COVER FEATURE:You are at the Epicenter Of Housing Opportunity
Opportunity starts with understanding
Doing what’s right . . . Bernie Glieberman
Mission man . . . Allen W. Warren
Speaking out . . . Linda Norton
REALTOR® power . . . Bob Snowden
A federal remedy? . . .Thomas M. Menino
Same end, many approaches
EDITED BY CHRISTINA HOFFMANN SPIRA
Sheltering America
68 percent. That’s the U.S. homeownership rate, and it’s an astonishing number that means nearly seven of 10 households own the home they live in.
You don’t have to look far to find factors buoying the housing sector. Interest rates dipped below 6 percent this year and are expected to stay below 7 percent in 2003. Buyers who can’t afford conventional financing can often locate a state or local program that offers assistance in the form of below-market rates or downpayment help. Perhaps most important, people continue to long for a place of their own and feel fairly optimistic they’ll get one. According to Fannie Mae’s 11th annual National Housing Survey, among non-owners, 31 percent of baby boomers, 42 percent of African Americans, and 37 percent of Hispanics said they planned to buy a home in the next three years. President Bush has lent his support to housing opportunity, committing to help expand minority homeownership by 5.5 million families.
But the dark side of this story is that in the middle of the biggest homeownership boom in our country’s history, millions of Americans are struggling to find or maintain a good home. In fact, one in seven households—14.4 million families—face critical housing needs, according to the National Housing Conference’s research arm, the Center for Housing Policy. “Critical” means those families pay more than half their household’s income for housing or live in substandard conditions, or both.
Among renters, the number of families spending more than half their income on housing grew by 24 percent between 1999 and 2001. For homeowners, the number increased by 36 percent in the same period.
And the cost of buying a home isn’t likely to abate soon. Given tight housing inventories across most of the country in 2002, NAR projects that national median existing-home and new-home prices will rise in 2003, by 4.3 percent and 5.4 percent respectively.
The affordability crunch is especially acute for teachers, fire fighters, resort workers—the so-called workforce families who make up the labor force of a community but often can’t afford to live in, or even near, the town where they work.
Into the breach between housing’s haves and have nots are stepping many REALTORS® with a passion for bringing better housing opportunity to their communities. On the following pages, you’ll hear from three of them—a builder, a sales associate, and a broker. And Boston Mayor Thomas M. Menino, president of the U.S. Conference of Mayors, talks about a role many state and local governments play and that the federal government might play in creating housing opportunity.
All four writers feel a personal responsibility to improve the housing picture for America’s working families. Just as important, they understand that real estate practitioners are at the epicenter of housing—bringing together supply and demand. Ultimately, affordable housing is an opportunity not just for millions of citizens but for hundreds of thousands of REALTORS®, including you.
Opportunity’s Advocates
Doing what’s right . . . Bernie Glieberman
Mission man . . . Allen W. Warren
Speaking out . . . Linda Norton
REALTOR®power . . . Bob Snowden
A federal remedy? . . .Thomas M. Menino
Opportunity starts with understanding
Begin or expand your affordable housing involvement through NAR’s Housing Opportunity Web site (REALTOR.org/housing opportunity). The online clearinghouse brings together information onn Successful grassroots programs
- Demographic, housing finance, and other research
- Affordable-housing courses
- Local, state, and national legislation
- Housing symposiums and forums
ONLINE EXCLUSIVE
For additional coverage on the affordable housing issue, including a new series of housing opportunity case studies, click here.
Social consciousness drives development
BY BERNIE GLIEBERMAN
Doing what’s right
I’ve been in the real estate business for 40 years, and I strongly believe that builders and developers have a social responsibility to create affordable housing, especially in urban areas that are being redeveloped. There’s nothing wrong with making a profit, but housing providers need to recognize that downtown revitalization displaces people. Many simply can’t afford a new home at market prices.
For those reasons, I believe in mixing low-income product with market-rate housing. My company stays profitable, even though 50 percent of our product is affordable, because it’s diversified. Crosswinds Communities develops land for entry-level, move-up, and luxury housing in Arizona, California, Florida, North Carolina, Virginia, and Michigan. We also have a commercial division. Builder magazine recently ranked Crosswinds the second largest builder in Detroit. In 2001, we closed 1,285 homes with gross revenues of $230 million, an 18 percent increase over the previous year.
