Long-term commitments needed for affordable housing

A disaster recovery aid package coming down the pipeline will deliver some much-needed affordable housing to Cedar Rapids and Linn County. Modeled after the ROOTs (Rebuilding Ownership Opportunities Together) program that added housing after the 2008 flood, this ROOTs 2.0 addresses housing impacted by the 2020 derecho. It's funded with Community Development Block Grant-Disaster Recovery funds, or CDBG-DR for short. The new program is supposed to be better than ROOTs, with lots of additional dynamics based on lessons learned.

ROOTs

A local appraiser and I recently sat down to discuss the impact of ROOTs on housing prices. He shared some sales data that puts the impact of this program into perspective.

The original ROOTs delivered 869 homes, about one-third of those on infill lots throughout Cedar Rapids' core neighborhoods. The max sale price was capped by the program. Developers sold these owner-occupied homes to income-qualified households given grants equal to 25 percent of the home's purchase price after they had lived there for five years.

These new homes dramatically affected the price of housing in core neighborhoods. For example, in 2007, the highest home sale in Oak Hill Jackson was $46,000, and in Time Check, it was $69,000. Compare those prices to the first ROOTs homes: $142,000 in Oak Hill Jackson and $125,000 in Time Check. Keep in mind that 2007 was near the housing bubble's peak when housing sales were at high water marks.

Every year of the program, which ended this year, new ROOTs homes or existing ROOTs homes sold to new owners were some of the highest sales ever in those neighborhoods. By 2021, the average Oak Hill Jackson home sale was $103,000 (124 percent increase), and in Time Check, $142,000 (106 percent increase). Both neighborhoods with ROOTs homes saw more than double the Cedar Rapids average home sale increase of 45 percent.

What ROOTs did was shatter the glass ceiling of housing values in core inner-city neighborhoods. ROOTs homes that initially sold for $125,000 now sell for close to $200,000. The appraiser noted that when he is in these neighborhoods doing inspections, homeowners often make "keeping up with the Joneses" comments. He said the higher price ceiling has made it more economically viable for them to make improvements by pulling money out with a refinance.

ROOTs 2.0

ROOTs 2.0 is like the previous iteration because the program incentivizes developers to build 150 single-family homes to be sold to income-qualified buyers. The most significant difference is that income-qualified borrowers must own these owner-occupied homes for 15 years — not five. There is also funding for 150 rental units with a 20-year restriction for income-qualified tenants. There are no restrictions on which neighborhoods these can be built in, but there seems to be an emphasis on infill lots.

The extended income qualifications will blunt the forces of gentrification because the home prices and rents will be comparable to the higher end of existing rates across the core neighborhoods. The effects of ROOTs 2.0 on prices will take much longer before the rates adjust to the actual construction costs.

After the increases in construction costs from the pandemic, housing built in once affordable Oak Hill Jackson and Time Check has tended to be more in the luxury condo segment of the market. This is even though taxpayer-funded local, state and federal incentives often offset costs.

Residents concerned about maintaining gentrification should hold elected officials accountable for tying taxpayer-funded incentives to affordable housing with long-term commitments. The CDBG-DR requirements are a good start.

Eric Gutschmidt is owner of Gutschmidt Properties. He is applying for CDBG-DR to build rental properties in three core neighborhoods.

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