Friday, April 5, 2013

We Can Do Better Than 100 New Rental Properties

Post by the Hawthorne Hawkman, stock photo originally from the Irving Inquisition blog.

Before delving into why that is, I should first disclose that today is my last day as Housing Director of the Hawthorne Neighborhood Council.  And I believe the private market, not non-profits, is poised to take the lead on revitalizing our community--if we let it.

While private rehabbers and new owners are chipping away at the shell they've been in, here comes a new program that could keep that from happening.  Urban Homeworks and PPL are working to buy up 100 north Minneapolis houses and convert them to rentals, albeit temporarily.  The plan after two years will be to sell them back to owner-occupants, and use the interim period to do credit repair and other work with their clients.  This is an initiative I fully and wholeheartedly support.  Except for the part about rental properties.  And there being 100 of them.  And the involvement of Urban Homeworks and PPL.  Other than that, it's great.

Now if this seems like I oppose the project in its entirety, I assure you that's not the case.  Allow me to explain...

...As I've been transitioning back into the private sector, I've been talking more and more with Realtors, bankers, benevolent flippers, and potential buyers.  One of the common refrains I have been hearing is this:  Inventory is drying up.  Especially boarded/vacant inventory.  For communities dealing with such blight, that's terrific news.  For the people who make a living buying, fixing, and reselling homes, and who do it well, this means that they will soon come looking for the last remaining such inventory in the Twin Cities metro.  And those houses are right here in our proverbial backyard.

It would be one thing if those buyers had to compete with non-profits at all, but potential homeowners will be pitted against entities that will add to their rental portfolio, even if only temporarily.  If that starts to happen--and I predict it will--then PPL and Urban Homeworks could actually be preventing private investment and owner-occupant home ownership, two things north Minneapolis sorely lacks.

I know many of the good people who work at these places, and I know they'll say that they don't want to get in the way of good private investment.  I've even seen examples when, to their credit, they've stepped aside to let such investment happen.  So they'll say they only want the properties that nobody else does.  That's terrific, except when trying to define a property that nobody else wants.  The anti-demolition push, fueled in no small part by Nicole Curtis, has the City of Minneapolis re-examining exactly that question because it's becoming crystal clear that plenty of good people do want to buy and fix distressed homes in our community.

So the definition of a house that nobody but the non-profits want is shifting even as you read this.  What that really means in our emerging paradigm is that it's a house that nobody else was aware of or able to want.  There certainly will be houses that the private market rejects, and those are ones that I would love to see fall under the purview of this program.  But how do we determine which houses those are?

Well in order to do that, we're going to go to the corner of my mind where I am Emperor of Everything.  I wave my scepter in dramatic fashion and everything I wish becomes so merely by my decree.  It's one of my favorite places to visit, and everyone I bring there winds up agreeing with me eventually.  That's either because my ideas are so great, or because of Stockholm syndrome.  Either way, it all works out in the end.

There are several ways UHW and PPL could acquire houses:

1.  Through their connections.  Maybe somebody at Urban Homeworks knows a guy who knows a guy whose cousin is in foreclosure and needs someone to buy his home.  There's no way to realistically limit people working their personal connections, so if properties become one of the 100 rentals this way, I can't get too worked up over it.  And any initiative that tries too hard to control every aspect of a fluid marketplace will fail eventually.  Live and let live in this case.

2.  Through the MLS.  No.  Or at least not right away.  This is the purchase option that gives me the most pause.  Non-profits may have the ability to purchase for rental during the First Look period, whereas a private developer could not purchase for rehab and resale to an owner-occupant.  Even beyond the first fifteen days, if a seller has an offer from a private party that's contingent on financing vs. an offer from a non-profit that's contingent on the ink drying on a check, which do you think will be accepted?  Now I do think they should buy homes for this project via the MLS, but only after those houses have been sitting a while without interest from the private market.

3.  Through local government or the Twin Cities Community Land Bank.  These purchase options may have the most potential for both private and non-profit parties.  The main appeal here is that once the City, County, or Land Bank owns a property, they can refuse offers from known slumlords or buyers who don't pass muster.  This is where I would want to direct most UHW/PPL rental purchases.  And I would set things up in tiers.

