Competing factors raise concerns for home giveaway program

CEDAR RAPIDS - Builder Jim Sattler stepped inside the flood-damaged house at 2108 C St. SW for the first time Monday.

He noted two dead birds on the stairs, squeaky floor boards on the gutted first floor and the carpeted second story, and the smell of animals that Sattler hoped had been pets - as it has been 32 months since the June 2008 flood.

“I'm concerned about the cost to get it to a salable condition,” he said, adding that the numbers may not leave room for a dime of profit. “I'm beginning to think this is a civic duty.”

Sattler, president of Jim Sattler Inc. Custom Homes, and some 20 other builders stepped forward in August to participate in a home giveaway financed with federal dollars. The program is designed to save some less-damaged homes on the city buyout list. A home is given to a builder, and the builder, in turn, renovates and sells it at a profit no more than 15 percent above cost.

Sattler and the others settled on 100 homes as possible renovation targets, though they hadn't had a chance to get inside many of them because the city had not yet bought them out. As closer looks have come, some of the builders have grown less certain of being able to recoup renovation costs and find a buyer.

Caleb Mason, a program administrator in the city's Community Development Department, said interest in the program has dropped perhaps by half. No renovation has begun, with the first handful of contracts with the city slated to be approved in March.

Sattler is a case in point: The city awarded him 21 of the 100 homes in the program, and the house at 2108 C St. SW is one of only three he has decided, for now, he can fix up.

Complicating matters is a second federally funded housing program, one designed to build 200 homes in flood-damaged neighborhoods - only this program comes with attractive incentives for buyers and builders.

So builders like Sattler are trying to figure out what the housing market in the neighborhoods, primarily in northwest and southwest Cedar Rapids, can support in the near term and longer term.

Sattler, who also is participating in the new-home program, said he may need to put $80,000 in renovation work into the 2108 C St. SW house before he sells it, while the new homes - which come with a free lot, a 25 percent mortgage incentive for the buyer and some funds to improve water and sewer lines - will come with a sale price not so different from that of the renovated houses. The latter has no incentive for the buyer.

The one difference between the programs is that the new homes must go to households earning 100 percent of the local median income or less, with at least half of those to households earning 80 percent or less.

Sattler questions if there is a sufficient number of buyers interested in moving into the flooded neighborhoods. Then he wonders if there is a sufficient number who will meet the income guidelines and be able to secure a bank mortgage. Plus, the renovated homes may be less attractive, because of the new homes' incentives, he said.

“You want to satisfy all the need we can, but not have 50 to 100 ‘spec' homes sitting here and have an unsuccessful housing replacement program,” he said.

Mason said the city is listening. The City Council this month closed the housing giveaway program, limiting it to the 100 homes awarded to date and expecting that only some of them will make financial sense to renovate.

The city also has asked the Iowa Department of Economic Development to extend the new-home program so construction doesn't need to start until December 2013.

Jim Ernst, president/CEO of the Four Oaks family services agency and the Affordable Housing Network and a partner in the Block by Block program, notes that Block by Block has been renovating houses for resale in the past 20 months on 24 flood-damaged blocks. He said the group is nearing the sale of 15 homes, with another five or so set to come on the market. It has been awarded 14 homes in the city's renovation giveaway.

He understands why for-profit builders might turn away from the renovation program and toward the new construction program. Ernst said Block by Block, as a non-profit group, uses some volunteer help and so can make the cost of renovation work out.

One possible outcome, Sattler said, is that current owners of homes in these neighborhoods may have difficulty selling in the short run, as more renovated and new houses come on the market there. Over time, though, he said the value of existing homes should go up as other homes populate the neighborhoods.

“I think all boats will rise. … The tide raises all of them,” he said.