor shed. Lower-income households tend to have fewer workers, and vice versa with higher-income households having more employed workers in the household.

5 Many workers form households with other workers who are often employed in different locations and

communities. Analysis by a U.S. Census Bureau economist, for example, found that approximately 41 percent of “dual-earner households” were employed in Census Blocks located more than 10 miles apart, and 18 percent were employed more than 25 miles apart. Henry R. Hyatt, "Coworking couples and the similar jobs of dual-earner households," Monthly Labor Review, U.S. Bureau of Labor Statistics, November 2019, https://doi.org/10.21916/mlr.2019.23

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Table IV-1 summarizes the resulting estimates of new workforce households formed in Boulder, by income level, for each of the prototypical single-family home replacement or additions scenarios. TABLE IV-1: New Workforce Households by Income Level1 < 60% AMI

60-79.9% AMI

80-119.9% AMI

≥ 120% AMI

Scenario A: Smaller Lot Demolition and Replacement Additional Workers

0.269

0.132

0.233

0.627

In-Commuting Factor

33.3%

Workers per Household

1.37

1.48

1.65

1.88

New Workforce Households

0.131

0.059

0.094

0.222

Scenario B: Larger Lot Demolition and Replacement Additional Workers

0.478

0.234

0.414

1.115

In-Commuting Factor

33.3%

Workers per Household

1.37

1.48

1.65

1.88

New Workforce Households

0.233

0.105

0.084

0.395

Scenario C: Significant Home Addition and Remodel Additional Workers

0.149

0.073

0.129

0.348

In-Commuting Factor

33.3%

Workers per Household

1.37

1.48

1.65

1.88

New Workforce Households

0.073

0.033

0.052

0.124

Excludes share of workers that do not live in a household (group quarters) such as university dormitories. Sources: Bureau of Economic Analysis, U.S. Census Bureau, 2023 PUMS; Gruen Gruen + Associates.

The distribution of workers by household income does not include the share of workers that do not live in a household (group quarters) such as university dormitories. Scenario A has a projection of a total of 1.261 workers per expanded home. Adjusting this estimate downward by one-third (for incommuting workers) and then dividing by an average 1.66 workers per household results in an estimate of a total of 0.51 new workforce households per replacement or expanded home. Scenario B has a projection of a total of 2.241 workers per replacement or expanded home. This results in an estimate of a total of 0.90 new workforce households per expanded home. Scenario C has a projection of total 0.70 workers per expanded home, resulting in an estimate of a total of 0.28 new workforce households per expanded home. For all three scenarios, about one-third of workforce households are estimated to be Low- or Moderate-Income households with incomes below 80 percent of AMI. Another 19 percent of households are estimated to be Middle-Income households with incomes of 80 to 120 percent of AMI. Forty-four percent of workforce households are estimated to have incomes exceeding 120 percent of AMI. GRUEN GRUEN + ASSOCIATES

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

AFFORDABLE HOUSING FEASIBILITY GAPS Table IV-2 summarizes the estimated market-rate housing rents and affordable housing rents at 50 and 60 percent of AMI. TABLE IV-2: Estimated Feasibility Gap for Affordable Rental Housing at 50 to 60 Percent of Area Median Income (AMI) 50% AMI

60% AMI

$1,930

2024 Affordable Gross Rent

$1,414

$1,702

Less: Utility Allowance3

($53)

Average Market Rent1 2

Monthly Affordable Rent

$1,361

$1,649

Annual Difference to Market

($6,825)

($3,366)

Per-Unit Value Differential (Gap)4

($136,500)

Average Per Unit Value Differential (Gap)5

($67,320) ($81,156)

Based on CoStar Group Inc. summary of average rents in the Boulder apartment market October 2024. Average rent based on a unit mix including 25% studios, 50% 1-bedroom units, and 25% 2-bedroom units. 2 FY 2024 City of Boulder Income & Rent Limits. 3 2024 allowances for natural gas and electric in multi-family units (Metro Denver/Boulder). 4 Assumes 5% market capitalization rate. 5 Average based on 20/80 allocation of 50 percent of AMI and 60 percent of AMI. 1

Sources: CoStar Group, Inc.; City of Boulder; Colorado Division of Housing; Gruen Gruen + Associates.

