Affordable Housing Institute : US

Asks the old joke, who’s a pioneer?

A guy face down in a puddle with an arrow in his back.

 

As we remember hurts longer than pleasures, so often in our retrospective reviews of housing and urban redevelopment programs we focus on the failures and ignore the equally challenging public-policy question: what happens when a redevelopment program works?

 

Why, we snipe at the pioneers, as illustrated by this tale in Monday-morning-morality from the New York Times:

SOON after Lovelynn Gwinn moved into her three-story town house in West Harlem six years ago, she received a call from the F.B.I. telling her that a woman had been thrown or had fallen from a nearby building.

 

Once upon a time, you see, Harlem was a bad neighborhood, and the South Bronx a bombed-out wasteland whose very name evoked nightmares of post-apocalyptic dread:

 

South Bronx, 1975, from Mel Rosenthal’s exhibit

Property is the ultimate economic hostage; if the neighborhood dies around you, your property’s economic values die with it, so anyone who voluntarily moves in to such a neighborhood does so either with no economic expectation (another reason why slums are economically rational) and their decline may accelerate.

That wasn’t the only bad news about her new neighborhood. Rats ran rampant through her backyard and there were prostitutes and crack houses down the street.

 

But now, as the neighborhood has changed, at least in part because of her own efforts, Ms. Gwinn is getting her reward.

Am I the only one who hears the tone of envy in that grudging ‘at least’?

 

She bought her newly renovated house on West 138th Street, just off Riverside Drive, for less than $250,000 through a city housing program.

 

A long way into Harlem

Now she has it on the market for $1.4 million.

Not, by anybody’s standards, appreciation of 466% in six years, or 33% compounded annually, is a heroic return. Ms. Gwinn’s actual return on her hard equity invested will be even higher. Small wonder that something like one-world of all great US fortunes came through real estate.

 

//

My dad Fred started with Mitchell-Lama’s, and I learned about hair from him.

All across Harlem and Bedford-Stuyvesant in Brooklyn, homeowners who were lucky enough or smart enough —

There’s that envious tone again.

 

— to buy houses through the same program are realizing that as the value of their houses has soared, they have become millionaires — at least on paper — courtesy of City Hall.

 

Whoa! As Auric Goldfinger said, the third time it’s enemy action. The writer’s bias is now proven.

Courtesy of City Hall ?!? What about taking the risk?

 

Oh, yeah, no brainer … riiight.

62 West 119th Street, near Mount Morris Park in Harlem, before and after renovation through Homeworks.

(From the HomeWorks site.)

Under the program, known as HomeWorks, buyers received subsidies and low-cost homes on free city land, with the stipulation that they will live in the houses for at least six years, paying penalties if they break their agreements.

(I’ve blue-highlighted the subsidy reference because we’ll come back to it.)

 

The city offered Ms. Gwinn and others a straightforward choice. If it works, it’s urban homesteading. If it fails, it’s hard equity irretrievably lost, and six years of rats, prostitutes, and drug addicts — to say nothing of the risk of being a victim of violence.

 

Some, like Ms. Gwinn, took real financial risks in buying in neighborhoods where drug dealing and burned-out and boarded-up houses were everywhere.

Formula for urban regeneration? Guts and vision.

 

Well, guts and vision anyway

Others obtained their houses later on, when thousands of people competed in lotteries for a chance to buy fully renovated houses at prices that even then were recognized to be below market.

 

Ah, so the issue is whether the city shifted eligibility requirements and economic benefits as the program actually worked. If fault there be, it isn’t the buyers; if it’s anyone’s, it’s the city’s. (And I for one think that people like Ms. Gwinn are those whom a program designer should celebrate, not belittle — reasons why below.)

 

Property records show that four houses renovated under the HomeWorks program in Harlem have already been sold, including three town houses that went for at

least $1.2 million each in the last two years. Five more town houses were recently listed, with asking prices as high as $2.6 million.

 

Okay, so in the revitalization of this large chunk of Manhattan, a total (so far) of ten people may have each made (say) $750,000 of abnormally good returns, so a total of $7,500,000. Not billion, million.

 

Most people do J

And who paid that money? Not the city, other buyers. The public paid, essentially, nothing.

The rising wealth of these beneficiaries of public policy shows how a government housing program can be a powerful catalyst for change, strengthening neighborhoods and markets, and even raising fears of gentrification.

Stop me when you get to the bad part.

