Piloting A New Model for Affordable Homeownership in Rural Colorado

Built by developer Rural Homes, Pinion Park consists of 24 affordable single-family homes in Norwood, Colorado. Pinion Park is one of three pilot projects demonstrating a new development model that responds to the unique affordability challenges that rural areas face. Photo courtesy of Rural Homes.

Norwood, a town in San Miguel County, in the southwest corner of Colorado, has fewer than 600 residents and is in many ways emblematic of the housing affordability challenges facing many small rural communities in the United States. Rural Homes, a developer created by the nonprofit Telluride Foundation, is piloting solutions to rural housing affordability, beginning with the sale of newly built affordable homes in its Pinion Park development in 2023. Pinion Park is one of three projects Rural Homes has built to demonstrate the viability of its model for the large-scale development of new affordable housing in rural areas.

Pinion Park

Pinion Park consists of 24 deed-restricted, single-family homes for sale to qualified buyers who earn between 60 and 120 percent of the area median income at the time of purchase; the lack of an ongoing income limitation allows these homeowners to increase their earnings and remain in their homes. In general, the sales value of homes is permitted to rise 3 percent per year, which ensures affordability in perpetuity while allowing owners to realize some appreciation in value. The program prioritizes homebuyers with at least one household member who works in the Norwood School District, although purchasers are not required to live in Norwood or San Miguel County. This preference is alleviating the challenge of teacher retention, which disproportionately affects rural areas of Colorado, while helping to meet the housing needs of these and other public sector and essential workers.

Rural Colorado's Affordability Headwinds

Rural Colorado housing tends to be disproportionately old and in need of maintenance, and average household incomes are lower in rural areas than in urban areas, reports Paul Major, manager of Rural Homes. The combination of lower average incomes and sparse population causes developers to underproduce new housing in rural Colorado, Major says. Despite San Miguel County's rising population, new home construction slowed considerably in the 2010s compared with the previous decade. The comparatively high cost of construction, lower market rents, and limited development capacity (including project planning and property management) typical of rural areas mean that projects can cost 40 to 50 percent more to produce than the market price they command. As a result, most recent new home construction in the area has focused on luxury seasonal homes, exacerbating the affordability challenge.

A Model for Affordable Rural Homeownership

With Pinion Park (and its two companion projects in other small Colorado communities), Rural Homes is attempting to offer affordable housing that reflects and responds to the housing market conditions that prevail in much of rural America, says Major. In this model, philanthropic and state partners first secure low-cost financing. Philanthropic funders helped Rural Homes secure construction loans with interest rates of 0.5 percent or less. The state provided construction revolving loan funds, which are repaid as houses sell and can be reused in subsequent projects, Major says. The total development cost for Pinion Park is approximately $9.3 million; that breaks down to $230 per square foot spread across the 19 three-bedroom units and 5 two-bedroom units that comprise the development.

In general, a significant percentage of the cost of any home lies in the cost of the land. Thus, the Rural Homes model relies on government donation of surplus land or philanthropic donation of purchased land. San Miguel County donated the Pinion Park site.

Modular construction — along with low-cost development financing, affordable mortgages for buyers, and state- or nonprofit-donated land — is a key pillar in Rural Homes' strategy to make the large-scale construction of affordable homes viable. Photo courtesy of Rural Homes.

A partnership with a mission-aligned community development financial institution allows prospective buyers of a Pinion Park home a more affordable mortgage product than the open market can offer. Rural Homes further enhances the affordability of Pinion Park homes through their energy efficiency, which allows households to redirect utility expenditures toward their mortgage payments and bring the cost of a higher-value home within reach.

Finally, Pinion Park is combatting the high cost of traditionally built homes, especially in rural areas, by using prefabricated and modular components, which offer greater cost predictability and facilitate faster construction. Approximately 85 percent of a Rural Homes house is fabricated in a factory setting, effectively locking in the home's construction cost 8 months before its onsite installation. In addition, building homes with prefabricated components reduces the need for construction labor, which can be scarce and expensive in rural areas like Norwood. Pinion Park homes use components produced in Colorado factories.

Nearly all the homes at Pinion Park have been sold as of early 2024, and their buyers can now access the asset-building advantages of homeownership in a challenging market. Thanks to its development model of leveraging donated land and prefabrication, Rural Homes was able to price the Pinion Park units at 27 percent below the area's mean home sale price. In addition, the Pinion Park units represented 34 percent of all new home construction in Norwood the year they were completed. These homes will be a long-term asset to Norwood, remaining affordable for generations of aspiring homeowners and enabling teachers and other essential municipal workers to live in the communities they serve.