Housing Opportunity: Asheville, N.C.

A community-wide initiative helps turn historic homes into affordable places to live.

February 1, 2003

Tucked in foothills of the Appalachian Mountains, the 70,000 residents of Asheville, N.C. have long prided themselves on a welcoming and open attitude to the artists, retirees and other “outsiders” who have make the city home in recent years. The affordability of homes is as much a draw as the city’s scenic beauty for many relocating residents. Asheville ranks 125th in affordability out of the 186 cities in the National Association of Home Builders Housing Opportunity Index.

But while the city grew and prospered, Asheville struggled with two problems shared by many older cities, a deterioration of once-grand historic neighborhoods and a lack of affordable housing for local residents for whom even the $127,000 median-priced home was unattainable. In an effort to address both of these challenges, a broad coalition of citizens, local government, and housing groups worked together to bring new life and new homeowners to the tarnished, century-old Head of Montford neighborhood.

Beginning in the mid-1980s, the program has rehabilitated approximately 100 homes for people with low and moderate incomes. The program has also been a catalyst to transform a historic neighborhood that had fallen into disrepair. "We wanted to stabilize the area," says Myra Fuller, a neighborhood resident since the 1970s, who was there at the first meeting. "But we wanted to maintain our economic and ethnic diversity."

Hard Times for a Once-Proud Community

Just north of downtown Asheville, the neighborhood had been the best place to live in Asheville during the early 1900s--populated by the town's leading professionals. The area’s decline being in the 1960s and was speeded along by the energy crisis in the 1970s. Few wanted the big, hard-to-heat Victorian houses when they could have new suburban homes on bigger lots. Many homes in Head of Montford were subdivided into apartments, which soon became hangouts for petty criminals and prostitutes. Each year more houses were torn down.

Concerned about the deterioration of their community, a group of neighborhood residents began meeting to discuss options. The group’s first step was to have the area designated a historic district. A survey identified 650 homes in the neighborhood; only about 30 had been built after 1930. The city and federal historic district designations, achieved in 1977, prevented many homes from being leveled. "That stopped the destruction," Fuller says, and gave the group time to marshal its forces to plan for redevelopment.

Residents continued to meet once or twice a week but soon realized they needed outside help to get the old houses in the neighborhood rehabbed. The City of Asheville stepped in.

"We put together a redevelopment plan for the neighborhood," says Marvin Vierra, who was community development director in Asheville during the initial phases of the program in the mid-1980s. Residents worked with the city to form a non-profit organization, Neighborhood Housing Services, to spearhead the redevelopment. All interested parties were invited to become board members of the organization.

"I was the REALTOR who was invited to join that group because I was the only one showing houses over there," says Betsy Reiser, broker/owner of Appalachian Realty Associates in Asheville. "The organization was a whole new concept.” Today, two sales associates from Reiser’s company still serve on the NHS board.

Next, a partnership was established between Neighborhood Housing Services, the Asheville Housing Authority, and the City of Asheville. The city provided funds to the housing authority for the acquisition of homes in Head of Montford, which were then rehabbed and resold by Neighborhood Housing Services. Rehab plans had to follow guidelines for historic preservation and be approved by the local historic resources commission.

The redevelopment was funded in part with community development block grants from the city and federal HOME funds. Block grants totaling about $5 million were spent to improve the infrastructure in the Head of Montford area. Streets and sewers were repaired. Brick sidewalks were installed on some blocks to recreate the original look of the old neighborhood. Water and sewer services were brought to vacant lots so those could be sold and redeveloped. The program also encompassed homebuyer education and downpayment assistance programs.

And as the neighborhood began to be revitalized, private investors began to come back to Head of Montford. Vierra estimates about $10 million in private funds have been spent in the neighborhood thus far.

Another key to the success turnaround of Head of Montford was the city’s recognition that government involvement alone was not enough to sustain a viable neighborhood. As renovation got underway, the city established loan programs to encourage both homeowners to buy and improve the area. About $1.5 million has been loaned so far to rehab about 105 houses. The Flexible Affordable Inclusive Rehab, or FAIR, loan is available to Asheville homeowners whose incomes do not exceed 80 percent of the area's median income of $32,772. Homeowners can borrow as much as $50,000. Interest rates on loans are adjustable and range from 0 percent to 6 percent based on the applicant's income. Also, as much as 75 percent of the loan can be deferred until the property is sold, or the mortgage is refinanced.