First priority would go to owner-occupants.  Next in line are the private developers.  Only after properties have been adequately marketed to those groups, only then would the non-profits get to pick what's left.  In this case, I'd try and find ways to get more of the marginal MLS properties into the Land Bank, in order to limit the impact a slumlord could have in competing for those purchases.

Under that tiered system, the non-profits might complain that they'll get hardly any properties.  That's the point.  If these houses are desirable on the private market, that should be encouraged in our community.  The other gripe one could expect is that the remaining houses are so distressed that instead of 100 houses, this initiative can only afford to fund half the number of acquisitions.  Again, that's kind of the point.  The fifty houses that would go to the private market didn't need non-profit intervention anyway.

Urban Homeworks and PPL do a fine job managing their rental portfolio, and the addition of more responsibly-managed rentals in north certainly has appeal.  With rental vacancy rates at extreme lows, the need for affordable rental housing is as strong as it's ever been.  But even proponents will admit that the rental strategy is only temporary while the housing market recovers.  The market, however, is positioned to potentially make such a temporary use unnecessary.


  1. I like the analysis of this proposal but hoping that profiteers will follow a defined purchasing regiment that delivers our community from the ills brought on by greedy slumlords are marshmallow dreams. We need a more aggressive approach.

    I think it is important to point out that while there are many great landlords providing housing in our community, the majority of what we have experienced could be termed "speculators" who's short term investment strategy leaves behind re-muddled properties with deferred maintenance issues, back taxes, and unpaid assessments. The thoughtless disregard for the tenants and the community create conditions for rampant turnover and draw crime. Of 130 single family homes currently listed on the Cities Vacant Boarded List, less than 5 could be attributed to homesteaders.

    Now that demand for homeownership is starting to catch up with supply in the private sector, what we need is a strict rental density limit in R1-R2 residential neighborhoods.

    Other Minnesota communities such as West St. Paul, Northfield, and Mankato have enacted these measures to protect the viability of single family residential areas.

    West St. Paul currently has a 10% limit on non-homestead investment properties in their community. This may be a bit draconian considering some of our neighborhoods are currently almost consumed by rental properties, but a figure like 30% would certainly be workable.

    A limit on investment properties would raise the value of all real estate within the community forcing out low value speculators. It would insure that the investment of basic home repair issues be economically viable within a long term investment strategy. It would reduce the workload for inspectors so that code issues and licensure could be properly enforced.

    But more importantly it would prevent homesteaders from being inundated by transient neighbors that are not vested in our community. The ability to know and depend on neighbors is essential in confronting crime and safety issues facing our community.

    Passing Rental Density limits sends a message out to potential stakeholders who may want to join our community that we are serious about wanting change. It provides more assurance to families considering a Northside Home that a slumlord moving next door will not make their life a living hell.

    The obvious retort to this proposal will come from those that feel limiting the amount of rental will drive up rental costs and hurt the poor. Homesteading is not for everyone. The costs of maintaining structures are high and more medium density alternatives are already being built. I believe what currently drives the rental market on the North Side is the high reimbursement levels of government entitlement programs such as Section 8. This will not go away, nor should it. But we have a whole host of substandard rentals that don't even qualify for section 8. Is it right to perpetuate an environment that produces substandard housing for the poor?

    Is that what we want for our community? Being the last best place to live encourages other communities to shirk their social responsibilities. It is convenient and economical for our society utilize a central location as a repository and to re-enforce those lowered expectations. Without decisive planning, social deterioration within our community becomes self-perpetuating.

    1. So under this rental density idea, how would potential new construction along our community corridors be affected? Broadway, Lowry, Emerson, and Lyndale all have big chunks of vacant land, much of which seems to be ideal for new construction of apartment buildings of three or more stories. That's the kind of rental density I think we need to add in north Minneapolis.

      And as I mentioned in another response, I'm advocating for a solution that allows the private market to act without much intervention on the easy properties. For the distressed or marginal ones, I want those in the hands of the City, County, or Land Bank. But only if those entities have a good process in place for disposition and resale.

      If I were to create my own solution to this conundrum, I'd say that any property a non-profit wants for rehab, and (almost) any property the cit wants to tear down, would be acquired by one of the three above-mentioned entities. That way it's out of the hands of potential bad actors. Then the private parties who want it can be evaluated and vetted. Only after good private investors have passed should non-profits pick up a place, and only after non-profits have passed should the city move to tear down.

