A needed report on investors and neighborhood stabilization

I just want to draw attention to a recent LISC report from Alan Mallach, "Meeting the Challenge of Distressed Property Investors in America's Neighborhoods."

http://www.lisc.org/content/publications/detail/18811

I and others have been arguing that communities need to find ways to accommodate and manage the transition of neighborhoods that are unable to maintain owner-occupiers to be stable mixed tenure or renter communities. ( see for example: http://www.bos.frb.org/commdev/REO-and-vacant-properties/131-Pellet...; http://www.nwaf.org/FileCabinet/DocumentCatalogFiles/Other/PolicyLi...)

My sense is that Mallach's piece is the first to turn a clear eye on the problem and provide practical examples of what is needed at the local level to make progress. I'd be interested in hearing what others think.

Replies to This Discussion

Permalink Reply by John Settles on November 23, 2010 at 10:22am

I agree that rental housing needs to become a focal point of neighborhood stabilization. I actually advocate using the market rate rental values as the methodology for determining the floor value of properties. Further, I would like to see more non-profits acquire vacant and foreclosed property using funding such as the 203(k), where they can obtain acquisition and rehab funding with 3% down. They should also create collabarative property management entities, that could even be co-owned by local entities, to manage the local scattered site properties. This could not only stabilize the communities but create a permanent supply of affordable housing. Additionally, local public policy must incent the creation of diverse housing units to reflect current market demand and conditions. In high cost markets like DC, NYC, Boston and San Francisco for instance there is a need for both smaller units that are more affordable, units set up as shared suites for multigenerational and shared housing, and an increase in handicap accessible housing. WIth an aging population the current market presents and opportunity to "accomodate" seniors that are living in dilapidated housing by swapping their unit with a green/accessible home.

Permalink Reply by Maya Brennan on November 23, 2010 at 11:18am

Thanks for sharing these great resources, Danilo. I'm always glad to see more attention being brought to the ways that rental housing can be done right and how it can add to neighborhood stabilization.

For skimmers, see chapter 4 of Mallach's piece (the first link above) for examples of incentives that localities can offer to improve the quality of investors/landlords and boost (responsible) private acquisition & rehab. Chapter 3 has great examples of regulatory strategies.

One piece that always seems to be missing to me is a communication tool that can help reorient people's perceptions of rental homes to reflect the fact that renting has always had an important place in the U.S. housing market and in our communities. Does anyone know of good work or resources on renters' value to communities?

Permalink Reply by Danilo Pelletiere on November 23, 2010 at 4:47pm

And does anyone know of examples of communities that have recently moved into a more proactive, constructive relationship with landlords large or small?

Permalink Reply by Samantha DeKoven on December 7, 2010 at 10:39am

This blog post (http://www.metroplanning.org/news-events/blog-post/6041) describes how suburban communities in the Chicago area are reaching out to landlords offering resources and training. Also, the Center for Housing Policy's upcoming webinar "Repositioning Suburban Multifamily Foreclosures: A Case Study from the Village of Oak Park, IL" on Wednesday, December 8 at 2:00 p.m. EST/11:00 a.m. PST may be of interest.

Permalink Reply by Leo Quigley on May 3, 2011 at 10:00am

I have a related question on strategies to engage private purchasers of foreclosed properties. Are cities offering flexible financing tools that induce private purchasers to maintain, improve, and re-sell small foreclosed properties (3-families) to owner-occupants. Small developers I know shun federal programs with lots of red tape. Is there a financing incentive out there that appeals to the independent-minded developer?

Permalink Reply by Rick Rybeck on January 30, 2011 at 3:19am

There is an unfortunate perception that renters are not "good neighbors" and that they are not as involved in community affairs as are homeowners. Of course, if a landlord can evict tenants on a mere whim, it becomes difficult for the tenants to invest time and energy in community affairs.

For this reason, it might be instructive to look at cities that have enacted moderate rent control. These are rent control regimes that peg rent increases to the CPI and that allow landlords to make a minimum rate of return on their investment. Regardless of the impact of these regimes on housing affordability, they create a requirement that tenants can only be evicted for non-payment of rent or violation of their lease. Because eviction can now occur only for "cause," tenants obtain security of tenure and this allows them to feel "vested" in their communities.

Permalink Reply by Rick Rybeck on January 30, 2011 at 3:45am

One of the techniques that Mallach calls for are tax abatements. This is difficult due to the dire financial status of many jurisdictions.

Yet, the need for tax breaks is real. Unlike a sales tax, which is paid only once, a property tax on improvements is paid every year that an improvement adds value to a property. Thus, using a net present value calculation, a 1% to 2% property tax on improvements is equivalent to a 10% to 20% sales tax on construction labor and materials. This is a significant burden on landlords who wish to maintain or improve their buildings.

Tax relief can be granted without sacrificing needed municipal revenues by shifting the property tax off of building values and onto land values. (Higher taxes on land values actually help keep land prices low and create incentives for development where land values are high -- which is near urban infrastructure in cities.)

Some cities in Pennsylvania have successfully accomplished this and experienced substantial reductions in vacant and boarded-up properties as a result..