 

But the huge increases in equity also raise a question: Once the market took off, should the city have limited private windfalls […]?

Well, yes. Score one for the Times.

 

You got me on that one, all right!

Except … well, keep reading J .

But if there was a windfall, whom should one punish?

Isn’t the issue the question of calibrating program design?

 

“These people came in and won the lottery,” said Robert Walters, a lawyer who represented some of the buyers of HomeWorks houses. “They were able to purchase below market, and then after they bought, the market heated up tremendously.”

For Ms. Gwinn and others, buying a HomeWorks house was a life-changing event, quite apart from their financial gains.

Home ownership changes behavior for the better, and that helps change neighborhoods:

 

In 2004, Barbara Jones, a magazine editor, and her husband, Steven Rinehart, a writer, paid $1.2 million for a stately 19-foot-wide HomeWorks brownstone on West 147th Street, acquiring it from the original buyer after a long search for a house in the area.

“We wanted a beautiful old home, but every week while we were looking, it seemed as if prices were going up another $100,000,” Ms. Jones said. “If we didn’t jump, we would be priced out.”

 

Now she is active in an alternative public school set up by parents in the neighborhood, the Hamilton Heights Academy.

Schools are one of the five dimensions of a successful community, and their link to housing and homeownership is obvious.

The value of having a HomeWorks house became clear when the apartment buildings and surrounding town houses on Ms. Jones’s block lost power during a localized brownout and power failure. It turned out her house was the only one with full power, apparently because it got a new electric line when it was rebuilt. “We were going up and down the street giving people ice,” Ms. Jones said.

The value in human capital liberated is enormous, for when you fix a family, you do something to help fix their children, and unto the next generation …

 

Six years ago, Ms. Gwinn was an in-house travel agent for Warner Music Group, arranging travel for Mick Jagger, Led Zeppelin and countless rap groups. But she earned only $40,000 a year and paid $2,600 a month in rent, shared with a roommate. She struggled to get approval for a mortgage to buy her house.

Let’s do that math:

$2,600 /2 = $1,300 x 12 = $15,600 / $40,000 = 39%

Ms. Gwinn was paying 39% of her income for rent, which as the Times and many others always point out, is well above the Federal affordability standard of 30% of income. Ms. Gwinn was rent-burdened.

She was probably eligible for Section 8 assistance; instead, with help, she became not a renter but an owner.

When she became a homeowner, even when she lost her job during a corporate consolidation, she was able to support herself without a full-time job, relying on the income from two rental apartments in her house and some freelance Web design work. Now she is a real estate broker and investor.

 

Ownership changes behavior, and teaches financial literacy and a new career. Ms. Gwinn discovered that within her lurks the soul of an entrepreneur:

She refinanced her mortgage to come up with the down payment to buy a second brownstone, this time at market rates, on Convent Avenue in a historic district.

 

Stand on your chairs and cheer for Ms. Gwinn. She took a risk, it paid off, she learned some things, and she took the same risk again, this time smarter. That’s courage and intelligence — what this country applauds, isn’t it?

 

Well done, Ms. Gwinn!

It, too, is now for sale, at $3.2 million, with a potential profit of more than $1 million.

Ms. Gwinn also had to face economic discrimination:

 

“I had just a regular job, with a regular little salary,” Ms. Gwinn said. “I went to 11 banks looking for someone to give me a mortgage. Nobody wanted to finance a three-family house with 5 percent down.”

 

So Ms. Gwinn, in addition to being an entrepreneur, became an amateur landlord. Once again, good for her!

Her house on West 138th Street is narrow, less than 15 feet wide. It has a well-designed interior, an open kitchen and hardwood floors, but almost none of the original details remain.

 

She had vision — not everybody would pay a lot for a house only two Yao Mings wide.

 

Only two Yao Mings could lie end to end in Ms. Gwinn’s townhouse

 

Next door, a construction crew has begun clearing out debris from the last of the bricked-up houses on the street.

Oh, so even now the neighborhood is still turning around. Who’s he that says Ms. Gwinn had it easy?

 

He that outlives this day, and comes safe home,
Will stand a tip-toe when the day is named,
And rouse him at the name of Crispian.

Then will he strip his sleeve and show his scars.
And say ‘These wounds I had on Crispin’s day.’
Old men forget: yet all shall be forgot,
But he’ll remember with advantages
What feats he did that day!

 

[To be continued in Part 2.]

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