The affordable homes built by Crosswinds are priced in the $110,000 to $150,000 range. In contrast, most new housing in the Detroit area starts at $150,000. Our buyers include single men and women, newlyweds, and empty nesters who are downsizing. About 70 percent obtain a mortgage through Crosswinds. We offer zero downpayment programs, FHA and VA loans, and conventional and unconventional loans.
To reduce building costs, Crosswinds homes are planned to maximize value. Our construction staff sits down with trade contractors to discuss how designs can be modified to reduce waste and how to schedule each job in the building process for maximum efficiency.
The construction process is designed with tight controls to keep our project managers and trade contractors aware of the progress and status of every home. We schedule an average of two home starts a day and two closings a day and try to have an equal number of homes underway in each stage of construction for consistency and efficiency. In many cases, for example, this allows us to hire one framing team, one drywall team, and one painting team per community. We like to use the same contractors so they become familiar with our construction techniques.
To build affordable housing profitably, you need to run a tight ship in the office as well as the field. We’ve streamlined operations through centralized scheduling. Purchase orders and other documents originate at our corporate headquarters in Detroit. We’re fully computerized and will soon make the transition to a paperless system. Even payments eventually will be made electronically.
In major metropolitan markets, land cost is the primary obstacle to housing affordability. Wherever possible, we try to maximize density to get the best use of the property. But we won’t crowd units so closely together that they’re not comfortable for homeowners. We’ve gone as high as 45 units to the acre.
Abandoned factories and other industrial sites (also known as brownfields) near desirable commercial and shopping districts are good locations for new residential neighborhoods. However, brownfields often have some kind of “buried treasure,” such as contaminated soil or groundwater. Because of the cleanup required, they cost more to develop than greenfields (raw land on the outskirts of urban areas).
If you plan to build affordable housing in the city, be prepared. Line up a good soil engineer and environmental engineer and an attorney who understands environmental issues. Remember, too, that labor costs will also be higher than in the suburbs, because most workers live in the suburbs and charge for travel time. The good news is that cities sometimes offer funding to developers who clean up brownfields.
In the Midwest, the cost to finish a lot (grading, utility connections, and so forth) makes up about 20 percent of the home price. Therefore, it’s critical to keep those costs down. Outside architects and engineers design the site plans for our projects, but we develop the lots and manage the underground improvements, such as sewer and water systems. It gives us more control over what we’re doing, and it’s more efficient.
Another aspect that’s unique to urban revitalization is dealing with neighborhood groups. If you go into an area with preconceived notions about what you want to do, you’ll set yourself up for a lot of headaches. First acknowledge residents’ opinions and desires. Then decide whether you can deliver a project that will satisfy them.
I’d advise small builders who want to get into affordable housing to go to their local housing authority and find out where the need is greatest. Get to know the lenders, neighborhood groups, and other key players. Find out what financing is available, then buy three or four lots and just do it. But remember, your company has to run like clockwork, because there’s no room for error. Your home and site designs have to be efficient, and you must be able to get houses through the system quickly.
Glieberman established Novi, Mich.-based Crosswinds Communities Inc. in 1971. He’s a REALTOR®and third-generation builder who began his career at age 17, managing his family’s properties after his father’s death. As president and CEO of Crosswinds, Glieberman develops subdivisions, modular homes, and industrial projects, with a focus on affordable housing. He has won numerous industry awards and served in leadership positions with the Harvard University Joint Center for Housing Studies and the National Association of Home Builders.
Mission man
BY SUSAN BADY
In Sacramento, where median existing-home prices are $201,700, according to the NATIONAL ASSOCIATION OF REALTORS®, Allen W. Warren is building houses that lower-income buyers can afford.
About 75 percent of his homes are priced from $140,000 to $250,000. His company, New Faze, also provides below-market-rate loans through Wells Fargo Bank to help people qualify for mortgages. Warren builds mostly in economically distressed Sacramento neighborhoods like Del Paso Heights, where he grew up. “My desire was to help clean up the community and give people a decent place to live,” he says.
Warren’s mission was born from a personal tragedy. When he was 14, his father was killed by a drunk driver. His mother used the cash settlement to buy five acres of land in Del Paso Heights, which she signed over to Warren when he reached the age of 23. He built his first housing project on the site.