    2. As I indicated, Rental Density Limits should follow zoning guidelines to protect the livability of residential neighborhoods while allowing for increased density along designated corridors. Areas set aside for medium and high density such as Broadway, Lowry, Emerson, and Lyndale would be minimally impacted by R-1 and R-2 Density Limits. In any case, there would certainly be opportunity for variances which allow the community to weigh in on specific projects.

      But this is not a density issue.

      Urban Homeworks and PPL are using the same rental mechanism that have almost destroyed the fabric of our community, in an effort to create a livability solution.

      How do you differentiate the "bad actors". These are both organizations have a history of good development and would certainly have been approved through a vetting process. Yet, we have no assurances that these homes will ever become owner occupied. The vetting of developers would eventually break down into a very political wink/nod credentialing system that prevents new more efficient developers from entering the community.

      Yes, the City should get involved. We need true community planning. Not some outdated notion that livability standards and property values can be increased if they keep tearing down vacant homes.

      We need them to start stabilizing these homes before they sit too long. We need them to produce incentives for private developers to renovate for home ownership. We need the departments of the City/County working together to enforcement of the existing laws.

      Land Banking is a great idea - But if the City would use community development funding to stabilize homes (add the cost of repairs as an assessment) and pass rental density laws to prevent short term speculation, we wouldn't be having this conversation because the value of our homes would dictate the solution.

  2. Author's note: I've been looking for a link to this specific initiative, and can't seem to find one. The best I can come up with is an email that's circulating on the Old Highland list serve. That email invites people to register for a CURA housing forum on April 19, where this proposal will be a topic of discussion.

    You can register by clicking here, although both links are expected to "go dead" sometime after the forum ends.

  3. Oh, and the apartment complex on Golden Valley Road that Khan owns would be an EXCELLENT addition to this program.

  4. Somebodies looking at this proposal to do 100 new single family rentals through rose colored glasses.

    Sure, if your a faith based organization and your goal is to house as many people as possible with someone else's money, this seems like a good plan. In fact, encouraging the community to embrace a long term rental strategy may even buff up your organizations coffers.

    But if your a homesteader who knows what the repercussions of rental based communities will do to your quality of life, it appears that the use of those tax dollars are very misguided.

  5. so the private market has done North Mpls so many favors in the past 30 years huh? Remind me....

    1. Well I'm not advocating that we simply fling wide the door to the private market, tell non-profits to pack up and go away, and then say our job in north Minneapolis is done. I'm saying that there are plenty of good private developers out there, and plenty of innovative ways we can get vacant houses back into the hands of owner-occupants.

      But this initiative here, unless we are intentional about making it otherwise, has the potential to steamroll over those possibilities. It would still, in my mind, produce a net benefit to the community. But if you were able to take these 100 homes and put them in an experiment, I submit that the private market would take more of these homes and get those into owner-occupancy faster. The real question is what to do with the homes that the private market can't or won't handle well. And that's where I think this program has the strong potential to do good.

  6. Jeff,
    Thanks for taking the time to post your thoughts about this ownership initiative with an as-needed rental phase. Please let me offer a couple of notes of clarity in response to the recent blog posting that may more fully represent the new partnership and program between PPL and Urban Homeworks. I’m going to keep it simple and strictly to the description of Northside Home, the home ownership program which was referred to as a rental program. There are quite a few other interesting ideas that you raise in your writing and I, as an invested community member and neighbor, would love to discuss and dream about those ideas—probably a discussion better suited over some beverage with some neighbors at a local establishment. About the program…
    1. Northside Home is a home ownership program that allows for a rental phase, if needed, for the intended buyer of the property. Northside Home is a bridge tool targeted for use by homeowners very similar in income and credit capacity to the Project:Reclaim ownership program participants (generally speaking at or above 50% MMI, which is generally 2x+ the average household income of Hawthorne/Jordan).
    2. The programmatic nature of Northside Home includes financial literacy education, credit enhancement, home owner maintenance training, and encouragement to be an engaged neighbor.
    3. Northside Home is currently being financed by philanthropic foundation loan/grant dollars and private investment loan pools. If you are interested in learning more about the private investment loan pool, we’d love to help you put your money to work as you seek ways to invest in our community.
    4. Northside Home will strive to achieve multiple wins for the community—create responsible pathways to home ownership for community members; utilize the opportunity so to develop a strong pool of local contractors who are interested in hiring local residents; and redeem vacant, boarded, dilapidated structures to be places of beauty, health, security, equity, and pride for individuals households and the community.
    5. Although the ‘target’ of the program is 100 houses, the bullseye on the target may be 5, 10, 20, 50… we just don’t know, and we are not going to address 100 houses for the sake of 100 houses. The point of the program is to provide ownership pathways that are currently not forthcoming and to stabilize the houses in our neighborhoods. If the relevance or urgency around this purpose becomes diminished due to recovering credit and real estate markets, we will join you and count it a community success.
    We understand that the community revitalization work at hand requires a multi-faceted and coordinated approach in working towards a more equitable and a healthier community in a manner that is beneficial for all of our neighbors. As we always, we extend an invitation for anyone to swing by our offices or to gather with us at a local establishment to discuss, dream, plan, and coordinate.

