So Why Can’t We Turn That Building into Apartments?

From rural to urban communities, appropriate, affordable housing is in demand, and is increasingly hard to come by. In different places, appropriate and affordable take different forms. In our work, we have worked with rural communities that had a surplus of aging single family homes, but few rental apartments appropriate for single person households. We have also worked with urban communities where multi-family housing was being built, but all the units were out of the price range of a middle income earner, such as a teacher.

In places that are facing a shortage of appropriate, affordable housing, the question often asked is, “Why can’t we just convert that old school/warehouse/abandoned church into apartments?

It seems like a simple trade – there is a need for space, and these structures have a lot of it. Oftentimes, they are a link to the community’s past, such as an old school or a mill building. But the process of transitioning a commercial, industrial, or institutional use to residential is complex and expensive, and not a fit for every community.

Zoning

The first hurdle is zoning. The principle behind zoning is to keep land uses separate, and sometimes for good reason; that old industrial warehouse along the river may have been part of a loud, noisy, and potentially polluting complex fifty years ago.

If that warehouse is now located along a riverfront rail trail, and within walking distance to bars and restaurants, it may make sense for the zoning around it to change. In order to do that, the city would either have to change the zoning, or grant a variance – a specific waiver that allows the property to be used in a way that is not permitted by the current zoning ordinance.

Zoning variances take a long time to be decided and are not a sure thing. This is especially true if the change in zoning would require more infrastructure and city services to be delivered to an area that formerly was not active. In property development, time is money, and the more time a property is tied up in zoning proceedings, the less likely it is to be redeveloped.

Market Forces

Retrofitting an industrial or institutional building into residential involves many different factors, and one of those factors is money. Older buildings are more likely to hold outdated and dangerous materials like asbestos insulation and lead paint. Utility systems and elevators may not conform to residential and accessible standards. And finally, building footprints (such as classrooms) may not align with codes for residential units.

Addressing each of these factors is expensive. Those costs add to the total project budget, resulting in higher costs that are eventually passed on to the owners or renters of the building’s units. As remediation costs pile up, the developer will compare the budget with other new build construction rents and development costs. If renovation costs push unit prices high above market rate, the rehabilitation of the structure will be untenable. And if it can be profitable to the developer and deliver a product within the market range, these costs can push the prices far above what is affordable.

What can we do?

Successful conversion of large, older buildings into residential properties can be encouraged by lowering municipal policy and financial barriers.

Municipalities can review zoning to determine ways to allow for conversion of properties, for example, considering if a former industrial site should be zoned light industrial or mixed use, or allowing for multi-family units in single-family residential neighborhoods which could allow reuse of churches and schools. Parking requirements can also be a barrier – it is likely that the residents of an 8 unit building will not have the same parking needs as a 50 person company.

Financial hurdles are harder to address from a municipal standpoint, but programs such as the Low Income Housing Tax Credit provides some incentive for building affordable units. The Historic Tax Credit is another way to alleviate financial hardship, thought this program is practically only useful for project over $5 million. If the project is in an Opportunity Zone, there may be a heightened possibility of attracting outside  investment, thus relieving the need for bank financing, which can be difficult to secure for unconventional projects.

There is never a simple answer to how to create more affordable housing, and converting buildings from industrial and institutional is no exception. It requires flexibility and ingenuity from both the private and the public side to make sure there is a perfect fit.

Transforming the Way We Do Development

The PCRG Community Development Summit was held on May 8-9, 2019. It was titled Capital and Capacity: Replanting Roots in an Ever-Shifting Reinvestment Landscape. The title was an undersell to say the least. I would characterize this year’s summit as Transforming the way we do development.

The summit’s first session on May 8, Under our Own Power: Games to Inform, Organize, Build Capacity, and Compel Action was not your ordinary “we can make community engagement engaging” kind of session. The session was facilitated by the Andrea Elcock of the Port Authority of Allegheny County, David Totten of the Southwestern Pennsylvania Commission and a team from evolveEA that included Christine Mondor, Elijah Hughes, Ashley Cox and Daniel Klein. Christine set the tone early by framing levels of engagement from low (transactional) to high (transformational).

These levels of engagement can and should build off of each other. Just because an engagement is transactional, that doesn’t mean it is bad. Sometimes you just need to inform people. However, if you need to get things done, it will require a more significant engagement effort. This goes far beyond the typical community engagement process of Inform, Collect Feedback, Ignore Feedback.

