Housing Opportunity: Real-Life Solutions

There’s more than one answer to meeting the complex challenge of affordability. In an effort to explore a few of the many successful efforts nationwide, REALTOR® Magazine Online is offering a year-long series of case studies highlighting housing opportunity best practices.

February 1, 2003

Even as the level of U.S. homeownership hit a new record high of 68 percent in 2001, soaring home prices and flat wages are all too often turning the dream of homeownership into just that—a seemingly unattainable fairy tale.

“I really need a house so I’d have enough room for my family, but I couldn’t save up the downpayment,” says Demetria Kennedy, a hospital respiratory therapist in Savannah, Ga. Kennedy eventually received a grant from the Nehemiah Corp. and bought her home. But her dilemma highlights one of the many factors that still stand between almost one-third of Americans and a home of their own.

The most significant housing challenge today is affordability, according to the Millennial Housing Commission, a special committee established to analyze the country's housing needs In 1999, for instance, 28 million American households spent more than 30 percent of their income on housing, more than the federal government considers affordable.

And the rapid escalation of housing prices in the three years since has only made affordability an even more urgent problem, experts say. “The cost of housing has increased dramatically,” says F. Barton Harvey III, CEO at the Enterprise Foundation, a nonprofit group that supports neighborhood revitalization programs nationwide. “There’s a mismatch between the cost of housing and income.”

Research by the National Association of REALTORS® shows that the median price of a home has rising from $133,300 in 1999 to $161, 400 in November 2002. Meanwhile, median household income has declined about 1 percent from 1999 to 2001, going form $43,355 in 1999 to $42,228 in 2001. And while home prices still fall within in the two-and-one half to three times income guidelines used by NAR, they are inching toward the top of that range.

Established programs such as block grants, property-based subsidies such as Section 8, rental vouchers, and the federal low-income housing tax credit have long be used as tools to provide rental housing for people with modest incomes. Still, in 1999 (the last year when statistics were available), approximately 1.7 million U.S. households lived in severely inadequate housing. And rental affordability for low- and moderate income families fell by 9.5 percent between 1985 and 1999, despite federal subsidies that served 4.8 million households in 1999, the Millenial Housing Commission found.

Many other affordable housing programs focus on ways to increase homeownership--considered key to stabilize neighborhoods by most housing groups. Housing trust funds, for instance, purchase and retain ownership of the underlying land in order to make a house more affordable. Land trusts work well buyers who understand the concept, but the homes can be hard to resell because owners don’t share in the appreciation of the land prices, notes REALTOR® Linda Norton, Coldwell Banker Residential Brokerage-Drake, in Ft. Collins, Colo. Banks offer mortgages backed by government subsidies with below-market interest rates. Cities provide their own money to rehab old houses for rent or sale. New houses are built by nonprofit organizations such as Habitat for Humanity and then sold at cost to eager buyers. National nonprofits like the Nehemiah Corporation and Newsong Buyers Assistance, as well as many states and municipalities provide downpayment assistance and credit counseling to struggling homebuyers.

“There isn’t one single answer to housing affordability; there’s an array of solutions, but what works all depends on the local market,” notes Kent. W. Colton a housing consultant in McLean, Vir., and senior scholar at the Joint Center for Housing Studies of Harvard University.

In healthy housing markets with solid property values, local governments may be able to use inclusionary zoning rules to encourage more affordable housing. Montgomery County, Md., for instance, has successfully used this method to create affordable units. Developers build a certain number of lower-priced homes then are compensated by being allowed to build more units in a project than zoning would otherwise have allowed. This approach has recently grown in popularity since state governments have less for money for housing options in the face of huge budget shortfalls. "If a market is strong, developers will support the idea," says John McIlwain, senior resident fellow for housing at the Urban Land Institute in Washington, D.C.

Affordable housing programs are especially tricky in distressed areas, usually requiring not only direct government assistance, but also the leadership of local non-profit organizations. In Cleveland, for example, the Homeward Program has helped rehab and sell approximately 1,100 homes. The program sells a renovated house for about $85,000. The $2,000 down payment is usually lowered by a grant. Banks waive closing fees. The city offers a partial property tax abatement. It’s often requires all of these factors to make a home affordable to buyers with incomes in the $35,000 range.

The program was created with the support of charitable foundations, non-profit housing groups, local and state government, and community banks. "The challenge is to involve all the major players," says Rob Curry, executive director of the Cleveland Housing Network, the non-profit group that runs the Homeward Program.

Curry attributes a significant part of the program's success to the high-quality of the homes it offers. They don't require the kind of expensive repairs that can sink a new homeowner. Also key is a dose of pre-and post-purchase credit counseling for the home buyers. "We have a foreclosure rate of less than 1 percent. That is spectacular by any measure," Curry says.

Counseling is also a big component of the downpayment assistance program at the Nehemiah Corporation of California. Program participants complete a homeownership education course prior to a home purchase. Online classes are offered for those unable to attend classroom sessions. Nehemiah also provides credit counseling for people who would eventually like to buy a home.

"We help people improve their credit quality in order to make them attractive to lenders," Scott Syphax president and CEO of Nehemiah in Sacramento, Calif. The group has provided downpayment grants to 130,000 families nationwide, totaling more than $277 million. "Homeownership should be for everyone who wants it," says Syphax.

Ultimately, each affordable housing program is shaped by the needs and the resources of a community. Funding and support take many forms and are drawn from a broad coalitions of government, non-profit groups, developers, planners, lenders. and neighborhood residents. REALTORS® are part of the mix, too.

"The country has 850,000 REALTORS® ," says Jim Hamilton, 2003 board chairman of NAR’s Housing Opportunity Program, an effort by the National Association of REALTORS® to promote affordable housing. "Just imagine if each of our members committed just one hour to the issue of affordable housing. That would make a difference." Already nearly 140 state and local REALTOR associations are operating successful housing programs.

For example, the Illinois Association of REALTORS® has established a not-for-profit foundation, the Partnership for Homeownership, to assist first-time, low and moderate-income homebuyers. REALTOR® members provide free credit counseling. Since 1996, the Partnership has worked with the state and local governments to provide $103 million in assistance to 1,626 program participants.

Says Gary Clayton, CEO at the Illinois Association of REALTORS®: "Once you get people into the housing market, everyone benefits."

Over the course of the next year, REALTOR® Magazine Online will spotlight four other of the hundreds of successful programs working to increase housing opportunity for Americans.

Jane Adler is a Chicago-based freelancer writer.

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