    Community member and UHW team member,
    Russ Barclay

    1. Thanks for the clarification. Upon review of the post, I realize I only mentioned the temporary nature at the end
      I will go back and edit the opening paragraph accordingly

  7. Really? We need more rental properties?

    Current Non-Homestead Density
    Jordan .............50%
    Near North..........68%
    Average for North Minneapolis...44%

    New Workforce and Low Income Rental Housing Developments
    Gateway Lofts.......46 Units
    Broadway Flats.....103 Units
    Commonbond..........53 Units
    Emerson North.......28 Units
    2600 Penn Ave.......38 Units
    Commons @ Penn......45 Units
    Total New Rental Units....275 New Rental Units

    Approximate # of Vacant Boarded Homes....454
    Approximate # of Vacant Lots.............435

    How can you possibly be serious about offering help to the North Side by creating more rentals?

    What is your opinion of our community if you believe that out of 7800 households(almost half of which don't own a home), there are not enough families capable of homeownership without first renting and receiving instruction from your non-profit?

    And, if we need to bring more equity into our community because our average household income is less that 25% of the prevailing MMI why not be the one who helps develop that capacity?

    In a recent presentation your group was asked specifically if your plan was to bring condemned homes up to code so owner occupants could use sweat equity to complete renovations and gain home ownership. Your representatives said YES.

    This is what the North Side needs!

    There was never any mention that these homes would go on the rental market.

    Your program has gotten some very positive buz around town because you have been claiming that it will help renovate 100 vacant homes. Now you are saying that the target could be as low as 5 and those will probably be rentals?

    This seems pretty disingenuous.

    1. First and foremost, please accept my apology for any language or descriptions of our Northside Home initiative that have led to doubts about our genuine respect for our community. Hopefully I can provide some clarity.

      I feel the need to reiterate and clarify that the purpose of this initiative is to rehabiliate vacant residential properties and to sell these properties to owner occupants. Northside Home is a home ownership initiative--it is not a rental program. As an optional strategy to achieve owner occupancy with this initiative, we will utilize a short term rental strategy when necessary. We view this strategy as a tool to bridge the time span that a buyer may need to be fully prepared and financially positioned to become an owner occupant. We realize that not every buyer will need all or any of the programmatic components of this initiative. That's okay--we're committed to supporting buyers in whatever manner is deemed necessary. To your point, we agree that our community members are capable of and deserve long term home ownership opportunties.

      As to the number of properties that we intend to rehab into owner occupancy, please don't get lost on the numbers behind the "5, 10, 20, 50..." statement. To Jeff's point, if the pool of prosective owner occupant buyers and good, community minded, private developers are poised to mobilize (in a manner that seeks to benefit all of our community members--my emphasis), then the need for our initiative to produce 100 rehabbed homes might not be necessary. As the statistics demonstrate, there is a lot of work to do. From the outset of this initiative, we intend to rehab 100 homes for owner occupancy. As we progress forward, we'll continually analyze the conditions and market to determine the capacity needed to collaboratively effort towards a stable community with a healthy balance of ownership/rental housing.

      With Respect

    2. Russ, Given the information above, would you say that a "healthy" balance currently exists in our community?

    3. This seems like a great discussion question to address in person, preferably a small gathering of community members so that we can move towards a shared understanding of "healthy" and a shared desirable balance. If you are interested in participating in such a discussion, please let me know and we can work towards coordinating a gathering.