Iowa Ideas
Iowa Ideas

To provide a nonpartisan, statewide learning experience

designed to explore the key questions and big ideas that will shape the future of Iowa.

Here's how Iowa can commit to affordable homeownership

Aug 29, 2019 at 10:00 am
    Stephanie Preusch is executive director of the Neighborhood Finance Corp. in Des Moines. (Submitted photo)

    Iowans’ Ideas: Guest columns featuring the views of different Iowans in each edition of Iowa Ideas magazine.

    By Stephanie Preusch

    Housing studies continue to report that we are not building enough affordable and workforce housing to meet the needs of our communities.

    The Comprehensive Housing Needs Update completed in December 2018 by Maxwell & Associates found that 794 affordable rental units need to be developed in the Cedar Rapids metro area from 2019 to 2024 to meet the increased housing need.

    The Des Moines Downtown Workforce Housing Study in 2018 found Polk County will need to add more than 16,000 new owner-occupied units priced at below $175,000 in the next 20 years.

    This new demand does not address the more than 20,000 renting households in Cedar Rapids and Des Moines that currently are severely or moderately cost-burdened — paying more than a one-third of their household income on rent.

    Similar numbers have been reported across Iowa.

    What if a significant commitment to homeownership was made to work with families with a dream of homeownership, combined with renovating and building homes affordable to low- and moderate-income households? According to the Urban Institute an affordable rental unit in a 50-unit building requires $180,000 in low-income housing tax credits — a subsidy that makes a project affordable to households at or below 60 percent of the area median income.

    To expand homeownership opportunities, one-third of this level of financial commitment would make a significant impact. A family earning less than $50,000 year could afford a $150,000 home with significantly less subsidy than a rental unit. To make a significant effect, it will require a commitment to programs and funding, like these listed below, to overcome current barriers to homeownership.

    Housing Counseling and Homeownership Education — NeighborWorks America recently completed a study that found eight out of 10 adults were unaware of programs that provide information on the home buying process, and yet 70 percent found the home buying process complicated. Housing counseling agencies need to expand programs statewide and build capacity.

    One solution is for the state to apply for federal funding through the HUD Housing Counseling grant program to support programs throughout Iowa. This program provided $150,001 to individual organizations in Iowa in 2018, as compared to Minnesota’s $855,718 award for a state coordinated program.

    Down payment Resources — For a household of three earning 60 percent of the area median income to afford a $170,000 home, it would require an affordable loan product and a 20 percent ($34,000) down payment.

    What if we had a matched savings program where, for every $1 the homebuyer provided, there was $3 in matched down payment funding? Individual Development Accounts provide a mechanism to reward households that receive homebuyer education and save for 3 percent to 5 percent of their down payment that then is matched with funds from local governments and foundations. This helps families build wealth and stabilizes neighborhoods.

    Renovation Funding — The housing supply of desirable homes in the $130,000 to $200,000 is very low locally and nationally. Yet there are homes in our neighborhoods that are contributing to blight, yet not selling or even listed due to the significant repairs needed to provide safe housing. There are programs in Iowa that are working locally on solutions.

    Neighborhood Finance Corp. lends in areas of Polk and Linn counties. The program allows homebuyers to purchase a home and complete renovations, combined with a $10,000 forgivable loan toward the renovations.

    In addition, low- and moderate-income homebuyers receive $2,500 for closing costs, and a $10,500 deferred down payment loan. The Affordable Housing Network is renovating homes for homeownership in the Wellington Heights neighborhood in Cedar Rapids. NFC Properties is building homes in the VIVA East Bank neighborhoods in Des Moines. And the Hy-Vee and Midwest Heritage Bank initiative is renovating homes in Chariton, in Lucas County in south-central Iowa.

    Consistent funding would allow programs to increase in scale and impact.

    A possible source of funding is the Neighborhood Homes Investment Act, which has been introduced in the House of Representatives. It would revitalize distressed urban, suburban and rural neighborhoods with federal income tax credits, mobilizing private investment to build and rehabilitate 500,000 homes for moderate- and middle-income homeowners over the next decade.

    Homeownership is important and can be a solution to a community’s affordable housing shortage. It is essential to maintain strong communities and create opportunities for generations to come. Consider the impact on wealth building and the revitalization of our neighborhoods if affordable homeownership had $50,000 of subsidy per home to prepare families — through financial coaching and homebuyer education, provide down payment and closing cost assistance, and create affordable homes through renovation and new construction.

    • Stephanie Preusch is executive director of the Neighborhood Finance Corp. in Des Moines.

    Direct Iowa Ideas updates sent to you for free.