Meet Uncle Sam, Housing Contractor

A federal program tries to spur people to invest in vacant houses

Kip Kuntz’s block in Baltimore’s Old Goucher neighborhood is getting a face-lift, courtesy of the federal government. The 47-year-old Johns Hopkins University research scientist paid $249,900 in September for a 19th century row house that was rehabbed as part of a $7 billion federal program that provides states and local governments with funds to buy, fix up, and resell abandoned and foreclosed properties. Kuntz, who has lived in the area for about 20 years, praises the care the contractor took in restoring the home’s windows, slate roof, and masonry. “For years I’ve been living in this neighborhood, and it will get a little worse here and a little better there, but there was no progress one way or another,” he says. “Suddenly, things are looking up.” He adds that the half- dozen federally funded rehabs on his block may be attracting attention: A private investor recently began renovating a boarded-up house on the street.

Baltimore is a test case of whether government money can help resuscitate an ailing residential market. The Obama Administration’s Neighborhood Stabilization Program is spending $26 million on restorations designed to drive up prices and spark investor-backed redevelopment in pockets of this city of 621,000, where prices have fallen about 40 percent from the 2007 peak, according to the Zillow Home Value Index. Nationwide, 11,545 single-family homes have been renovated and sold since NSP money first started flowing in 2009, with another 24,000 sales projected.

The NSP allows for approaches tailored to local conditions. Cleveland and Detroit, suffering from years of population loss, are knocking down hundreds of homes. Minneapolis is subsidizing the renovation of about 400 properties, primarily by filling the gap between the market value and the cost to a developer to buy and fix them up. Palm Beach County in Florida, which has struggled to find buyers for its renovated homes, is providing about $29 million in loans for buyers purchasing vacant or foreclosed properties as primary residences.

Supporters of the program say it’s too early to judge its effectiveness; opponents call it a waste of money, arguing that the private sector is willing to invest in neighborhoods without subsidies. Yolanda Chavez, deputy assistant secretary for grant programs at the Housing & Urban Development Dept., says, “Our intent is not to compete with the private sector.”

The free market alone cannot erase the blight caused by widespread foreclosures, says the NSP’s backers. The U.S. had 15 million vacant housing units last year, an increase of 44 percent from 2000, U.S. Census data show. The longer a home stays vacant, the more it costs to renovate, says Dan Immergluck, a housing policy professor at the Georgia Institute of Technology. “For three years investors have been a huge part of the market, and it hasn’t worked by itself,” he says.

In Baltimore, Healthy Neighborhoods, an alliance of nonprofit groups that also includes a for-profit developer and the city, has bought 90 homes, 14 of which have been resold, including the one Kuntz bought. The group hopes that by fixing up vacant homes it will boost property values, encouraging people to renovate other homes on their own. “We’re trying to drive home values up,” says Mark Sissman, the group’s president, “because that’s good for the neighborhood.”

Sissman’s group is overseeing work on a half-dozen properties in Reservoir Hill, a community of brick and stone row houses three miles from downtown where median home values plunged to $45,000 last year from $210,000 in 2006, a 79 percent drop, according to data compiled by the Baltimore Neighborhood Indicators Alliance at the University of Baltimore. Prices have sunk so low that Healthy Neighborhoods is having to sell many rehabbed properties at a loss. One now under contract, with a skylight, hardwood floors, and a whirlpool tub, is listed for $230,000. The group spent $52,000 to buy it and $323,000 for renovations.

The White House has proposed channeling $15 billion to extend the NSP to blighted commercial areas as well as housing and to allow private investors to compete for funds. The proposal is part of the President’s $447 billion American Jobs Act, which Republicans have blocked in the Senate.

Jacob Green, a software engineer who lives on one of the most desolate stretches of Reservoir Hill, says he thinks the 3,000-square-foot home he bought for $200,000 in 2005 is probably worth half that today. Still, Green says there have been noticeable improvements in the area. Residents on neighboring Newington Avenue planted trees and installed iron flower boxes on windows, using funds provided by Healthy Neighborhoods. And the open-air drug market that once operated on his block is gone. “It can’t be done 100 percent by the market,” Green says. “Somebody has to come in and kick-start it, then the market takes over.”

    BOTTOM LINE -

    The bottom line: Local groups are using federal dollars to revive a Baltimore neighborhood where home values fell nearly 80 percent in four years.

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