A
dozen cities pursuing development of market-rate, in-city, homes
have invented imaginative, effective programs that demonstrate the
feasibility and benefits of building new homes in urban
environments. This progress report on the "Building Homes in
America's Cities" initiative launched in 1999 describes a broad
array of local incentives for in-city home building. The programs
have created a supportive climate for residential development and
home ownership in neighborhoods once seemingly doomed to decline.
Introduction
On
Feburary 4, 1999, the U.S. Department of Housing and Urban
Development (HUD), the National Association of Home Builders (NAHB),
and the U.S. Conference of Mayors (USCM) agreed to form a
partnership to promote construction of one million market-rate homes
in urban areas throughout the nation over the next 10 years. The
initiative came at a propitious moment. After years of housing
decline, many central cities are beginning to attract new residents
looking for urbane living environments. Suburbanites are being drawn
by the ambience of historic neighborhoods and by newly energizied
downtown cores. Reaping the benefits of long-term revitalization
efforts, many cities' downtowns and inner neighborhoods are
prompting growing numbers of individuals and couples, young upwardly
mobile as well as empty-nesters and retirees, to reconsider the
benefits of urban versus suburban living. And Smart Growth campaigns
across the country are heightening attention to the environmental,
social, and economic values of in-town living and working. All the
ingredients are at hand for a [boom, revolution] in city residence,
especially in homeownership, seen as an essential component in the
rebirth of our nation's urban centers.
Yet
development of market-rate homes in urban areas is still
problematic, hobbled by complex codes and regulations put in place
decades ago, by negative perceptions of inner-city neighborhood
qualities, by difficulties in assembling developable, financially
feasible homesites, and by deteriorated infrastructure systems. The
Partnership set out to stimulate a leveling of the playing table --
to make home development as attractive to builders in cities as in
suburban areas. To accomplish this, the Partnership selected 18
pilot cities and executed agreements with them to stimulate
development of market-rate homes through collaborative
public/private programs and activities. The Partnership intends to
communicate results and "best practices" from these pilot city
experiences for the use of cities across the nation. The programs
and activities undertaken by 12 cities provide a rich array of
opportunities for other cities to emulate.
Methodology:
The study was initiated by the U.S. Conference of Mayors. It focused
on identifying and comprehensively describing the programs of six
pilot cities. The cities chosen had demonstrated significant
development of market-rate housing in the past year or two and
represented a geographically mixed sample. Additionally, selected
"best practices" were chosen for study in six more pilot cities to
amplify findings from the case studies. Table 1 indicates the cities
and their programs and best practices.
For
this study, "market-rate" home construction includes homes priced
for both middle-income and moderate-income households. Many of the
city programs essentially write down initial development costs
(e.g., by providing low-cost land, infrastructure, or financial
assistance). The finished product, therefore, may be priced
initially somewhat lower than prices other "market-rate" homes in
the city and suburbs as a lure to potential homebuyers. Price
escalation occurs, however, as the neighborhood stabilizes and the
marketability of the homes is proven. The incentive programs thus
provide a "market-maturity" period to prime the pump of home
demands.
Overall Findings:
The researchers were struck by the ingenuity of local public
officials, home builders, and other housing interests in crafting
workable programs. As shown in Table 1, several cities have
undertaken similar efforts -- mayoral summits to call attention to
city opportunities and city assemblage of tax-delinquent properties,
for instance. But many also are "trying out" rather innovative ideas
such as twists on tax increment financing, Realtor training, builder
monitoring of regulatory processes, conversion of obsolescent office
buildings. Some cities initiated programs years ago that are being
broadened under the "Building Homes" banner while others are
starting virtually new campaigns. All are based on establishing
close working relationships between city agencies and between
agencies, home builders, realtors, and nonprofit community
development corporations. In all, the efforts of these cities
provide a fertile ...
Collective Findings: Themes and Variations
The
survey of 12 cities identified and described 57 local programs aimed
at increasing the supply of market-rate housing in urban
neighborhoods. (Programs identified in addition to "best practices"
in six cities, but not described, would add considerably to the
total.) The 57 programs can be roughly categorized according to
seven types of incentives:
• City
assemblage and cost write-downs of housing sites;
• City
assistance in development financing and tax reductions;
• City
reduction of infrastructure costs for new housing;
• Mayoral
"summits" and housing agency reorganizations;
• Education and information campaigns;
• Regulatory
relief (streamlining, expediting);
•
Neighborhood conservation programs providing a positive development
climate.
Table 2 indicates the city programs in each category, based on the
principal aim(s) of the programs. It should be noted, however, that
many programs offer multiple incentives and assistance, such as the
Chicago programs in which the city bundles tax-delinquent, vacant,
and redevelopable properties together, offers them to developers at
minimal prices, and provides tax relief, low-cost loans,
infrastructure improvements, and other aids that cut costs and
reduce risks to enable market-rate housing production. It can also
be observed that the program categories build on longstanding
experience in stimulating interest in urban home building. The types
of incentives are not as new as the specific applications of these
ideas by individual communities -- the ways they are tweaked and
trimmed to meet local market, neighborhood, and administrative
conditions.