The project had its share of difficulties, recalls Steve Tofft, Warren’s business partner and mentor. But Tofft, general manager of Myers Homes, was impressed by the young man’s integrity. “Wayne had a builder who didn’t pay the bills, so Wayne came up with about $40,000 to pay the subcontractors,” says Tofft. “He wasn’t legally required to do it, because there were no liens against the property, but he was concerned about his reputation.”
That bent to do right shines through Warren’s routine business practices, too. Whenever possible, he hires neighborhood residents as construction workers and local youth as site security guards. “It’s part of our mission statement to create those employment opportunities,” Warren says. “It builds a lot of goodwill and keeps vandalism and theft down.”
Many developers shy away from affordable housing because of smaller profit margins and the ever-present NIMBY (“Not in My Back Yard”) syndrome. It takes a lot of education to dispel negative perceptions, Warren says. His first step is to put together good architectural drawings for presentation at town hall and other meetings. He asks architects who’ve designed more expensive homes to produce the same level of quality in affordable designs. And he reaches out to area activists and opinion leaders with a message that’s central to his company’s mission: Homeownership promotes pride and a healthier, more stable family.
Helping residents feel at home with affordability
BY LINDA NORTON
Speaking out
As I write this, I’m preparing to speak at a public forum sponsored by an affordable housing coalition in my county about the challenges facing first-time homebuyers who need financial assistance.
Such speaking engagements are typical of the kinds of activities I participate in to help make affordable housing more acceptable in my community.
Overcoming public perception is tough. When people hear that an affordable housing development is planned nearby, the uninformed opinions spill out of the woodwork. For many, affordable housing is just another term for projects, homeless shelters, or student housing. Neighbors think we’re building a trailer park or a future ghetto. They worry about their property values being impacted.
We need to put a face on the people who need housing. They are the teacher at your school, the nurse at your hospital, and the checker at the grocery store—not necessarily the guy with a knapsack living under a bridge.
Before I got into real estate, I was a bartender, which put me in touch with the need for affordable housing—both for myself and for my friends and clients. Now, half my business comes from affordable housing, mostly resale and a few new homes. I also list some affordable properties for developers. I’m in the top 10 percent of practitioners in my community based on closed transactions. I sell small homes, but I sell a lot of them. I like specializing in affordable homes. In fact, I tell other salespeople that if they have buyers who say they can’t afford a home, send them to me.
Rationally, all it should take to overcome negative perceptions is a little education. But I’ve found that most people don’t want their preconceived notions challenged.
So I fight the perceptions with real-life, real market information. For example, I’m going to the forum tonight with hard numbers: How many homes are on the market? Can the inventory service those earning less than 80 percent of median income? How many days does it take for an affordable house to sell? Do affordable homes appreciate at the same rate as more expensive homes? A few years ago, I used MLS data to counter the theory that affordable housing had a negative impact on the appreciation of a neighborhood. Those areas that included affordable housing appreciated at least as much as the rest of the city.
Challenging negative perceptions also means working closely with government. In my career, I’ve testified at city council, county commission, and planning and zoning meetings. I’ve also served on committees and focus groups. And I’ve been part of forums and seminars put on by local government.
Several years ago, the state senate requested public testimony on housing opportunity: What role could Colorado play in providing affordable housing?
Sister Mary Alice Murphy, a nun who worked with Catholic Community Services, asked me to testify. She wanted the senators to hear from a businessperson—someone other than the bleeding hearts they were expecting to see.
Even more important than speaking publicly is talking to legislators privately. It may sound odd, but I’m probably most effective over breakfast with politicians. I talk about what I do and whom I help, and I cut through the facades people put on when they’re on stage. If we could all just have a cup of coffee with politicians, we’d find we agree more than we disagree.
When dealing with politicians, housing groups, and the public, remember not to be adversarial. Get into arguments, and people won’t call you back. You won’t get to change minds.
Making affordable housing more palatable to community residents also means talking to the builders who create the houses. Encourage them to provide variety in units, so affordable houses don’t look like little boxes but complement the neighborhood. Also, if you don’t give affordable buyers some design choices, renting may remain a better option for them. And, finally, encourage developers to disperse affordable housing among the general population rather than clustering the projects in specific neighborhoods. That keeps neighbors from becoming NIMBYish (“Not in My Back Yard” syndrome).
If you want to become an affordable housing activist, the best thing you can do is sell the houses. People will pay attention to the signs in the yards and the mailings you do. That’s how I became the bleeding heart you don’t expect to see.
