Habitat for Humanity Tests a New Model for Rebuilding after Foreclosures in Charlotte

5.16.2012 | If anyone knows how precarious family finances can derail the American Dream and destabilize communities, it’s Habitat for Humanity. Known for helping lower-income families become homeowners, Habitat for Humanity has been at the forefront of asset-building –and community-building–for decades. The nonprofit offers families whom larger banks tend to ignore (in non-boom times at least) no-interest loans, manageable payments, and constant counseling and support. They have put more than 2.5 lower-income families into homes worldwide–homes that the individuals help build– over the past 36 years.

Yet recently, as the housing market sinks and foreclosures rise, Habitat is changing its course. At a conference in Charlotte, NC, earlier this month hosted by BRR,  Bert Green, Executive Director and CEO of  Habitat for Humanity in Charlotte, discussed this pivot–and the lessons learned from rebuilding in stressed communities. 

Two suburban developments were the focus of the panel discussion on resilience in the face of foreclosure: Peach Tree Hills and Windy Ridge. Both were developments of modest suburban homes in Charlotte ranging in price from $100-150,000. Peach Tree had greater owner-occupancy and a diversity of residents. Windy Ridge was an investor community, with poor design and shoddier construction.

Charlotte, as anyone who read “Too Big To Fail” knows, was a key figure in the financial meltdown, home as it was to banking giant Wachovia and others. The days after the crisis were like waiting for a bomb to go off, says former Charlotte Observer reporter Mary Newsom, a member of an earlier panel at the conference. People were waiting the pink slips. Everyone was on edge. “It was like a morgue in September and October 2008. There wasn’t even a line at Johnny Burritos,” a popular lunch spot in uptown Charlotte. People were terrified, she said. “A lot of people had all their income in one bank and they just watched their worth dive. The city froze.”

Although the impact wasn’t as bad in the end as people had imagined, a lot of money has nevertheless left the county. And the strain has reverberated down the line, to suburban developments like Windy Ridge and Peach Tree Hills.

It was about this time that Green and Habitat realized that they might better serve struggling families by helping to rebuild devastated communities.

Habitat for Humanity is known for its efforts to help lower-income families become homeowners.  Habitat has a proven system of supporting these families, beginning by ensuring that they have some skin in the game. Habitat requires that homeowners help build their own home. They also prescreen the families for financial stability, provide an interest-free mortgage, and they provide continued counseling and support after they’re in the home.

As a 2011 Wall Street Journal story reported, local governments often donate land in ailing neighborhoods, hoping the new owners will help revitalize the community. It seems to work. In Dallas, for example,  estimates are that a $1 of Habitat investment generates $3.18 in economic impact. Much of this impact is felt directly in troubled neighborhoods, stabilizing vales and preventing foreclosures. A 2011 study, the Journal reports, found that found that foreclosures in Habitat’s Dallas market were less than 2% in 2010.

But in some cities, like Cleveland, the share of foreclosures has been rising. Habitat has built 160 homes in the Cleveland metro area in the past 20 years, according to a blog on Cleveland.com. And now 25 of those are about to be foreclosed on, in addition to 8 homes foreclosed on since 2008.

As foreclosures began to creep up and neighborhoods destabilize, Habitat began rethinking its model.

Today in Charlotte, says Green, Habitat’s efforts are evenly split between building, rehabbing/reselling, and rehabbing owner-occupied housing to preserve existing stock in the neighborhood. They can buy homes for low acquisition costs, spend about $12,000 to rehab them, and then resell them to credit-worthy lower-income families, says Green.

“We are buying at foreclosure sales,” Green said, “and sometimes we’re the only person there.”

They bring the homes up to standards, make them more energy efficient, and thus more affordable as well. In doing so, they also help to stabilize the community.  And they’re taking the lessons learned and applying them to other neighborhoods hit hard by foreclosures.

Peach Tree Hills and Windy Ridge were two of those communities. Yet only one community has rebounded. In Windy Ridge, says Green, redevelopment was “like pushing a rope. It was tough work.” They key to the success of Peach Tree over Windy Ridge, he says was acting quickly. “We were on the front end in Peach Tree Hills, but on the back end in Windy Ridge.”

The tale of these two suburban developments, which we’ll write about next week, hold lessons for community development groups on the ground, including Habitat. They key, it turns out, is the level of community commitment–the “social capital” that the neighbors have developed.

Green points to several takeaway lessons from their experience, both in rehabbing and preventing foreclosures before they happen.

1) Projects are more successful when they are ahead of the problem. Buying from investors would have likely been even more successful.

2)  Projects need more return on our investment with the family. Tying a stipulation such as job training to the mortgage restructuring is an example.

3) More incentives are needed for more mixed-income communities. Peach Tree Hills was more diverse with renters, owners, and varied housing stock. They were not hit as badly as a consequence.

4) More incentives are needed for private and nonprofit involvement, and then leverage that money. Ideas are needed for how to better leverage the money rather than just buy a home, fix it up and resell, one by one.

One of those leveraging efforts can be found in Portland, where Habitat is buying plots in an abandoned development on the city’s East Side to build new homes and rehab existing. A donation of $1 million by a 92-year-old local business leader spurred others to contribute and has resulted in a donor network that enabled Habitat to seriously tackle community-scale destabilization. In all, Habitat bought 150 lots and is starting on 22 new homes this spring.

As the New York Times reports, “The scale and scope of the new Habitat projects, city officials say, will allow entire blocks on the east side to be anchored by owner-occupied housing.”

The local housing authority is intrigued as well. “One of the ideas they have floated,” housing commissioner Nick Fish told the Times, “is a plan, outside government, to take back blocks of the city, block by block, using their toolkit, with modest government contributions. We can start building around their work.”

While these examples are encouraging, and reveal a lot of resilience and innovation, as BRR member Todd Swanstrom said, they are just a drop in the bucket. We still need a federal response yet there’s still too much rigidity at the federal level. The layers of new requirements by HUD too often tie the hands of local actors. But if well-designed, federal policies can empower local actors to act. If there was a requirement, for example, of more standardized data on these issues, we could at least know what’s happening where, and get ahead of it, as Green argues. Clearly, more smart thinking and private-public partnerships are needed.



One Response to Habitat for Humanity Tests a New Model for Rebuilding after Foreclosures in Charlotte

  1. James Brooks says:

    Another critical partner in Charlotte was the municipal government itself. The team responsible for neighborhood stabilization work with Habitat and other nonprofits. The demonstrated leadership by the city proved invaluable across the board.