The Steamboat Springs City Council has tentatively approved a Yampa Valley Housing Authority proposal to redirect $5 million in short-term rental tax revenue to accelerate affordable homeownership at The Cottonwoods development and directed staff to examine whether a request for additional funding could help the project meet deeper affordability targets.

The proposal, presented at council’s regular meeting on Tuesday by YVHA Executive Director Jason Peasley, would shift $5 million previously allocated for phase two of The Cottonwoods to support the 86 for-sale, deed-restricted condo units currently under construction in phase one of the project.

These units in phase one — buildings one and two — are currently targeted for households earning between 100% and 140% of the Area Median Income, with the goal of delivering homes to the local workforce by early next year.

The deed restriction on each unit caps the maximum sale price so that a household pays no more than 30% of their income on housing costs (including mortgage, taxes, insurance and homeowners association dues), assuming a 5% down payment and current interest rates.

This approach yields prices considerably below market value. For example, at 140% AMI, the maximum price for a one-bedroom is $420,000, about a 4% discount to comparable market units. Two-bedroom units see a 28% discount from market value, with three-bedroom units nearly 30% below market. HOA dues are anticipated at $500 for one-bedroom units, $600 for two bedrooms, and $750 for three bedrooms.

“Costs continue to stay very high, sort of riding that high of the COVID increase or post-COVID increase in expenses related to building,” Peasley explained. “The other side of that is that interest rates are significantly higher than they were even several years ago and are hovering in that 7% range. So the combination of those two things drives up costs and simultaneously reduces the buying power of our target market, which increases the feasibility gap both for the project and for the individuals who we’re trying to get into housing.” 

By spreading the $5 million across 86 units, the per-unit subsidy would be about $58,000, remarkably lower than the nearly $80,000 per unit if the same funds were applied to building three’s 63 units, with Peasley emphasizing that this approach would “make a more immediate impact.”

“The reason why we’re asking for that is first, it delivers housing quickly,” said Peasley. “It delivers more affordability quickly. It takes advantage of this fund that you guys have sitting there and deploys it for the benefits of 86 of our local households.”

The move would allow for prices in the $300,000s to $600,000s, versus in the $400,000s to $700,000s, with monthly payments as low as $2,553 for a one-bedroom unit, assuming the interest rate holds.

Peasley clarified that the proposed funding shift would not affect the planned 87 rental units in building four, which remains part of phase two. He noted that rising AMIs have made it harder to serve the “middle market” with rentals and that future projects may need to target lower income brackets, requiring additional subsidy.

Council directed city staff to prepare a modified grant agreement reflecting YVHA’s request and to bring a resolution for formal consideration at the July 1 council meeting.

Several councilors pressed for options to push affordability even further and ensure compliance with Proposition 123, which sets time and affordability requirements for state-supported housing projects.

Councilor Michael Buccino advocated for increasing the city’s contribution to $6 million, allowing more units to reach lower-income households, possibly as low as 80% of AMI.

“To me, this is why we have this fund,” Buccino said. “This is why we have a housing authority, and this is what we need to do with the money that we have sitting in a coffer waiting to be spent.”

Buccino noted that the city’s short-term rental tax fund, which supports housing initiatives, has a balance exceeding $30 million, making a deeper investment into phase one of The Cottonwoods feasible.

“To move a one-bedroom from 140% AMI pricing to 80% AMI, it’s $221,000,” said Peasley. “For a two-bedroom, $280,000. For a three-bedroom, $318,000.”

 Moving a one-bedroom to 100% AMI, comparatively, would require $147,000 in additional subsidy.

“The conversion of the $5 million gets us to the place where we’re happy with the product,” Peasley said. “What you guys are talking about is just making the deal better for our community, and we’re all about that.”

“If there’s an appetite to get to deeper AMI targets … provide a budget, and we can provide you what the maximum would be. We can make that work,” he added.

Council members agreed that more data — specifically from the ongoing housing needs assessment and the process of qualifying buyers — would help determine whether a supplemental funding request is warranted. Staff was directed to examine this question and report back as part of the July 1 meeting.

Final sale prices for the 86 units for phase one of The Cottonwoods will be set closer to the lottery and qualification process in late summer or early fall when interest rates, HOA dues and insurance costs are more certain, according to the housing authority.