Norton, CRS®, LTG,taught high school physical education and later managed and owned a bar before getting into real estate as a secretary in 1986. By 1994, she was president of her board. Through her volunteer efforts, Norton has helped provide more than 700 affordable rental units and helped more than 400 low-income Colorado residents become homeowners. For her work, she was named a REALTOR®Magazine Good Neighbor Award winner for 2002.
Every deal can help fund affordable housing
BY BOB SNOWDEN
REALTOR®power
In my town of Buffalo, Wyo., as in the rest of my state, demographics and economics are conspiring to keep people out of homes. We’re a small state, population-wise—about 494,000 people in 2001—and what few jobs we have are mostly related to tourism. It’s not unusual for people to work two or three minimum-wage jobs during our busy tourism season to pay their rent and still resort to welfare and unemployment during the winter months.
Although statistics show that homeownership in the state is above average (73.5 percent, compared with the nationwide average of 68 percent, according to the U.S. Census Bureau), the numbers also indicate that incomes remain low while average home prices continue to climb. Our average wage earners can afford houses under $100,000. But the median-priced existing single-family home was $159,000 as of September 2002, according to NAR’s Housing Affordability Index.
Wyoming’s not alone in its affordable housing dilemma. But the REALTORS® here are now doing something about it. We’re implementing a solution that we’ve seen carried out successfully elsewhere—about 17 associations around the country have implemented something similar—and we hope others will follow.
The idea—ReHAP, the REALTOR® Housing Assistance Program—is simple: Take a buyer’s earnest money deposit and place it into an interest-bearing account. The earned interest is automatically transferred, with the buyer’s permission, to a central account. The funds can be split among a variety of affordable housing needs initiatives in the state.
In Wyoming, brokers can’t earn interest on clients’ earnest money, so the association last September established a 501(c)(3) organization that allows brokerages to each open a federal tax-exempt, interest-bearing account into which all earnest monies from their transactions can be deposited. The Wyoming association has about 500 brokers and sells under 16,000 homes a year. From that, we believe we can raise $30,000-$40,000 a year.
ReHAP’s board of directors will determine how to split up the funds once the initiative is underway. We’ve proposed that 70 percent of the money go back into the communities from where the funds originated. Another 20 percent will go into a statewide fund, available for special projects or emergencies, such as disaster relief. The remaining 10 percent will be for administration. My hope is to begin disbursing funds in fall 2003.
Three areas of housing need are eligible for ReHAP money: Habitat for Humanity projects, rehabilitation and repair projects, and downpayment assistance. Individuals and agencies can apply for assistance through local associations, which will screen applicants. If we can help turn 30 to 50 families into homeowners each year, we’ll make an enormous dent in our housing crisis.
The idea isn’t new. Attorneys have been doing something similar for the past 30 years to help pay for lengthy and difficult pro-bono cases. I first heard of the concept at our state association’s 2001 regional conference; a similar program had been established by CARHOF, the Colorado Association of REALTORS® Housing Opportunity Foundation. Ultimately, the Wyoming association’s board and I borrowed the best facets of several housing opportunity programs.
One important refinement our association made was to establish a broad base of program stakeholders. A 14-member board oversees the ReHAP fund. The board is made up of three immediate past presidents of the state association, representatives from the state’s five districts, two at-large practitioners, one banker, one housing representative, and one construction representative. Our executive officer is also an ex-officio member. I’ve found things get done in Wyoming when there’s a broad coalition of support. The ReHAP board reflects that.
Our biggest obstacle was the banks, which, until ReHAP, didn’t have to pay interest on earnest money accounts. Banks in Wyoming traditionally struggle to participate in activities that they can include on their Community Reinvestment Act reports. By getting their support for the program and including someone from the banking community on the foundation’s board of directors, we provide them with a CRA activity.
The Wyoming Real Estate Commission asked that that we add a clause to our buy-sell contract stating that buyers agree to allow interest on their earnest money to be donated to the ReHAP program. Naturally, we agreed to this idea. And any buyer who doesn’t want to participate can cross out that language. Other state associations tell us it’s rare that buyers don’t want to participate.
The program is key to our profession here. Wyoming is such a small state that none of us can afford to specialize. Helping people achieve homeownership is one more way to grow our businesses while helping to grow and stabilize our communities.