The difference between the market-rate and affordable rents at 50 percent and 60 percent of AMI is estimated to be $6,825 per year at 50 percent of AMI and $3,366 per year at 60 percent of AMI. The difference is based on an estimate of average monthly market rent of $1,930 and affordable monthly rent of $1,360 at 50 percent of and $1,649 at 60 percent of AMI. Assuming a 5.0 percent capitalization rate or required yield on the purchase of income-producing property, the annual differences equate to an average per-unit value difference between market-rate units and affordable units of $136,500 for a unit at 50 percent of AMI and $67,320 for a unit at 60 percent of AMI. The average feasibility “gap,” weighted with a 20 percent allocation to units at 50 percent of AMI and 80 percent allocation to units at 60 percent of AMI, is estimated to be approximately $81,200 per unit.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Table IV-3 summarizes the estimated market-rate sales prices and affordable sales prices at 80 and 120 percent of AMI. TABLE IV-3: Estimated Feasibility Gap for Affordable Ownership Housing (Condos/Townhomes) at 80 to 120 Percent of Area Median Income 80% AMI

120% AMI

Average Market Sales Price1

$532,700

2024 Income Limit2

$96,360

$144,550

Affordable Price/Income Ratio

3.25

Affordable Sales Price

$313,170

$469,788

Per-Unit Value Differential (Gap)

($219,530)

Average Per Unit Value Differential (Gap)4

($62,913) ($141,221)

Average resale price in city of Boulder, September 2023 through August 2024. Excludes detached single-family homes. The average price is based on 50% 1-bedroom units and 50% 2-bedroom units. 2 Adjusted for household size, assuming 1.5 persons per bedroom. 3 Ratio assumes 5% downpayment with 30-year loan at 6.9% interest rate. Annual mortgage insurance of 0.5% (of loan) and annual property tax, insurance, and other expenses assumed to be 1.25% of home price. 4 Average based on 50/50 allocation of 80 percent of AMI and 120 percent of AMI. 1

Sources: City of Boulder; Boulder County Assessor; Gruen Gruen + Associates.

The difference between the market rate and affordable sales prices at 80 percent and 120 percent of AMI is estimated to be $219,530 at 80 percent of AMI and $62,913 at 120 percent of AMI. The affordable sales price is based on a price-to-income ratio of 3.25 which assumes a purchase price with a downpayment of five percent and a 6.9 percent interest rate on a 30-year loan. On average, the per unit value gap for 80 percent and 120 percent of AMI is $141,221.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

ESTIMATES OF THE NEED FOR AFFORDABLE HOUSING UNITS Table IV-4 summarizes the need for affordable housing units generated by the replacement or additions of existing homes with larger homes. The number of units are shown for households with less than 80 percent of AMI and between 80 and 120 percent of AMI. TABLE IV-4: New Affordable Housing Units by Income Level1 < 80% AMI

80-120% AMI

Scenario A: Smaller Lot Demolition and Replacement New Workforce Households Affordable Allocation2 Affordable Needs # Units3

0.190

0.094

100% rental

60% ownership

0.200

0.059

0.338

0.167

100% rental

60% ownership

0.356

0.106

Scenario B: Larger Lot Demolition and Replacement New Workforce Households Affordable Allocation

Affordable Needs # Units3 Scenario C: Significant Home Addition and Remodel New Workforce Households Affordable Allocation2 Affordable Needs # Units3

0.106

0.052

100% rental

60% ownership

0.111

0.033

Excludes new households generated with incomes greater than 120% of AMI. Based on current housing tenure in the Boulder labor shed for 60% ownership allocation among Middle-Income households with 80-120% of AMI; renters earning above 80% of AMI can afford market rents. 3 Includes frictional vacancy factor of five percent. 1 2

Sources: Bureau of Economic Analysis, U.S. Census Bureau, 2023 PUMS; Gruen Gruen + Associates.

Under Scenario A, for every smaller lot demolition of an existing smaller home and replacement with a larger home, an additional 0.19 new workforce households would be formed in Boulder with incomes below 80 percent of AMI. This would equate to the need for 0.2 rental units at prices affordable to households with incomes below 80 percent of AMI. This housing unit estimate includes a five percent fractional vacancy factor to permit mobility in the housing market. Assuming that 60 percent of middle-income households (80 percent to 120 percent of AMI) live in ownership housing in Boulder, under Scenario A the need for affordable middle-income housing is 0.059 units at prices affordable to households with incomes ranging from 80 percent to 120 percent of AMI. Under Scenario B for every larger lot demolition of an existing smaller home and replacement with a larger home, an additional 0.338 new workforce households would be formed in Boulder with incomes below 80 percent of AMI. This would equate to the need for about 0.36 rental units at prices affordable to households with incomes below 80 percent of AMI. Again, assuming that 60 percent of middleincome households (80 percent to 120 percent of AMI) live in ownership housing in Boulder, under