Last year, Martia Bennett purchased a home for $67,500 in the Head of Montford area and qualified for a FAIR loan to rehab. Bennett had been looking for a house to buy for about 18 months. She was happy to find a house she could afford in the Montford area, only three blocks from downtown Asheville where she works at a law firm as a paralegal.

"I was really lucky," says Bennett, who earns $25,000 a year. Bennett qualified for a $5,000 down payment grant from the state. She also obtained a low-rate 6.125 percent mortgage because she attended a first-time homebuyer's course.

The 74-year-old house she bought, a pink cottage with 1,000 square feet and two bedrooms, had lots of charm. The cedar shake shingles and high ceilings made it the kind of place that fit nicely in the historic district. But the house also required substantial work in order for it to meet local building codes.

"I needed extra money to fix the house," Bennett says. Her lender told her about the city's FAIR program, and she was able to qualify for a $40,000 loan. Under the loan terms, Bennett must repay only $10,000 of the loan at a 2 percent interest rate over 30 years. If the house is sold, the remaining balance of loan becomes due.

Bennett has lived in the house since last May. She is using the $40,000 loan to replace the electrical wiring in the house, install a new roof, and fix the outdoor deck. Her own savings will pay for a new kitchen and French doors that will be installed between the living room and kitchen. "The house will be very presentable," she says.

Private investors can also borrow money from the city to rehab houses as affordable rental properties. Loans for as much as 100 percent of the rehab costs are deferred for a year. After the deferment, loans are payable in monthly installments over a 20-year term. If the property is sold within five years of rehab, investors must pay the deferment with a 10-percent interest charge. Borrowers must keep rents affordable, but when the property is sold, rents can be brought to market rate.

Keith Harwood, who rehabs homes in the area, borrowed $100,000 to rehab a 112-year-old house on Starnes Avenue. The 10,000-square-foot Queen Anne-style house was built by the Starnes family, prominent local bankers. Over the years, the building had been a hospital and a boarding house.

Harwood had paid $300,000 for the home in 1998 and has been working on renovating the property ever since. "The house was going to be torn down it was in such bad shape," he says. The exterior of the wood-shingled house is being restored in accordance with historic guidelines. Exterior balconies that had previously been removed were replaced, and an existing slate roof was repaired.

The house now provides 11 affordable apartments with monthly rents from $400 to $475. Ten of the units are already occupied while work on the last apartment is almost complete. "It's very easy to get tenants," he says.

But today, the gentrified area faces a new challenge—maintaining affordability in the face of rapidly rising prices. Neighborhood activist Fuller bought her house in 1975 for $17,000. She now figures it's worth about $280,000. "It's just the logical consequence of our success," she says. Although 75 percent of the houses that were rehabbed through the affordable loan program have not yet been resold at market rates, there are worries that the area has been restored too quickly.

According to Reiser, big Victorian homes, some of which have been converted into bed and breakfast inns, sell for as much as $800,000. "There would have been no affordable housing left in the neighborhood if it weren't for the involvement of Neighborhood Housing Services," Reiser says.

The group has built a handful of new affordable rental buildings on vacant land in the neighborhood. But the real focus is still on affordable homeownership, says H. Christopher Slusher, executive director of the organization.

Neighborhood Housing Services has used HOME funds to build 12 new homes in Head of Montford over the last ten years with prices ranging from $103,000 to $133,000. Three new houses were finished this year on Short Street. Two more new homes are underway.

Slusher says subsidies of as much as $40,000 have kept the new houses affordable. The subsidy, as Slusher explains, takes the form of a second or third mortgage, which is deferred for 30 years. Even if the home is sold, the mortgage deferment remains in place if the new owner’s income qualifies. "That brings the cost of the first mortgage down so people can qualify for a bank loan," he says.

Though the neighborhood is nearly built out, Slusher says his organization will continue to work on the "fringes" where the houses are smaller and the land is less expensive. A number of big boarding-type houses need to be rehabbed, too.

But Slusher worries what will happen when the houses that were originally rehabbed with affordable loans are eventually sold at market-rate prices. Lately, he has been working on the idea of a community land trust that would own the underlying land on which a house is built. The homebuyer would purchase the house and lease the land. "It takes the price of the land out of the equation," he says, admitting it won't be easy to find land in the neighborhood. "It will have to be done parcel by parcel," he says. "But every time we can preserve an affordable house or inject one or two new ones, it helps maintain the economic diversity that the Head of Montford was always known for."

In some ways victims of their own success, long-time residents, housing activities, and city officials alike have learned that even successful affordable housing programs are never truly finished.

Jane Adler is a Chicago-based freelancer writer.

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