Cedar Rapids tweaks housing subsidy program

CEDAR RAPIDS - Jim Hamblin struck gold by sheer luck.

In early December, the 40-year-old computer network administrator and meteorologist with a modest income was a renter who had all but thrown in the towel on buying a house. Now, he's moved into a new $178,100 home, thanks to a subsidy program designed to replace some of the 1,300 homes lost in the Flood of 2008.

A second phase of the city/state single-family, new-home-construction program is in the offing.

So what's the catch? That was Hamblin's first question, too, and there aren't many if your income is modest and you qualify for a mortgage.

Hamblin was among the last of 184 participants in Cedar Rapids who took possession of newly built homes, condominiums or townhomes in the 2009 program. He received a 15 percent subsidy, or about $27,000, toward the cost of his new home at 2128 25th St. SW. Some homeowners received up to 30 percent.

Are such subsidies too large, though, for an “affordable” housing program that city officials say is better defined as “attainable” or “work force” housing? Forty buyers received subsidies of or near $54,000 - that's instant equity that would take 14 years to build in a 30-year mortgage.

Hamblin doesn't begrudge those who got an even better deal. “I'm just thrilled to get the 15 percent,” he says. “I would not have been in a position to get this if (the subsidy) had not been available.”

To date, nearly all the program's housing units have gone up in pre-existing, unfinished developments on the edge of Cedar Rapids. (See map on 13A.) City officials, who say they dislike urban sprawl, would like to steer more of the building in the next round toward the core of the city.

In the past several weeks, city officials and homebuilders have been meeting and preparing for the construction of another 235 units. Builders have until March 12 to submit proposals. Buyers can apply beginning in April.

The same Iowa Department of Economic Development program is offered in other disaster-affected cities, like Iowa City, but not to the extent that it is in Cedar Rapids. Last year, the program provided Cedar Rapids with $8 million and this year will provide more than $13 million. Iowa City got $2.3 million last year, $1.67 million this year.

Still, some question whether the Cedar Rapids program has been promoted enough to potential buyers and if some participants' connections with builders have given them an advantage.

Iowa City has come up with a creative, even entertaining lottery to make its subsidized housing program better and more fair - and for good reason, says Tracy Hightshoe, community development planner. Iowa City had only 40 houses, condos and townhomes in its first round and will have only 37 in the next.

Hightshoe said it became apparent early on that those connected to the building industry knew most about the program, and so people connected to them were applying for the new homes.

In the end, 60 people qualified for the 40 homes. They drew numbers, which were used to set the order by which people chose a home. It meant that participants did not automatically get the home that an uncle or brother was building for the program, Hightshoe said. She said she was surprised more buyers didn't apply for the first round, but she said the lottery promoted the program so well she now expects plenty of competition for the second round.

In Cedar Rapids, Paula Mitchell, a housing services supervisor, says her office's role is to make sure potential buyers are qualified and then to let them know which builders are providers. The buyer then works with the builders to close a purchase, she says.

Tim Waddell, IDED division administrator, says individual cities can run the program as they see fit.

Cedar Rapids needs the program to replace some of what was lost in the flood. The federal Community Development Block Grant funds being used for the program, he says, can help meet flood-related housing shortages but don't need to go directly to flood victims.

Adding new houses to a city, he adds, causes a domino effect, freeing up existing homes as owners move into new ones.

“Because of that, building any kind of new units helps everybody,” Waddell says.

Cedar Rapids City Council member Chuck Swore says the venture has and will continue to provide post-flood “affordable” housing opportunities for buyers and builders that would not otherwise have been available. The program comes, too, at a time when builders need it to keep them working, because of the economic downturn.

To qualify for the new round of building, a buyer must have an annual household income at 100 percent or less of the area median income, with half of the units going to those with annual household incomes at 80 percent or less of the median.

In Cedar Rapids, 100 percent of median household income is $47,300 for a single person, $54,100 for a two-person household and $67,600 for a four-person household. At 80 percent, it is $37,850 for a single person, $43,300 for two and $54,100 for a four-person household.

Last year, 70 percent of those who purchased new homes or housing units with a cost below $150,000 had median household incomes at or below 80 percent. At the same time, 54 percent met the 80 percent standard for homes priced at $150,000 to $180,000, according to city figures.

This year, the program will require that 125 units be built at a cost not to exceed $150,000, allowing 110 others to cost up to $180,000. The subsidy is 25 percent, which will equal $45,000 for those buying $180,000 homes.

To encourage more homes be built near the city's core, the council has established a three-tier system - with builders at the core, or first tier, allowed a 15 percent profit and a profit of 10 percent if they build in tiers two or three, farther from the core.

Drew Retz, vice president of Jerry's Homes in Cedar Rapids, says the program likely has failed to help many flood victims directly because they live on fixed or moderate incomes and can't qualify for mortgages, and he calls the large subsidies in the first round “just ridiculous.”

It made sense, he said, at the end of the first round to reduce the subsidies from 30 percent to 15 percent to spread what money was left over more people. The second round's limits on construction costs and subsidies should give access to more people as well, Retz says.

Kyle Skogman, president of Skogman Homes, says he supports the City Council's push to get more program homes closer to the core of the city. Building on the city's periphery worked last year, he says, because the city needed to replace housing quickly and lots were available there.

“Now the city can act a little more patiently to get the units where they need them,” Skogman says.