Gill Holland is a community builder and real estate developer in Louisville, Kentucky. Today, we're sharing a guest op-ed he wrote for the Courier Journal last year about a unique reinvestment approach he is using in his neighborhood to help revitalize vacant properties and provide quality affordable housing.
If you drive through many of the neighborhoods west of Ninth Street in Louisville, Kentucky, you can’t help but notice the huge number of decaying, vacant, and abandoned properties.
We need to come together as neighbors and remedy this blight, because the decay can’t be missed and should no longer be ignored. This issue was on the mind of Courier-Journal’s Joe Gerth when he addressed the problem in a recent column, “Scourge of vacant homes killing West Louisville.”
This is one of Louisville’s greatest challenges, and I believe one of the great opportunities. We have been working in the Portland neighborhood for the last four years, and one of the four pillars of our Portland Investment Initiative (Pii) addresses exactly this issue of “vacant, abandoned properties” (VAPs).
Using “urban acupuncture,” we try to acquire the worst vacant house on each block and renovate it. This takes away the negative ripple effect of a VAP and replaces it with a much-needed affordable housing opportunity. I would like to add a couple of points to Gerth’s article, brainstorm one potential out-of-the-box market-based solution, and invite the readers to weigh in with other ideas.
The discriminatory practice of redlining has been against the law for decades, and in 1977 the Community Reinvestment Act (CRA) was passed to address redlining and encourage banks to lend in economically-challenged areas. Some great local banks do more than just check the box when it comes to their CRA compliance; however, many of our neighborhoods are still dealing with the real-world consequences of the legacy of redlining.
This is our Challenge
Most of the crumbling structures (VAPs) can be acquired for under $10,000. We are soon to start work on our 19th renovation so we have now renovated almost two percent of the VAPs in the Portland neighborhood.
We now know that the average renovation cost is $70,000, and our total cash investment averages $80,000 per house. The market distortion which then leads to an economic (not overtly racial) red-lining is that the day we finish one of these lovely historic houses, both the banks and the Jefferson County Property Valuation Administrator say the house is “worth” about $28,000 based on “area comparisons.” It is virtually impossible to get any mortgage, construction loan or even home improvement loan on these houses since the amount required to renovate is so much more than what the finished “value” will be.
The reason is simple and makes sense at first blush: banks use “area comparisons” to appraise properties when they decide how much to lend. Decades of disinvestment (some due to folks with resources leaving after the 1937 flood), coupled with the city’s history of redlining that left our city segregated, has made it difficult, if not impossible, for certain groups to build equity through their homes over the last three generations. Subsequent vicious cycles of crime, under-employment, and drug abuse have led to one in four area properties being VAP, so these continual $10,000 “sales comps” preclude any other type of market-based valuation.
This gives us an opportunity to discuss how we could help the banks in our area unite for the greater good. If every bank would publicly commit to attaining an A-plus on their Community Reinvestment Act (CRA) Report, could we potentially finance housing for more of our neighbors in need? Also, if banks could use a different methodology to appraise, they could come to a much different result.
Here is our Example
There are 30,000 families on the affordable housing wait list in Jefferson County. Affordable housing for a family of four is about $730 per month. We charge $650 per month to rent one of our rehabilitated houses. An appraisal based on this monthly rent would suggest our newly-renovated house should be worth over $90,000.
There are close to 8,000 VAPs in Louisville – about 5,800 of those are vacant structures. Using our average figure of $80,000 per residence, our community needs a total of $640 million to renovate every single blighted property. That is less than the cost of two Omni Hotels or three KFC Yum Centers – so it is doable.
The benefits to historically marginalized communities, local families and all of Louisville would be massive. When a property is left to deteriorate, the city spends about $10,000 for each demolition plus the ongoing yearly maintenance of empty lots. That equals $80 million in taxpayer benefit if we actually took care of each one.
Studies show that more jobs are created renovating existing structures than building new ones because more money goes into labor and less into materials. Another value in renovation is the rebuilding of the cultural identity of an area and taking away the blight.
Renovating is a greater benefit to an area than new construction on an empty lot since the empty lots don’t have as negative a ripple effect as a VAP. No one is displaced by fixing up empty buildings, and there could be a moratorium on property tax increases for long-term anchor homeowners to protect their interests.
The reality for Portland is that if we get one family a week to move there it will take 28 years to get back to housing density that existed before the 1937 flood.
Based on the 2007 National Association of Home Builders or the 2009 Housing Alliance of Pennsylvania studies, each 100 units of affordable housing — totaling about $10 million of expenditure — creates about 150 jobs in the first year and 40 recurring jobs. Expanding on that, 8,000 units creates 12,000 jobs in year one and 3,200 permanent jobs.
An added bonus is that we citizens own the Louisville Water Company and MSD and the infrastructure for those city utilities already exist in the area. Because we taxpayers have already invested millions of dollars to provide water and sewage services to VAPs, having customers living on restored properties would generate significant revenue.
If we take away the cancerous VAPs and replace them with newly renovated affordable houses, entire neighborhoods will be uplifted. The market will reflect that with a significant increase in property values throughout West Louisville, not to mention the increase in retail businesses that would come with more “rooftops.”
While there are obviously huge economic benefits from more people with homes, imagine the future earnings and benefits that would accrue from safely and securely housing today the 8,000 children in Jefferson County Public Schools who each year experience some form of homelessness.
How can we as a city figure out a way to stimulate the investment needed for affordable housing in our community? Could we create a super tax increment financing district (TIF) covering all of West Louisville and work with the banks to have the private sector fund a $640 million Community Impact Bond?
My back-of-the-envelope economic impact study based on our Pii returns for investors suggests a healthy return (higher than municipal bonds presently) for the private sector if such a bond could be institutionalized.
My challenge to the community is to brainstorm a way to find the political will, the private sector capital, or a potential for a public-private partnership, and the social conscience to house our neighbors, create thousands of good jobs, reduce our crime and homicide rates, and rebuild our city.