Developments will help Cedar Rapids renters transition into homeowners

CEDAR RAPIDS - Nearly all the financial help to replace or renovate the city's flooded housing stock has gone toward what city officials call “work force housing” for those who make less than the area median household income - in some instances, much less.

Two new proposals have surfaced that attempt to fine-tune the replacement housing effort and reach a specific group of lower-income residents - those who work and dream of owning a home but can't qualify for a mortgage.

It would be a housing option new to Cedar Rapids called rent-to-own, or what the Iowa Finance Authority calls Renter to Ownership Savings Equity, or the ROSE program.

One proposal would add 20 homes on flood-hit blocks in northwest and southwest Cedar Rapids beyond the new flood protection, and the second would add 18 rowhouse-like town houses on the edge of the new Medical District in southeast Cedar Rapids.

Twenty other rent-to-own homes already are under construction off Zika Avenue NW, near Ellis Park, as part of an 81-home development called Sugar Creek.

The ROSE program is designed to build homes for renters earning 60 percent or less of the area's median income. Renters set aside a small amount in savings each month to use later to purchase a home.

Both of the proposals will be funded largely by revenue from federal tax credits, as part of a program in which investors put up the funds to build the homes and then recoup their investment plus interest in credits against their federal tax liability.

Kyle Skogman, president of Skogman Homes Inc. in Cedar Rapids and a builder who has been active in programs to replace flooded housing, points out that about half of the 1,300 or so homes being bought out and for the most part demolished were rental units before the June 2008 flood.

Much of the post-flood housing construction, he adds, has built apartments or, in the case of The Roosevelt downtown, renovated apartments.

“You lost a lot of affordable, single-family rental homes in the flood, and for the most part, they've been replaced by high-density apartments,” Skogman said. “(The rent-to-own) product is actually replacing what we lost.”

Skogman, who is a development partner in two of the three rent-to-own projects, said every housing study he's seen from City Hall shows that working households earning 60 percent or less of median income are hurting most for housing. Sixty percent of area median income for a household of four is $41,040 a year.

“To me, this (rent-to-own program) is right in the spot where the city needs the help,” he said.

Dave Vaske, Iowa Finance Authority's housing tax-credit manager, said the rent-to-own program has been available for some years, though neighboring states seem to have taken advantage of it more than Iowa, he said.

In 2010, the Iowa Finance Authority provided tax-credit backing for a 59-unit project in Altoona and a 27-unit project in Harlan, in addition to the 20 homes at Sugar Creek in Cedar Rapids.

The finance authority likes the rent-to-own program, Vaske said, because it lets renters build equity that they can use to buy a house, even if it's not the one in the program.

In addition, the program is often designed to require the renter to cut the grass and provide some home maintenance, as well as participate in classes for the transition from renter to owner, he said.

Jim Ernst, president/CEO of the Four Oaks family services agency and its Affordable Housing Network Inc., acknowledges that the nationwide foreclosure crisis of the past few years was fueled in part by bad lending practices - including loans to those who have not been able to make mortgage payments.

There is some rethinking, he said, about the notion that most everyone can afford to buy their own home.

Even so, Ernst - whose Affordable Housing Network is a development partner with Skogman in the west-side proposal - said the foreclosure crisis doesn't mean that government can't craft incentive programs to help people become homeowners.

He said he sees three groups of people among those at or below the median household income. One group can secure mortgages and do. A second group “very legitimately” should be homeowners and can be with the help of a program like rent-to-own. A third group should rent and not own.

Iowa Finance Authority's Vaske adds that some people simply prefer not to own a house.

“(But) there are still folks out there who truly are potential homeowners, who have the dream of owning their own home,” he said. “They just need some added stimulus, and I think this (rent-to-own) program can provide that.”

Skogman said the first five rent-to-own Sugar Creek homes are under construction and will be mixed throughout the neighborhood. The non-profit Community Housing Initiatives Inc., based in Spencer, with an office in Cedar Rapids, will manage the program. No tenants have yet signed on.

Skogman said the $4.3 million west-side proposal will put rent-to-own homes on several blocks.

In southeast Cedar Rapids, Hatch Development Group of Des Moines calls its $4.7 million town-house proposal, Greystone Homes. Ten of the units will go on property at 906 12th St. SE that Hatch will buy from Mercy Medical Center and eight will go on property at 1221 Fourth Ave. SE that Hatch will buy from St. Luke's Hospital.

The City Council has agreed to give lots bought out by the city to the west-side project and $150,000 to the east-side proposal.

Additional federal funds will help each project.

Council member Don Karr noted last week that the nation's middle class has been hit hard by tough economic times in the past few years, and he said the rent-to-own idea “will give some people a dream.”

Council member Chuck Wieneke pointed out that the Hatch building sites are close to Mercy Medical Center.

“It will be nice for those who work at Mercy Medical Center and don't make as much money as people think they do,” Wieneke said.

Dale Todd, project manager for Hatch Development and a former City Council member, said the hospitals' willingness to sell land for the residential units is an indication of their “desire to energize these neighborhoods.”

City officials said the rent-to-own projects will pay property taxes.

The homes must remain as rent-to-own for 15 years, at which time the owner may sell them at an “affordable rate” to the current renter or someone else. Many of the renters are expected to use the savings they build up to leave the program and buy a home elsewhere.

The savings must go for a home purchase, though. The savings reverts to other renters in the development if the renter leaves and does not use the money to purchase a home, according to the Iowa Finance Authority.