On May 9, Andrea Batista Schlesinger of HR&A Advisors fired up the breakfast club with a call for Equitable Development. Ms. Schlesinger did not pull punches, for example she led off by saying that “Economic development is not neutral, it is political and the tools of economic development and planning are often used to enforce racial segregation.” She called for equity to be a central focus and not an “extracurricular activity.” She advocated for an approach to Equitable Economic Development that I have boiled down to four critical questions for every development program or initiative:

  1. Who wins?
  2. Who loses?
  3. Who made the plan? Or who runs the program?
  4. How do you protect people from your good intentions?

At the lunch keynote, Nathaniel Smith of the Partnership for Southern Equity made clear that the problems of inequity today are rooted in our history. Early in his address he quoted James Baldwin: “History is not even the past; It is the present.” Mr. Smith made clear what he meant when he said “Extreme Extraction = Extreme Inequality” that he matched with maps and photos of America’s slave trade and the Trail of Tears that displaced native peoples from their historic homelands.

Source: U.S. Census Bureau, Wealth, Asset Ownership, & Debt of Households Detailed Tables: 2014.

Today the net worth of black households is only seven percent of the net worth of white households. While we might like to confine the sins of slavery and racism to the past, they are in the words of James Baldwin, very much a part of the present. New research by Dionissi Aliprantis and Daniel Carroll at the Federal Reserve Bank of Cleveland explore the causes of the wealth gap. For an easily digestible summary of their research, see the article by Brentin Mock of CityLab, “Why Can’t We Close the Racial Wealth Gap?

If we are going to transform the way we do development, so that it is something that benefits people, then we need to reframe the development debate.

Under the hypothetical scenario used in their model, wherein no income gap exists since 1962—meaning all things equal in payscale between blacks and whites—they claim that the wealth gap likely would have mostly been closed by 2007. That’s because their model predicts that by 1977 the labor income gap has become a stronger contributor to the wealth gap than the initial conditions, and then accounts for more than 80 percent of the wealth gap by 1990, as visualized in the chart below.

If we are going to transform the way we do development, so that it is something that benefits people, then we need to reframe the development debate. Nathaniel Smith challenged us to consider the following: What would Pittsburgh look like if every policy were evaluated based on the impact on the most vulnerable?

So wherever you live, ask yourselves that question before you sink the next bucket of tax dollars into a development deal.

Worthy of Investment: The Problem with the Devaluation of Communities of Color

Andre Perry of the Brookings Institution and members of the Fair Housing Task Force recently discussed barriers to fair housing in Pittsburgh and suggested policies to promote housing equity across protected classes.

Andre Perry shared information from a recent report by the Brookings Institution that explored the devaluation of assets in black neighborhoods. The report found that, “differences in home and neighborhood quality do not fully explain the devaluation of homes in black neighborhoods.” In the nationwide study, homes in majority black neighborhoods were found to be worth 23% less than similar homes in neighborhoods with fewer black residents, even when controlling for variables like quality of home and access to amenities. This devaluation equates to an equity loss of $48,000 per home and $156 billion in lost equity across black neighborhoods nationwide.

The effect of housing devaluation has a negative impact on upward income mobility. Raj Chetty, who publishes studies with Opportunity Insights at Harvard University concluded that there is a significant racial disparity in economic mobility and that mobility varies widely across neighborhoods within cities. Their research provides support for “policies that reduce segregation and concentrated poverty in cities.”

In Pittsburgh, devaluation in majority black neighborhoods has resulted in an average 11.6% difference in home value and a -$11,919 absolute price difference. Disparities extend beyond home valuation. Homeownership rates are lower for African Americans. According to the 2010 Census, African Americans represent 26.1% of the population in Pittsburgh, but account for 16.4% of total homeowners. One-third of Pittsburgh’s African-American households own their homes, while nearly two-thirds of white households do.

The Fair Housing Task Force, organized through the City of Pittsburgh Commission on Human Relations, represents interests of protected classes under the Fair Housing Act, which include color, disability, familial status, national origin, race, religion, and sex. For the past two years, the task force has worked with 44 organizations across Pittsburgh to assemble recommendations that address fair housing access in neighborhoods across the city. These policies build off of the work of the Affordable Housing Task Force by using a fair housing lens to address long-standing racial economic disparities within housing.

The Inequitable Roots of Home Ownership: Systemic Racism & the Wealth Gap

In March, I was lucky enough to attend a two day Racial Equity Institute workshop. The workshop was dense – covering the creation of the concept of race, implicit bias, and systemic/ institutional racism and how it contributes to the inequitable outcomes we see today. In a future blog post, I will share some things I learned about systemic racism as it pertains to access to work, but today I’d like to focus on home ownership.