GRUEN GRUEN + ASSOCIATES

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Scenario B the need for affordable middle-income housing is 0.106 units at prices affordable to incomes ranging from 80 percent to 120 percent of AMI. Under Scenario C for every significant addition to a smaller home, an additional 0.106 new workforce households would be formed in Boulder with incomes below 80 percent of AMI. This would equate to the need for about 0.11 rental units at prices affordable to households with incomes below 80 percent of AMI. The need for affordable middle-income housing is 0.033 units at prices affordable to households with incomes ranging from 80 percent to 120 percent of AMI.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

MAXIMUM NEXUS FEES This section presents the calculations of the maximum nexus fees based on the financial gap per unit for each income level relative to the total affordable housing unit need by income level associated with: (1) demolitions and replacements resulting in a net increase of at least 500 square feet of above ground living area; and (2) major home additions exceeding 500 square feet of above ground living area. For the Scenario A prototype in which a smaller lot (8,000 square feet of land) home (of 1,200 square feet of living area) is replaced with a larger home (of 2,800 square feet of living area), the net additional living area of 1,600 square feet is used to calculate a nexus fee per square foot. For the Scenario B prototype in which a larger lot (20,000 square feet of land) home (of 2,000 square feet of living area) is replaced with a larger home (of 4,500 square feet of living area), the additional net living area of 2,500 square feet is used to calculate a nexus fee per square foot. For the Scenario C prototype in which an existing home of 1,600 square feet of living area on a 10,000square-foot lot is expanded to 2,200 square feet of living area, the net addition of 600 square feet is used to calculate a nexus fee per square foot. Table IV-5 summarizes the maximum nexus fee calculations assuming. TABLE IV-5: Maximum Affordable Nexus Fee Calculations Scenario A

Scenario B

Scenario C

Affordable Rental Unit Need, Less Than 80% AMI Average Financial Gap @ 50% to 60% AMI Maximum Fee Per Expanded Home Maximum Fee per Square Foot of Added Living Area1

0.200 $81,156 $16,246 $10.15

0.356 $81,156 $28,881 $11.55

0.111 $81,156 $9,025 $15.04

Affordable Ownership Unit Need, 80% to 120% AMI Average Financial Gap @ 80% to 120% AMI Maximum Fee Per Expanded Home Maximum Fee per Square Foot of Added Living Area1

0.059 $141,221 $8,398 $5.25

0.106 $141,221 $14,929 $5.97

0.033 $141,221 $4,665) $7.78

Total Maximum Fee Per Square Foot1 $15.40 $17.52 $22.82 1 For the Scenario A prototype net additional living area of 1,600 square feet is used to calculate a nexus fee per square foot. For the Scenario B prototype net additional living area of 2,500 square feet is used to calculate a nexus fee per square foot. For the Scenario C prototype net addition of 600 square feet of living area is used to calculate a nexus fee per square foot. Source: Gruen Gruen + Associates

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

The maximum fee per expanded home is derived by multiplying the average financial gaps by the estimated additional affordable rental and affordable ownership housing needs. Under Scenario A for the demolition of a small home on a small lot and replacement with a larger unit, the maximum fee per unit is approximately $24,600. Dividing by the estimated net living area increase of 1,600 square feet results in a maximum fee of $15.40 per square foot of additional living area. Most of the maximum fee, about two thirds, is attributable to affordable rental housing needs among workforce households generated with incomes below 80 percent of AMI. Under Scenario B for the demolition of a small home on a larger lot and replaced with a larger unit, the maximum fee per unit is approximately $43,800. Dividing by the estimated net living area increase of 2,500 square feet results in a maximum fee of $17.52 per square foot of additional living area. Again, about two thirds of the maximum nexus fee is attributable to affordable rental housing needs among workforce households generated with incomes below 80 percent of AMI. Under Scenario C for the addition to a smaller home, the maximum fee per unit is approximately $13,700. Dividing by the estimated net living area increase of 600 square feet results in a maximum fee of $22.82 per square foot of additional living area.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

