The Problem of Scale for Housing Development Projects

Milwaukee       Talking to the housing and economic development people, whether from the government or nonprofits, I kept hitting my head against a ceiling when it came to the thinking about the housing problems.  Looking and thinking about the issues in the Amani neighborhood made this headache unavoidable.

Work with me on this.

In Amani you have a community that within the boundaries drawn by the city and many of the residents has a population of about 8500.  The population is actually increasing there in recent years, which is a question worth contemplating at another time.  There are roughly 1400 properties, and more than 300 are rated by the city as vacant, which is more than one in five properties.  More than 20% of the properties are also tax delinquent.  It goes on and on like this.

Various programs available from the city allow small grants for repairs.  Some other programs fund nonprofits to help finance and rehab houses but often limit them to no more than four per year.  Some are catch-22 situations where to get money to fix a roof, the owner has to have insurance, but insurance companies cancel the owner when they have roof problems.

The math isn’t simple, but it is unforgiving.  If the only problem was rehabbing the vacant homes, and money was available to rehab only fifteen per year, it would take twenty years to bring the existing vacant properties up to snuff.  With more than 70% of the housing stock built before 1939, at a minimum all of those houses would be over 100 years old, so time will not stop, there will be more houses that need rehabilitation, whether occupied or vacant.

Working block by block would be hard as well.  Even doing five houses per block to try to turn a block around, there are 130 blocks in Amani.  One block a year would take twenty-six years, so that would never work.  Even three blocks per year doing fifteen houses would take ten years, and of course time will not stop there either, making housing rehab at this level a Sisyphean project.

Meanwhile the housing valuation is going down, not up, in Amani.  The last evaluation of the assessed value of Amani properties showed a drop of over 4% from $29786 to $28533 or $1253, even going the wrong way compared to inflation.  A low-to-moderate income homeowner looking to borrow $20,000 to rehab their own home from a bank is going to face the problem of putting $20K into a $30K house and finding the valuation for collateral purposes in the Amani market might only move the property to being worth $35,000, not $50,000 making most banks skittish to say the least.

To turn the community around and create a real tipping point, it would seem that organizations and government should be looking at doing 100 houses a year for four or five years.  If the price tag was $20,000 per house that would be $2 million per year or eight to ten million to get it done.  If $30,000, then then $3 million per year, if $40,000 then $4 million per year.  Those are not unmanageable numbers.  That’s a mid-range condo in New York City.  A project that size would raise all boats and the whole neighborhood, because it makes sense.  If such a project only raised the average valuation of the houses from $30,000 to $40,000, that would mean a $14,000,000 bump in the neighborhood and over five years a minimum of $70,000,000 for the housing stock.

If we were downtown or commercial developers, the city and local banks would be standing in line to finance the deal, because the numbers make a difference.  When we’re talking about housing, we are being nickeled-and-dimed, when we need to push to get to scale to stop playing catch up and start getting ahead and making real change.

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Rents Rising

Milwaukee       Before dawn a chart ran on the TV screen at the airport hotel’s breakfast room that listed cities where rent was rising the fastest across the country.  I was in Milwaukee huddled with airline personnel grabbing something for early flights to Detroit and Chicago.  The news readers were huffing about Milwaukee supposedly leading the list with the highest percentage increase in the country over the last year.  I could see that New Orleans was second on the screen.

Once back on the internet I tried to track down the chart, but was unsuccessful.  I did find some support for the local Milwaukee news.  The area had recorded increases in recent years of up to 8% which some data ranked as the 3rd highest market increase in the country.  Other data sets indicated over five years Milwaukee’s rent had risen about 15%, but only 1.5% in 2018.  New Orleans was in fact close behind at 14.5% over 5 years with a median rent of $1400 to Milwaukee’s $1350.

Of course, as painful as those figures are for local residents, Oakland’s median rent has soared over 50% in 5 years, Seattle’s almost 40% in the same period, Tacoma and Anaheim more than 33%, Nassau County 36%, Boston 23%, Memphis 21%, Little Rock almost 18%, Nashville over 25%, and so forth.  You get the picture.  I’m not even talking about New York City or some other places where rents are simply moving from absurd to ridiculous.

Once you start crawling down the figures in some of these websites, it’s a rat hole with no way out, although that’s not necessarily the picture many of the promoters are pushing.  Some will argue that house prices are rising more quickly, so you should buy now.  Others are arguing over whether or not apartment rents are going up faster or slower than inflation. Yet again, a few will argue that new construction will make a difference.

Regardless, any way you shuffle the deck median rents have increased across the country about 20% since 2012, and that’s higher than inflation.  Home prices have risen from a low median sales price of $154,600 in 2012 to a post-bubble high of $264,800, and that is higher than inflation and the rental increases.  The reason all of this feels somewhere between atmospheric and catastrophic to the average family and especially low-and-moderate income families, is that wages haven’t grown anywhere near either of those figures.  According to the Social Security Administration’s Average Wage Index the percentage rise in wages over the same period of 2012 through 2017 is only 13.5%.

I probably don’t even need to note that most low-and-moderate income families are on the under side of averages, so the crisis in rising rents hurts them the worst, and housing prices are now marketing to families who are way above average wage levels.  Minimum wages are not going up fast enough and are frozen in many areas, welfare and other payments are frozen or decreasing, inflation is predicted to begin rising aside from gas prices, and new construction doesn’t define affordability anywhere near what could provide lower income families safe and decent housing.

Where’s the good news in any of this?

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Please enjoy Hard Case from the Tedeschi Trucks Band.

Thanks to KABF.

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