One statistic is particularly striking in revealing the scale of inequality impacting people of color today. According to the Census Bureau, in 2014 the median net worth of a white household was $102,800, versus only $9,590 for a black household. Equity in a home comprises the majority of the wealth; excluding equity in a home, the median net worth of a white household is only $33,570, and that a black household drops to $3,339. Hispanic families fare only marginally better, with a median net worth of $17,530, which drops to $6,253 absent home equity.

The history that the Racial Equity Institute covered illuminates how largely our government policies have led to that situation. This is important history to keep in mind as we work to develop new programs and policies to create economic opportunity, and as we try to explain to stakeholders why we have an obligation to redress the impacts of these policies. While the history is vast, here are three key points.

1. It all starts with land, and all of the major programs to initially settle our country were off-limits to people of color.

The 1785 Land Ordinance Act, which offered 640 acres at $1 per acre, was only available to white people. The nearly 100,000 white people who came to California after the end of the Mexican-American War were allowed to claim and own “free soil”, while slaves and free black people were banned from doing so. Additionally, the 1862 Homestead Act, which gave citizens 160 acres of land for free if they would farm it for five years, was not available for Blacks and Native Americans. According to Lui et al. in The Color of Wealth, an estimated 46 million Americans living today are descendants of Homestead Act beneficiaries.

2. The housing programs that fueled post-war wealth generation, were also largely inaccessible to people of color.

Of the approximately $120 billion in new housing financed by the VA and FHA by 1962, 98 percent of it went to white home owners. In part, this was because beginning in 1933 with redlining and continuing with racially restrictive covenants (outlawed in 1968, but still in some cases on the books), people of color were restricted to certain neighborhoods – neighborhoods in which banks would not lend. If you haven’t looked at the redlining map of your city to compare it to present-day conditions, check this out.

3. Systemic racism continues to influence access to homeownership and wealth.

The Recession disproportionately impacted people of color. In December 2011 the US Department of Justice announced a $335 million settlement with Bank of America/ Countrywide for its predatory practices that targeted black and Latino households. The settlement noted that between 2004 and 2008 roughly 200,000 African American and Latino borrowers were charged more for their mortgages than were similarly qualified white borrowers.

Of course, the picture is much more complex than this blog post can convey. If you want to learn more, PBS has compiled a list of resources on race.

And we are always interested in learning more, ourselves! So please reach out with thoughts, resources, or questions: engage@fourtheconomy.com.

Housing’s “Missing Middle” in Greater Newport, RI

In the Greater Newport region (covering Newport and Bristol counties in Rhode Island) the  “missing middle” is missing housing for the middle class.Due to high costs and limited availability of denser housing options in the region:

  • 73% of households cannot afford the median home price of $347,500;
  • 28% of homeowners and 49% of renters spend more than 30% of their income on housing, defined as “cost burdened”; and
  • Some owners and many renters have to seek out housing that is not affordable at their income level

In a positive step in advancing solutions to these problems, Fourth Economy and Connect Greater Newport partnered with HousingWorks Rhode Island and the Aquidneck Island Planning Commission to host the 2019 Housing Forum.

Participants gather at the 2019 Housing Forum. Photo by Claire Nelson

The 2019 Housing Forum featured three panels of experts discussing the state of housing in the region. The afternoon break-out sessions allowed for a productive discussion between residents, business owners, elected officials, and community members interested in the future of housing for the region. Solutions proposed during the break out sessions included:

  • Addressing short term and seasonal rentals;
  • Improving public perceptions of affordable and workforce housing;
  • Improving infrastructure to support denser housing;
  • Examining zoning ordinances to allow for denser development; and
  • Leveraging private public partnerships that engage major employers in the region

The needs of regional employers are clear: in order to support the growth of existing businesses and attract new companies to the region, the region must develop housing suitable for the workforce. According to an ongoing survey, 85% of respondents say housing is an issue affecting employers in the region. More than three quarters said that cost of homeownership and renting was a “significant” or “very significant” barrier for their employees.

Connect Greater Newport will build off the success of the 2019 Housing Forum and continue to address the central issues of Greater Newport’s business community.

What are your thoughts? Is housing an issue for your company? If you live in the Greater Newport region – share your thoughts here or contact Connect Greater Newport. Not in Newport? Share your thoughts with us here.

About Connect Greater Newport

Connect Greater Newport is a regional economic development initiative launched in 2018 by the Newport County Chamber of Commerce to serve the region’s business community. Connect Greater Newport’s mission is to support the growth of Greater Newport’s existing businesses and serve as a resource to attract new companies to the region.