Wednesday, October 19, 2011

Creating an Opportunity from All of the Empty Houses? An Affordable Housing Response by NeighborWorks America to the REO Crisis

by Thomas P. Deyo,
Deputy Director,
Green, National Real Estate
and Community Stabilization

NeighborWorks America

This home was once foreclosed and abandoned.
NHS of New Haven rehabilitated it and sold it.

The growing number of empty houses in neighborhoods hit hard by foreclosures presents a huge challenge for residents still in these neighborhoods — and for the banks and government entities that now own many of these properties. Property values have plummeted for homeowners; homes have become shells of shelter having been stripped of their copper wire, plumbing or anything of value; communities have become health hazards or magnets for crime. (See The New York Times Foreclosures Empty Homes, and Criminals Fill Them Up.)

Many responses have been launched to address the situation.

An early public policy response to the crisis was the Neighborhood Stabilization Program (NSP) that offered support to local initiatives to stabilize high-foreclosure communities, mitigate impacts on neighborhoods and families, reduce blight, and offer affordable housing choices to residents. Many NeighborWorks organizations participated in NSP efforts and their initial efforts with local government entities and many other nonprofit organizations have shown successes and positive impact of their work in many communities across the country.

While various responses have been important efforts in establishing a foothold, gaining large scale control of properties and achieving significant gains for affordable housing have been difficult.

But now maybe an opportunity presents itself. The federal government is investigating ways to encourage private investment in significant holdings of “REO” or “real-estate owned” properties held by FHA and the GSEs, and the Federal Housing Finance Agency (FHFA) requested comment on strategies for disposition, including as rental properties. (see FHFA, Treasury, HUD Seek Input on Disposition of Real Estate Owned Properties.)

The opportunity is the potential of adding a substantial amount of affordable rental and for-sale houses for low and moderate income families at a time of desperate need for such housing in our nation. The risk is that a unique opportunity to produce public benefit of longer-term stabilization of fragile communities and increasing supply of affordable housing may be missed in favor of quick disposition without regard to community interests. We believe it’s time to seize the opportunity at hand.

Local nonprofit housing corporations and community residents should be central to any long-term viable solution. In partnership with FHA, the GSEs, and the private market, these groups can deliver on meeting the needs of communities for housing and stability.

The time is now to respond with a plan that takes the available resource that is impacting community strength and turn it into a community opportunity. In simple measure the plan calls for nonprofits to acquire, rehab, and maintain properties, rent at affordable rents to low- and moderate-income community residents, and when markets return sell at affordable prices to these same households and return to government a share of the proceeds to compensate for lower acquisition costs. (See NeighborWorks America comment letter.) This is not easy or simple but requires commitment and recognition that to make an opportunity requires taking some risk.