Do Housing Rehabs Pay Their Way? A National Case Study
Simons, Robert A., Magner, A. J., Baku, Esmail, The Journal of Real Estate Research
Abstract This research focuses on if housing rehabilitation by community development corporations pays its own way. The recent experience of ten local housing organizations in the Neighborhood Reinvestment Corporation network is examined. These organizations assist homeowners in rehabbing existing units and acquire, rehab and transfer units to new occupants. The findings indicate that rehabbed housing units provide substantial benefits to the local economy. The rehabbed units return $0.55, on average, for every local government dollar invested. In addition, economic benefits such as increased property values and tax base, and construction jobs and permanent jobs were created and sustained.
Many private sector market participants and not-for-profit groups participate in the rehabilitation of housing. In some inner-city markets, these groups are the only developers active in producing housing. Community Development Corporations (CDCs) have become one of the main producers of affordable housing and community development. Recycling housing through rehabilitation (rehab) is important for many reasons. In addition to providing safe, decent and affordable housing to persons of modest means, rehabs allow many first-time homebuyers the opportunity to get on the equity ladder of homeownership. Homeownership is in turn related to higher levels of personal, residential and life satisfaction, improved self-esteem, and psychological and physical health. Other desirable outcomes benefiting society are greater neighborhood stability attributable to longer tenure in the house; more social involvement such as voting participation; higher levels of house maintenance activities; and other socially desirable behaviors (Rohe, McCarthy and Van Zandt, 2000). The benefits of homeownership from housing rehabs may also lead to greater utilization of city infrastructure and retail services. Newly revitalized housing makes a much higher financial contribution in the form of taxes than a dilapidated or boarded up unit, which may instead be a burden on the local economy and property markets by contributing to blight and lower property values.
The role of CDCs in revitalizing urban areas is considerable. According to the Fourth National Community Development Census, conducted by the Urban Institute in 1998, there were 3,600 CDCs nationwide involved in affordable housing and/or community economic and commercial development. During the last four years, CDCs produced 245,000 affordable housing units. By the end of 1997, they had cumulatively developed 71 million feet of commercial and industrial space, and their total outstanding business loans amounted to $1.9 billion involving 59,000 businesses (Urban Institute, 1999:5-7).
CDCs' affordable housing programs include a broad spectrum of activities that include one or a combination of the following services: housing finance, rehabilitation, new construction, purchase-rehabilitation-sale, emergency home repair, acquisition, homeownership promotion, development of rental units and management. Sixty-nine percent of CDCs are involved in housing rehabilitation. In addition to their affordable housing and community economic development programs, most CDCs are involved in providing a selected number of community services such as youth programs, community organizing, community safety, job training, child care and emergency food assistance. The main sources of support for CDCs' operating expenses and programmatic investment include federal, state and local governments, national intermediaries, foundations, private lending institutions, corporations and religious institutions (Urban Institute, 1999:15).
Despite their significant and increasing role in providing affordable housing and community revitalization services, very few published studies quantify the impact of CDCs in the local arena. One important question is to what extent the positive effects of housing on the local economy offset any subsidy costs, in other words, does rehab housing pay its own way? …