Affordable Housing In Key West Is Facing A Pricing Crisis

I know you've seen the ads in the paper for Islander Village homes up on Stock Island. These are deed restricted homes whereby you don't own the land (the county has a lease on each home's plot for 99 years) and which can only be sold to buyers who meet county guidelines on income earned.

I'm not here to dis these homes's construction. In fact, I know of no modular homes ever built so well.

The homes are built beyond code. The windows, for instance, are impact resistant to 160 MPH winds.

I've toured one of the 3 Bedrooms 2 Baths models while cars were passing by and heavy machinery was being used outside. We enjoyed relative peace and quiet in the heavily fortified model home we walked through. (They are way quieter than Las Salinas condos built from poured concrete but which have thin window panes and sliding glass balcony doors which allows in noise from trash trucks, cars, and stereos).

Because of the above code construction methods (built on stilts, heavy duty straps, thick walls, etc.) the insurance for these well built homes only runs $1,200 to $1,500 a year. This is a steal when you consider Citizens Insurance (the last resort insurance company for Florida homeowners) just notified homeowners of Non-Affordable Housing they will double their wind rates over the next 5 years and still not be a profitable company.

Now, these homes are supposed to be workforce housing. And yet here is the line for maximum income prospective buyers can earn to be eligible to purchase one of these homes:

2 Bedroom Home
Individual: $93,982
Married: $125,309

3 Bedroom Home
Individual: $104,320
Married: $139,093

Let me say I know many a great bartender, DJ, county sheriff, cop, bouncer, waitress, cab driver and so on who are the backbone of our "workforce" in this town. I know none of them making the $93,982 or $104,320 cutoffs which would disqualify them from being eligible to buy one of these homes. So my guess is the majority of these homes will be sold to "couples".

And yet, even if anyone made $100,000 a year (and remember this would not be take home after taxes), they would still be stretching to buy a place priced at $265,000 (for a 2 Br/2 Ba) or $299,750 (for a 3 Br/2 Ba).

Moreover, these town homes have recently gone UP in asking price. I'm not kidding you. The developer just raised prices by about $6,000 to $10,000 on new Affordable Housing units which have been empty for over a year. They used to be $259,000 and $289,000 respectively (if my memory serves correctly).

So, as wages are cut, as hours are cut, as shifts are cut, as tips are cut, the number one Affordable Housing scheme for Key West workers has recently become more un-affordable. I don't care what HUD says about median income rising over the past year. You and I know it's a load of hooey, especially with 7 million Americans recently laid off from jobs during this current Great Recession putting pressure on wages.

Something else to consider was the former pitch of the saleswoman who gave us our tour of two of these Islander Village units: When we toured these new homes, we were told we could expect the prices of these homes to never rise faster than the rate of inflation. (I want to say the formula was something like LIBOR plus a point or two.) Thus, if the Housing Bubble were to ever blow again (I doubt it will happen again in the next 50 years), your new Islander Village home would not enjoy the insane appreciation we just saw in Key West Real Estate's go-go years of 1996 - 2006. By pegging Affordable Housing to match inflation, these homes are meant to be affordable to the next buyer down the line.

But here's the rub about these "Affordable Homes".

1. Three or four of them from an older subdivision but same style of model and construction are now foreclosed upon. Meaning, that even with all the breaks, middle class buyers of Affordable homes are being foreclosed upon.

2. These Affordable homes being foreclosed upon are not selling at their original SOLD price. In fact, the banks are arranging short sales for 10% off, 20% off and in one case one 3 Br/2 Ba bank owned home is being sold for $180,000 or almost 40% off. (Now keep in mind, these homes are built on public streets, not enclosed in a gated type community of Affordable Housing. Still, the construction is the same and it was put up by the same developer. And by giving up a community swimming pool, you are saving $119,500 buying the REO below which is the same size as the Islander Village 3 Br/2 Ba selling for $299,500)

This is a brand new home with a great back yard. End unit next to the park. Clean and easy to show. Unit is an affordable housing unit. All buyers must qualify based on the 2009 Monroe County Median Income Adjusted Income Limits and apply with a Monroe County Planning Dept Affordable Housing Application. Seller offering 3% seller-paid points towards a permanent interest.

Original Price: $229,900
Listing Price: $180,000
Listing Number 548356
Property Type: Townhouse
On Market: 2 Days
Address: 35 7th Ave
Key: Stock Island
Mile Marker: 5
Neighborhood: Subdivision:Lincoln Man Est. Amd
Building Style: Townhouse,Stilt
Bedrooms: 3
Bathrooms: 2.1
Price Per Sq. Ft. $141.29
Square Footage: 1,274
Lot Sq Ft: 0
Year Built: 2007
Taxes $1,625
Tax Year: 2008
Exemptions: Lender
Owned:Yes

3. Affordable Housing, as originally sold to the working class, was supposed to help workers get into a place where they could build some equity which would allow them to move upscale on the next move with a good downpayment. Nowhere did any sales rep for Affordable Housing ever mention the possibility Affordable Housing might actually lose value.

4. As sales stalled for Islander Village homes, construction of all the affordable units has stalled about half-way (just eyeballing the project) and all the expensive outer perimeter rich people's homes to be built on the water have yet to break ground.

5. If you as a prospective buyer who wants to do any type of upgrade to your unit, you are simply wasting your money. The sales rep made clear to us that we could install a whirlpool bath, granite or marble counter tops, new kitchen cabinets, etc., and we'd never get our money back from the upgrades as the homes are "affordable" and cannot appreciate faster than the rate of inflation.

6. Furthermore, as sales have stalled for the affordable units already built, credit has become harder to score. My landlord told me the ex-tenant who used to rent the condo I live in now moved into one of these Islander Village units on a "Rent to Own" program whereby half of his rent ($1,800 a month) accrues as a downpayment for the purchase of one of these homes. The problem the old tenant is having is this: he and his partner just hit their one year anniversary living in one of these units and now their bank of choice, Orion, refuses to lend them money to buy because they do not own the land on which this affordable unit was built. Will they have luck finding a lender in this town who will help them out? Stay tuned.

7. Also, there are 3 Br/2 Ba condos popping up on the MLS which cost $100,000 less than many of these Islander Village homes. Granted, condo fees are higher than the $137 "homeowners fee" one would pay at Islander Village. But on the other hand, certain condos have water views, better parking, and are closer to town.

8. If you want land, there are houses all up and down the middle Keys now selling less than even a 1 Br/1 Ba Affordable Housing unit. There are even a few Key West houses pushing the $200,000 threshold when they finally sell.

9. While the Affordable Housing Developer (he's not an evil man in my book, the market simply has turned against him and has messed up his financing means) has recently upped his prices and is charging more for his "Affordable Housing" town homes, other developers or owners of higher end product are dropping their prices as the Housing Crash middle and high end borrowers face faster defaults than sub-Prime borrowers.

(See "Like Trying To Catch A Falling Guillotine" in which a new luxury town home listed for $1,595,000 sold for $775,000.) Also see "An Example of "Shadow" Inventory In The Keys Which Is Not Found On The MLS" in which a developer is trying to sell never lived in luxury condos by putting only one up for sale at a time after finally knocking $100,000 of his original price which stood for 758 days without a price change.)

Which leads me to say as always, do your homework and . . .

Caveat Emptor,

Rock Trueblood