City Council members discussed Tuesday the possibility of providing $5 million in short-term rental tax revenue to support the sale of 63 deed-restricted condominiums planned as part of the Yampa Valley Housing Authority’s Cottonwoods at Mid Valley development.

An ad hoc Affordable Housing Committee was formed earlier this year to advise the city on how to spend up to $10 million in short-term rental tax revenue in support of affordable housing projects in the near-term.

The 10-member group considered several proposals and recommended $5 million be allocated to the housing authority to support construction of affordable rental units as part of the Mid Valley development on 11 acres adjacent to the UCHealth Urgent Care building.

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The development’s first phase is already under construction and is on track to see 86 for-sale condominiums come online by the end of 2025.

A planned second building would see construction of 63 rental units targeting individuals earning between 80% and 150% of the area median income, or individuals earning between $75,000 and $180,000 a year.

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In a presentation to council members Tuesday, Yampa Valley Housing Authority Executive Director Jason Peasley asked council members to consider their support for the construction of the second building with the suggestion that the money would be better spent, and the project would accelerate faster, if those 63 units were offered for sale, rather than as rentals.

“The ad hoc committee said you should invest in the rental part of this, and we are standing here saying you should invest in the ownership component,” said Peasley.

“If we are able to switch from rental to ownership, we can accelerate the unit delivery by a year, we can break ground in 2025 and deliver units in 2027 — faster than we would be able to if it’s a rental product,” he added.

According to the housing authority, condominium prices would range from roughly $250,000 to $600,000 depending on unit type and the area median income target, which would range between 90-150% of area median income.

Peasley explained the city’s $5 million in short-term revenue could be leveraged to secure roughly $3 million in state grant funding to support construction of the for-sale housing, which he noted would contribute to more stable, long-term housing options for individuals seeking to build equity through property ownership.

He said the units would be offered for Routt County residents that make up what he called “the missing middle,” referring to those who make too much money to qualify for any available units subsidized by federal low-income tax credits but who earn “too little money to be competitive in the marketplace for ownership.”

The condos would be deed restricted in perpetuity to preserve affordability, explained Peasley, and restrictions would ban the units from being offered as short-term rentals.

“What we are looking at is providing more choice for our community members. What we can accomplish together by joining our resources is delivering home ownership opportunities where they otherwise wouldn’t exist,” he added.

The five council members attending the meeting signaled a unanimous “thumbs up” in support of directing the $5 million in short-term rental revenue to support the for-sale, deed-restricted condo construction.

To move forward, city staff would work with the housing authority to establish an agreement between the government entities. Council members asked for the document to include language that could see the project pivot from for-sale units to rental units should a demand for deed-restricted ownership not exist.

“We have the first phase of for-sale units that will be going on the market,” said council member Joella West. “So, what I would say, in our soon-to-be-drafted agreement, we need to make sure that there is an ‘escape clause,’ if you will, if we all find out that demand for the for-sale housing is not what we all thought it was.”

Peasley said the agreement with the city could include such a clause but noted that the $3 million in state funding that could be made available for the for-sale development would not be transferrable to support rental-unit construction.

“If we got to that point and were like, ‘Whoa, we need to do rental,’ we would have to give back that $3 million and we would have to think of a different approach of applying for state funding because those funds are specific to home ownership,” he said.

Peasley said that a lottery process and community surveys around the 86 for-sale condos expected to come online at Mid Valley next year would help indicate whether the 63 units planned for the construction of the second building should be made available for renters.

“I do think that creating a scenario where we have the information to know we are doing the best execution, and have the ability to pivot, I think is appropriate,” Peasley said. “None of us want to invest in something that isn’t in demand.”

No funding allocation decision was made at the council’s meeting Tuesday. But the unanimous support shown by council is expected to result in city and housing authority staff working together to form a draft agreement that council members could vote on as an ordinance in December.