A better way to help rehab homes
Each year the city receives over a $1 million dollars from HUD to be directed toward improving housing affordability and the needs of low-income people in our city. One of the programs this grant is used for is a city homeowner housing rehab program. The city pays its staff about 40 percent of this $1 million plus dollar to administer and deliver this grant money to many programs. This cost of delivery is high enough to merit an interest in improvement.
I am going to explain a more cost effective program and I have been told that these programs have legal guidelines that make the cost of administration so high. I strongly believe that HUD will have to respond to a request for a waiver for a more cost effective program such as the one I am suggesting.
A more cost effective homeowner rehab grant program is a program with a 50 percent matching grant. This means the owner contributes half and the other half is paid for with a subsidy grant. This percentage is adjustable given changing conditions over time.
The qualification for this program is living in the target area. The target area is the area with worst record of property tax assessed values. The record and trend of property tax assessed values is a measure of homesteaders’ loss of home equity due to blight due to accumulated deferred maintenance on houses in the area.
Justification for the need for this supply side rehab subsidy is that a rehab project on a house in these areas with declining or below average property tax assessed values will on average only increase the value of the house by about half plus or minus of the cost of the rehab project. This makes owners reluctant to do rehab projects and this creates a downward feedback loop or downward spiral in values. So in order to incentivize maintenance and rehab projects; the percentage of a rehab project that needs to be subsidized is the percent that makes the size of the owner’s contribution equal to the amount that the project increases the value of the house. For example if a house value increases by half the cost of a rehab project than half of this cost needs to be subsidized.
This blighted condition is best understood and quantified as a short run disequilibrium in this area’s housing market. This condition is also in part a measure of the degree of economic (or neighborhood) obsolescence. A matching grant rehab program can be adjusted to the percentage needed to heal this disequilibrium. If subsidies are larger than needed they distort the market rather than heal it. When subsidies are larger than needed they also brand the area as a subsidized housing area and scare homesteading and private investment away. This branding increases the degree of economic obsolescence instead of reducing it.
As a matching grant rehab program strengthens and heals the market, the percent of subsidy in the rehab grant program can be decreased and will trend toward equilibrium where no subsidy is needed.
All homesteaders qualify by being in the area where on average assessed values have suffered most. The income of an individual homeowner does not affect the lost of equity in an area. But the average incomes of all the homeowners in the area does affect the values of houses in the area.
Restricting qualifying for a homeowners rehab program by the income of the owners has four negative effects: One it increases the cost of overseeing the program in two ways. A: there is the cost of screening and verifying income. B: lower income households are less able to manage a rehab program and therefore need more supervision to make sure their project is cost effective. Second this qualifying restriction increases the percentage of low-income homeowners in an area and lowers the average income in the area. Third the income restriction brands the area as a low-income, subsidized area. Four, when a supply side supply for the rehab has an income restriction also the market is not allowed to demonstrate and measure the benefit of the subsidy toward healing the disequilibrium in the housing market in this area. Remember the goal is for a healed housing market where the cost of a rehab project increases the value of the house enough so a subsidy is no longer needed.
Homeownership of a detached, single-family house in normal condition in a normal neighborhood with normal appreciation of house values is a middle class achievement. Increasing supply of affordable single family houses at the lowest possible market (rather than subsidized) price is a worthy goal, but this goal has its limits and housing subsidies are always short for subsidizing safe, affordable multifamily units both for ownership and rental. This is to say the subsidy of the middle class achievement of detached, single family ownership for low-income households does and should have limits.
The first goal of a homeowners rehab program is to protect the equity of the owners and keep their property assessed values in line with the trend for the whole city. The negative effects of higher than necessary administration costs and branding the neighborhood as a subsidized low-income area are counter to this goal of revitalization.
• Clark Rieke is a retired Realtor and landlord who serves on the Cedar Rapids Grants and Programs Citizens Committee, which reviews applications for Community Development Block Grant Funds and HOME Investment Partnership Program Funds in Cedar Rapids.