In
addition, these programs usually operate in parallel with or as part
of broader, ongoing housing and neighborhood conservation programs,
including traditional housing assistance programs such as those
funded through HUD's Community Development Block Grants, HOME, and
HOPE VI programs. Indeed, several communities count recently
constructed HOPE VI projects as successful examples of introducing
market-rate housing in areas previously considered unsuitable for
homeownership. Using the HOPE VI model, city officials have learned
to leverage these longstanding public funding sources to attract
private housing investments in downtowns and inner-city
neighborhoods. City housing programs also have taken full advantage
of low-income housing and historic preservation tax credits to
attract private-market housing investments in these areas.
The
following section briefly describes some of the local programs in
each category of incentives and assistance for production of
market-rate housing.
City Assemblage and Cost Write-Down of Housing Sites:
One of the first and most difficult requirements for building
in-city homes for middle-income households is obtaining sites that
are large enough, unencumbered with legal problems, and priced low
enough to be readily developable. Availability of low-priced land
allows builders to offset the construction and market risks often
attached to infill development, especially in the early stages of
community reinvestment. At the same time, many city neighborhoods
are afflicted by the number of abandoned, derelict buildings and
vacant lots that deter residential investments. And cities collect
tax-delinquent and surplus public properties that often sit on the
books for years. Most of the cities studied have fashioned programs
to recycle these properties for reuses such as market-rate housing.
Chicago's program is perhaps the most ambitious, assembling
properties, cleaning up hazardous waste, tax, and legal issues, and
attractively packaging them for redevelopment by private builders.
Baltimore saw vacancies in Class B office buildings as an
opportunity for expanding downtown market-rate housing. Houston
created a redevelopment authority just for purpose of acquiring,
holding, and reselling unused or underused properties for new
housing. San Antonio even established a city council task force to
identify properties that could be made available for housing
development. In Sacramento, the city/county redevelopment agency
acquires land for housing development and the Capital District
agency puts surplus state land to use for housing.
The
new twist is active solicitation of developer interest in such
properties, luring builders with $1 land prices, promises of city
loans, grants, and facility improvements, and underwriting of
homebuyer costs. (Cities have become entrepreneurial in pushing
housing development.) Cincinnati's annual Homesteading lottery, real
estate agent training program, and homeownership website push the
envelope further, broadening interest in in-city housing and making
it easy for prospective homebuyers to enter the market.
City Assistance in Development Financing:
Many cities provide various types of loans and grants and tax
abatements to reduce private needs for front-end financing and/or
homebuyer mortgage costs. Chicago's HomeStart program advances funds
to develop housing on city-owned properties, with the developer
taking a fee instead of equity interest. Baltimore gives 10-year tax
abatements for conversions of Class B office buildings to residental
use, and the State of Maryland offers gap financing for the same
purpose. Seattle provides tax abatements for multi-family housing
and low-cost loans to first-time homebuyers. It also innovated a
"Hometown Home Loan" program to provide low-cost loans for employees
of major hospitals, the Seattle School District, and other city
institutions. And Seattle initiated the nation's first
location-efficient mortgage program to cut mortgage costs or raise
income-to-value ratios for homes near transit lines.
Financing programs rely on city bond issues -- Chicago's HomeStart
program was funded by $100 million in tax-exempt revenue bonds -- as
well as CDBG and other federal and state funding sources. This year,
Cincinnati's "Housing Rounds" program is providing $1.35 million for
gap financing of developer-proposed home construction, for example,
partly from CDBG funds and partly from the city budget.
City Reduction of Infrastructure Costs:
One incentive for home development on infill sites is public funding
of all or some infrastructure costs associated with new home
building. Although infill sites supposedly are already served by
basic infrastructure, builders frequently find it necessary to
upgrade water and sewer lines, improve streets and sidewalks, and
provide landscaping on land adjoining the site. Many cities,
recognizing that such improvements raise housing costs, are using
city funds to pare down these development costs. St. Louis, for
example, found revenues from a half-cent sales tax adopted for
general use on infrastructure improvements throughout the city to be
useful in spurring housing development. Chicago's New Homes program
offers to waive fees and contribute to off-site facility costs.
Houston and San Antonio use tax increment financing districts to
raise money to reimburse developers for front-end public improvement
costs. All of these approaches for reducing development costs help
to bring projects in at marketable price levels.
Mayoral "Summits" and Housing Agency Reorganization:
In several cities the city's mayors proclaimed production of
market-rate housing a major objective of their administration. In
Seattle, Denver, and Houston, for example, mayors convened downtown
or housing "Summit" meetings to attract attention to housing needs
and nurture support for housing initiatives. Houston's Mayor Lee P.
Brown launched his program in January, 2000, to increase the rate of
homeownership in the city by fostering more development of
market-rate housing. He and city staff met with home builders to
create a "Houston HomeTown" campaign and then set up a housing
office within his administration to pursue a broad-based group of
incentives. Paul Schell, on becoming Mayor of Seattle in January,
1998, convened the Seattle Housing Summit to bring together a wide
range of interests to brainstorm ideas for increasing market-rate
and affordable housing in the city. He, too, created an Office of
Housing reporting directly to him and responsible for increasing the
supply of housing for middle-income as well as low- and
moderate-income residents. These attempts to raise the level of
visibility for market-rate housing production help create the
foundation for subsequent program implementation.
