Affordable Housing and the Revitalization of Inner City Neighborhoods
by Jeff Sherman
Class C multifamily apartment properties 30 to 50 years old in inner city locations generally begin a slow path to death once the neighborhood becomes low income. A slow deterioration of the property begins due to increased maintenance costs together with decreasing rents caused by high tenant turnover, petty property crimes and drugs.
Bad tenants or “hustlers” move in and good tenants move out of the property or out of the neighborhood all together. Sometimes misdirected government rehab grants and/or subsidies to the tenants can help delay the deterioration of the property and the neighborhood but the decay does not stop. To rehabilitate a “tired” class C property and give it 20 or 30 more years of useful life extensive infrastructure improvements including roofs, plumbing, electric, A/C, heat and common areas need to be made. Interior improvements including new cabinets, appliances, plumbing fixtures and flooring also must be done. A landlord cannot make these extensive interior and exterior improvements which can cost $20,000 to $30,000 per unit unless rents can be raised at least $200 per month. Due to lack of cash or inability to achieve the rental increases the infrastructure improvements are not done and the property goes into a downward spiral that can turn a decent property into a dump in just a few years and take the surrounding neighborhood with it.
A trend becoming more popular in the last ten years or so has been a return from the suburbs by the middle to upper income people looking to live closer to the city center to reduce the commute and to get more cultural choices. In many cities the return of the suburbanites has increased property values in the previously neglected inner cities. When this happens the deteriorating multifamily or small commercial properties are torn down to make way for redevelopment offering housing now unaffordable to the neighborhoods current residents. Even though the neighborhood may have decayed there are always many hard working low income decent people who have stayed because of the fear of change or nostalgia, because of the convenience to public transportation and because the rents or prices are reasonable. These people who may have struggled through the bad times are now forced out of the neighborhood when it improves due to rising property values.
There is an alternative to deterioration of the property and neighborhood or gentrification and subsequent pricing out the neighbors. Condominium conversion of the tired class C properties provides the economic model to justify spending the $20,000 to $30,000 per unit. Spending this much on improving the property gives the existing neighborhood occupants the ability to own a decent place to live. For about $100-$200 more per month, or less if the buyer qualifies for down-payment and closing cost assistance, a person can own a completely renovated unit. Even in today’s financing environment condominium ownership is accessible to families with decent or no credit with little to no down-payment. Owner occupants demand better services from the elected officials and get involved in protecting their neighborhood instead of looking the other way as many tenants do when the hustlers are ruining their property and terrorizing the citizens. Owner occupants have the ability to demand properly maintained properties through control of the association.
Government grants and tax credits of up to $100,000 per unit are not uncommon to deliver new construction affordable inner city housing rental units. The condominium conversion outlined above can provide comfortable housing to the working poor while improving the neighborhood. This process also increases the tax base and gives a life changing capital building opportunity to the local residents. I have done it in Little Havana and Allapattah in Miami, in Sweeting Estates in Fort Lauderdale and in Pine Hills in Orlando without a penny in grants to the developer. Unfortunately the current market conditions of slow sales have made condo conversion financing difficult to obtain. With the appropriate loan terms these conversions can still be done. All around the country there are hundreds of thousands of run down inner city multi family units that could be renovated and converted to condos. This process applied to some of the inner city multi-family housing stock will create mixed income safe and livable neighborhoods and keep some of the inner city housing stock available to our teachers, firefighters and service workers for at least another generation.