Snowden, GRI, was 2002 president of the Wyoming Association of REALTORS®and is associate broker with Coldwell Banker, The Smith Brokerage, in Buffalo, Wyo.
Why I advocate a national housing trust fund
BY THOMAS M. MENINO
A federal remedy?
The lack of affordable housing is reaching crisis proportions in many of our cities. As our country’s real estate professionals, you know that better than anyone.
But through the efforts of your own national association, which launched its Housing Opportunity Program in 2002, and growing efforts around the country to create a national housing trust fund, a road map for addressing the crisis is emerging.
How bad is the crisis? Some 14 million Americans spend more than half of their paycheck on housing. These people aren’t just the poor. A teacher’s salary can’t buy an average-priced home in 60 percent of our country’s housing markets.
And in just two years, the number of middle-income households paying more than half of their income on housing shot up by 74 percent.
The response at the federal level to this growing problem has been modest. Most Americans spend between 25 percent and 30 percent of their budget on housing, but housing programs represent only 1.5 percent of the federal budget. Compare that to 25 years ago, when housing was 7.8 percent of federal expenditures, according to federal budget data.
There are proposals on Capitol Hill that would begin to solve the affordability crunch. One that deserves serious consideration is the creation of a national housing trust fund.
The National Affordable Housing Trust Fund Act, S. 1248 in the Senate and H.R. 2349 in the House, which may be reintroduced this year, would tap an estimated $28 billion in revenue generated by FHA and Ginnie Mae, the FHA securities packager, between now and 2008 to finance some 1.5 million units of affordable housing.
Under the proposed trust fund, the U.S. Department of Housing and Urban Development would distribute funds annually based on a formula that factors in various housing distress indicators in the recipient jurisdiction—for instance, the number of households paying more than 50 percent of their income for housing. State and local agencies would add their own funds to the allocation, then make grants to public, private, and nonprofit development entities to create or preserve affordable housing.
Trust funds aren’t new to either the federal or local governments. At the federal level, the Highway Trust Fund is an example of how a dedicated revenue stream can support a sustained effort on a major national priority. At the local level, many cities have created housing trust funds to meet their ever-increasing needs.
In Boston, we’ve had such a fund for 15 years. Supported by a small fee on large-scale commercial and institutional development, Boston’s Linkage program has helped create or preserve more than 5,300 units of affordable housing. By linking the revenue stream of the fund to the growth of new commercial development, Boston’s trust fund generates revenues when residential demand is greatest.
The units created under the program are now part of the permanent affordable housing stock and will be bought and sold with the help of real estate practitioners for the next 30 to 50 years.
Each time a unit is resold, the homeowner can get up to 5 percent appreciation per year, and a broker’s fee is built into the sale price. Buyers agree to the cap on their annual appreciation, because they’re buying a unit at a price that’s usually considerably below its market value.
This subsidy agreement ensures that the first families to buy in an assisted development can build enough equity to afford a future trade-up home in the private market. Meanwhile, the units remain at below-market prices to serve the next wave of new homebuyers. And each year, the City of Boston builds thousands of starter homes to provide that all-important first step toward homeownership.
The time is clearly right for Capitol Hill lawmakers to give a national housing trust fund serious consideration.
That’s where you come in. By helping your local leaders understand the importance of this issue, you pave the way for the message to reach Congress that the status quo is no longer good enough.
It’s within our means to renew the promise of adequate and affordable shelter for every American. We need only the will to make it happen.
Mayor Menino is serving his third term as mayor of Boston. He is also serving as 2002-03 president of the United States Conference of Mayors, where he champions housing availability. The Conference of Mayors in 2002 became a partner in NAR’s Housing Opportunity Program. Menino also has been an adviser to the National Trust for Historic Preservation since 1989.
Same end, many approaches
What’s the NATIONAL ASSOCIATION OFREALTORS®’ take on national trust fund legislation? Analysts for the association say NAR backs proposals under consideration in Congress to create affordable for-sale and rental housing, and, as part of the mix of programs, a national trust fund warrants a serious look. At the same time, NAR supports Congress’ original intention to return excess FHA revenues to borrowers as distributive shares in accordance with FHA’s mutual insurance structure, rather than redeploying the funds in a trust fund. NAR also supports continuing use of established housing programs for households with very low and low incomes and channeling new assistance, including national trust fund assistance, to moderate-income households.