Education and Information Campaigns:
Closely allied to mayor's efforts to stimulate market-rate housing
production are educational and informational campaigns aimed at
gathering public consensus, catching consumers' attention, and
making the real estate industry aware of in-city housing
opportunities. Two of the case-study cities, Columbus (Ohio) and San
Antonio, have commissioned market studies to demonstrate to builders
the reality of in-city demands for housing. Home builders in several
cities -- Cincinnati and Seattle among them -- have organized annual
"Citirama's" or home shows to rival suburban shows and display the
attractions of city neighborhoods. Houston is planning to go one
better: to create a permanent Model Homes Park with an information
center to showcase city-style homes.
Cincinnati's Homeownership Partnership decided to educate the market
by sponsoring a website that provides detailed descriptions and maps
of the city's 51 neighborhood, along with basic information about
the city for newcomers and a list of real estate agents knowledgable
about city neighborhoods. The Partnership also formed a training
course for real estate agents ("Real Estate Ambassadors") to
familiarize them with the city's history and housing opportunities
and published a guidebook to city neighborhoods.
Regulatory Relief:
Home builders in all the cities have been active in support of
improving city regulatory environments that help to make housing
development less costly. Builders commonly complain about needlessly
complex requirements and procedures that raise costs and provoke
expensive delays in gaining project approvals and completing
construction. All the case-study cities have championed
collaborative efforts between city agency staffs and representatives
of home builders' organizations to ease unnecessary constraints on
the development process. At the urging, and with the cooperation of,
builders, Tampa streamlined its permitting process some years ago.
But it did not stop there: monthly, now quarterly, meetings are
scheduled between city staff and builders to work out issues that
have arisen and make course corrections. The Greater Houston
Builders Association, at the request of the mayor, formulated a
white paper recommending dozens of regulatory and policy changes to
make the city more attractive for home building. Many of the
recommendations published in January, 2000, have already been
implemented.
Three of the cities have taken unusual steps to expedite housing
construction. Chicago borrowed a New York City program that permits
self-certification of pre-approved home designs, thus by-passing a
whole series of administrative reviews. Houston just authorized
(subject to Harris County's approval) the use of private inspectors
to augment the city's overworked inspection department. And Tampa,
with home builders' support, is raising building fees by 15 percent
to pay for a fully electronic application and inspection system. It
will allow builders to file applications by e-mail and provide all
inspectors with cell phones, computers, and facsimile machines in
their cars so that they can instantly communicate between the job
site, builders' offices, and the central office.
Neighborhood Conservation Programs:
Part of the trick to attracting new homeowners to in-city
neighborhoods is visible upkeep of facilities and home conditions.
Most cities have long-established neighborhood conservation programs
for this reason, some more successful than others. Among the
case-study cities, Houston, Cincinnati, and San Antonio have
targeted fix-up efforts on certain neighborhoods that agree to
partner with the city in upgrading the area. Houston organized its
"Neighborhoods to Standard" program in 1996. With a liaison in the
mayor's office and coordination among the city agencies, it focuses
on improving public facilities and services such as trash removals,
ditch cleaning, and street repairs. The program proved popular, with
58 neighborhoods of all sizes signing up in the first two or three
years and over 100 participating today. San Antonio has a similar
program, called "Neighborhood Sweeps," that focuses city cleanup and
improvements on selected neighborhoods, and also established a
"Neighborhood Improvement Challenge" program of small grants for
neighborhood improvements. Chicago provides grants within TIF
districts for exterior improvements of owner-occupied homes.
Conclusion
The
best conclusion is a success story. Dayton's revitalization of the
inner-city Wright-Dunbar neighborhood, named after the Wright
Brothers and African-American poet Paul Dunbar, exhibits many of the
techniques used by other cities. The city's program has motivated
development of 38 new homes and rehabilitation of 28 abandoned
houses since 1997. Before that date, the neighborhood had almost
disappeared: fewer than 20 occupied homes among over 75 abandoned
houses and at least that many vacant lots. In 1990, the National
Park Service designated the Dayton Aviation National Historic Park
just north of Wright-Dunbar, spurring city actions to restore the
historic neighborhood. The city aggressively acquired properties,
primarily through foreclosure and sold eight vacant lots and three
run-down houses to the local Homebuilders Association for one dollar
each. The builders developed eight new homes (the first in over 50
years), restored the three houses, and featured them in a CitiRAMA,
a 10-day event featuring food vendors, musicians, local artwork, and
a gospel choir, and which drew nearly 20,000 visitors. The city also
poured more than $22 million into rebuilding water and sewer lines,
streets, and sidewalks. A major feature was the seven-acre Oak and
Ivy Park, named after one of Dunbar's poems, that won a U.S.
Conference of Mayor's award in January, 2000. The bottom line for
Wright-Dunbar is explained by housing prices: before 1997, houses
sold for $15,000 to $30,000; after 1997, houses have been selling
for $165,000 to $220,000.