CHAPTER V NEXUS FEE FEASIBILITY ANALYSIS INTRODUCTION Adopting an affordable housing demolition or linkage fee requires consideration of its impact on residential development feasibility. Such a fee represents an additional capital cost that will ultimately affect either consumers (homeowners) or homebuilders. Because the fee can be set at any level between $1 and the maximum nexus-based fee (refer to Table IV-5), it is important to determine a rate that supports policy goals without rendering single-family home replacement and expansion projects financially unviable - an outcome that would (a) result in no housing construction activity and no fee revenue being generated and (b) discourage improvement and maintenance of the single-family housing stock. This analysis evaluates the impact of an additional fee on the feasibility of single-unit residential projects using a static proforma model developed for prototypical scenarios, including single-family home demolition, replacement, and expansion. In this context, “feasibility” is defined from the perspective of a speculative investor or builder. Such a builder typically purchases an existing singlefamily lot, constructs a new home (or renovates and expands the existing structure), and aims to sell the property at a price including a reasonable profit margin.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

SUMMARY Table V-1 summarizes the financial effects on returns of the imposition of a $15.00 per square foot demolition fee on speculative single-family housing demolition and replacement and addition projects. TABLE V-1: Impacts of Demolition Fee on Single-Family Unit Project Feasibility Homebuilder Net Profit1

Profit Margin2

Scenario A - Smaller Lot Demolition and Replacement

$457,900

14.9%

Scenario B - Larger Lot Demolition and Replacement

$683,300

13.2%

Scenario C - Significant Home Addition and Remodel

$227,000

9.8%

Scenario A - Smaller Lot Demolition and Replacement

$433,900

14.1%

Scenario B - Larger Lot Demolition and Replacement

$645,800

12.5%

Scenario C - Significant Home Addition and Remodel

$218,000

9.4%

Without Demolition Fee:

With Demolition Fee of $15 Per Additional Square Foot:

1 2

Sales revenues less total costs (acquisition, development, permitting, selling expenses). Net Profit as percent of gross sales price. Source: Gruen Gruen + Associates

Under the estimates reviewed in this chapter, the net profit on the Scenario A demolition of a small home on a small lot and replacement with a larger unit, the estimated profit per unit is estimated to decline by 8/10ths of one percent or 80 basis points from 14.9 percent ($457,900 per unit) to 14.1 percent ($433,900 per unit, a decrease of $24,000). The net profit on Scenario B larger lot demolition and replacement with a larger unit, the estimated profit per unit is estimated to decline by 7/10ths of one percent or 70 basis points from 13.2 percent ($683,300 per unit) to 12.5 percent ($645,800 per unit). The net profit on Scenario C (significant home addition) is estimated to decline by 4/10ths of one percent or 40 basis points to 9.4 percent ($218,000), from 9.8 percent ($227,000). Even with the demolition fee under current typical development costs and obtainable sales prices for most neighborhoods the scenarios analyzed are likely to be financially feasible for private builders to undertake.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

DEVELOPMENT COSTS Cost estimates are based upon interviews with local builders, review of secondary cost data including permit valuations, and analysis of current fee schedules for the city of Boulder. Cost assumptions include the categories and items described below. Land Acquisition •

Acquisition cost totaling $1,080,000 to $1,700,000 for the three sizes of lots/homes modeled in the demand nexus analysis (ranging in size from an 8,000 to 20,000 square foot lot).

Hard Construction • • • •

Demolition cost of $25 per square foot of existing structure. Additional site work cost of $5 per square foot of lot area (driveways, landscaping, etc.). Vertical construction cost of $400-$450 per square foot for larger, new homes. Vertical construction and remodeling cost of $600 per square foot for smaller home expansions.

Permitting Fees • • • •

Entitlement, plan review, and building permit fees equal to two percent (2%) of hard construction cost. City and County use tax of five percent (5%) on construction building materials. Capital Facility Impact Fee of about $4,100 to $9,100 per home, based on net square feet added. Proposed Demolition (nexus) Fee of $15 per square foot, based on net square feet added.

Other Soft Costs •

•

Architectural and engineering, professional services (e.g., legal, design), taxes and insurance, general administrative, and warranty reserve costs equal to ten percent (10%) of hard construction costs. Construction financing costs equal to three percent (3%) of hard construction costs. This is commensurate with a 50 percent loan-to-cost over 18 months with a 7.5 percent annual interest rate.

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Affordable Housing Nexus Analysis for Significant Single-Family Home Demolitions, Replacements and Expansions in Boulder

Table V-2 summarizes the estimated development costs for the three prototypical development scenarios. TABLE V-2: Single-Family Home Replacement and Expansion Project Cost Estimates Scenario A

Scenario B

Scenario C

Project Type

Teardown and Replacement

Addition and Remodel

Single-Family Lot Size

8,000 sf

20,000 sf

10,000 sf

Expanded Home Size

2,800 sf

4,500 sf

2,200 sf

Net Increase in Home Size

1,600 sf

2,500 sf

600 sf