Lately we have been having policy discussions about which houses to purchase and why. There are many houses that don't need much work outside of some paint, carpet and appliances to be habitable again. We could buy them, do the minor repairs and turn them around in a jiffy. These houses would be a quick win. The drawback of a non-profit doing easy houses is that it's not necessary for a non-profit to turn those houses. They are cheap and don't require tens of thousands of dollars of work. A family that plans to occupy the house could buy it and use their own sweat equity and cash to renovate it to their liking. Shouldn't federal dollars be used on houses that no one wants? We can buy the clunkers and spend the time and money required to make them desirable again. We're not going into decimated neighborhoods, just damaged ones. We should buy the worst houses in those neighborhoods, not the best ones. The market will take care of the best ones particularly once we clean up the eyesores, right?
Perhaps. The other side of the argument is that the federal money doesn't just give us the opportunity to buy and renovate, we can also provide deep subsidies to lower the mortgage for low to middle income families, allowing them to purchase homes that would normally be out of their price range. "Whoa!" I hear you say. "Wasn't putting people in more home than they could afford the train we rode into this Great Recession? Stop. Stop. I'm getting off now."
Please don't hop off too hastily. You are right that outsized mortgages with complicated and misleading repayment schedules were the drum majors in the global march to Skid Row. However, the subsidies I am describing will permanently lower the price of the house for the buyer without adjusting, ballooning or otherwise becoming unmanageable. Here's an example. Say we buy a house for $85,000 and put $15,000 of work into it. We are not permitted to sell it for a profit. So our sale price is $100,000. Let's further assume that the median income for the area is $70,000 for a family of four. The rules require us to sell to a family making no more than $84,000 or 120% of the area's median income. Finally, imagine that a family making a total of $50,000 loves the house and wants to buy it. Their finances will not allow them to borrow more than $75,000 for the purchase. We can provide a subsidy of $25,000 that will act as a silent second mortgage at 0% interest and requiring 0 payments as long as the family lives in the home. They will only have to borrow the remaining$75,000 on a fixed-rate, 30 year mortgage, subject to whatever down payment requirements the lender may have. The second mortgage in some counties will be forgiven entirely over the passage of time. In others, the second mortgage will be repaid upon resale and the county will recycle the funds for new buyers. With the subsidy, the family effectively pays $75,000 for a house that is valued at $100,000, the street/neighborhood gains the stabilizing influence of an owner-occupied house and the government can turn a house and show success quickly for a small investment when a more involved rehab would require a much larger investment of time and money.
As an aside from a former housing and school segregation junkie, the subsidies aren't just about allowing a family to live in their dream house even though they can't really afford it. Better neighborhoods mean much more than prettier houses. Usually more expensive neighborhoods have access to higher quality public education options, are closer to employment opportunities, have broader transportation options, and have neighbors who can provide helpful introductions to newer and better economic opportunities. Making it easier for people to live in stronger neighborhoods can produce short term gains, but also long terms gains like changing the trajectory of children who are no longer stuck in neighborhoods with failing schools and negative role models.
My company is balancing the two policy goals, clearing clunkers out of the market and turning nicer houses quickly, in our work. I think of it a little like a well-balanced dinner plate: lots of veggies and protein, with room left for dessert too.
Perhaps. The other side of the argument is that the federal money doesn't just give us the opportunity to buy and renovate, we can also provide deep subsidies to lower the mortgage for low to middle income families, allowing them to purchase homes that would normally be out of their price range. "Whoa!" I hear you say. "Wasn't putting people in more home than they could afford the train we rode into this Great Recession? Stop. Stop. I'm getting off now."
Please don't hop off too hastily. You are right that outsized mortgages with complicated and misleading repayment schedules were the drum majors in the global march to Skid Row. However, the subsidies I am describing will permanently lower the price of the house for the buyer without adjusting, ballooning or otherwise becoming unmanageable. Here's an example. Say we buy a house for $85,000 and put $15,000 of work into it. We are not permitted to sell it for a profit. So our sale price is $100,000. Let's further assume that the median income for the area is $70,000 for a family of four. The rules require us to sell to a family making no more than $84,000 or 120% of the area's median income. Finally, imagine that a family making a total of $50,000 loves the house and wants to buy it. Their finances will not allow them to borrow more than $75,000 for the purchase. We can provide a subsidy of $25,000 that will act as a silent second mortgage at 0% interest and requiring 0 payments as long as the family lives in the home. They will only have to borrow the remaining$75,000 on a fixed-rate, 30 year mortgage, subject to whatever down payment requirements the lender may have. The second mortgage in some counties will be forgiven entirely over the passage of time. In others, the second mortgage will be repaid upon resale and the county will recycle the funds for new buyers. With the subsidy, the family effectively pays $75,000 for a house that is valued at $100,000, the street/neighborhood gains the stabilizing influence of an owner-occupied house and the government can turn a house and show success quickly for a small investment when a more involved rehab would require a much larger investment of time and money.
As an aside from a former housing and school segregation junkie, the subsidies aren't just about allowing a family to live in their dream house even though they can't really afford it. Better neighborhoods mean much more than prettier houses. Usually more expensive neighborhoods have access to higher quality public education options, are closer to employment opportunities, have broader transportation options, and have neighbors who can provide helpful introductions to newer and better economic opportunities. Making it easier for people to live in stronger neighborhoods can produce short term gains, but also long terms gains like changing the trajectory of children who are no longer stuck in neighborhoods with failing schools and negative role models.
My company is balancing the two policy goals, clearing clunkers out of the market and turning nicer houses quickly, in our work. I think of it a little like a well-balanced dinner plate: lots of veggies and protein, with room left for dessert too.
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