Developers and Solutions Needed!

Baltimore City has a housing problem (no, not the vacants this time).  One that isn’t unique to Baltimore, but one that nobody seems to be willing to address, at least not publicly.

When we talk about affordable housing, it’s generally relative to home purchases or housing for the poor.  Those two things are important, yes.  But we’re not focusing on the newer housing problem — the lack of affordable housing for the middle class workforce — those who aren’t in the “poor” category, and those whose incomes simply don’t stretch far enough to meet the misguided landlord-centric HUD “market-rate” rent that’s based on an unrealistic geographic area that includes the wealthy suburbs.  (Source:  US Department of Housing and Urban Development FMR Documentation).

So…what does “affordable” mean, anyway?

In order to calculate affordability, the generally-accepted standard is to not be paying more than 25% to 30% of one’s net monthly income on rent on mortgage.  (Source:  Brookings Institution Metropolitan Policy Project “The Affordability Index”).  For the purposes of this discussion, we’re talking about rent — not mortgage.  And we’re focusing on renters, for now, not homeowners or potential homeowners.

The overwhelming majority of Baltimore City households — 60%, by my calculation — do not earn the income required to afford to rent a two-bedroom house or apartment that is priced at $1200 a month or above.   (Source:  BNIA Vital Signs 11).  This means while teachers can afford to live in the city, the aides/paraprofessionals cannot.  Nor can the janitors or cafeteria workers, and probably not the secretaries in the office — not unless they have quite a few years spent working for the system.  (Source:  Baltimore City Schools 2013-2014 pay scale).

This also includes other city employees — health aides, arts instructors, DPW workers, legal assistants, most City Council staffers, firefighters, 311 operators — you get the picture.  These are people who work hard, despite the bureaucratic nightmare they have to work with — yet, they can’t afford to live in the very city they work hard to protect, clean, and otherwise make a better place.  (Source:  Baltimore City Employee Salaries FY2012, via Baltimore OpenData).

And this doesn’t include all of the service workers we take for granted — the folks who make our coffee, serve us lunch, ring up our groceries at the supermarket, type our correspondence, or cook our dinner.

We need development in Baltimore, and not the Harbor Point pie-in-the-sky kind of development.  We need someone with vision — someone who sees the potential in what Councilman Cole once called “The Outer Harbor”.  It’s time to revive Councilman Cole’s Outer Harbor Initiative and start focusing on our long-neglected neighborhoods that are still standing tall and hanging in, despite the odds.  Neighborhoods like Union Square and Lafayette Square.  Neighborhoods like Oldtown and Bridgeview/Greenlawn.  We need a developer to understand the potential of these neighborhoods, and the people within them — and to see the potential for growth and profit, once these neighborhoods are redeveloped for the people who live there, and for the people who want to move in.  Affordable middle-class workforce housing is the key to fixing so many of our neighborhoods — we just need the right people to come together and make this happen.

I invite any and all ideas, suggestions, comments — and yes, development strategies.  All it takes is one.

 

8 comments

  1. Jack BeVier

    I’d really like to see TIF financing used in Baltimore neighborhoods. A $17,500 production subsidy to developers of affordable rental properties (memorialized by deed restrictions) could be financed profitably by Baltimore City through a TIF program. The $3,000 assessed value on vacant properties yields the City $72 per year in property tax revenue. An increase in assessed value to $100,000 (roughly equal to replacement cost of a Baltimore City rowhouse) increases the City’s tax rolls by $2,308 per year. This $2,308 increase in property tax revenues would pay back the City its $17,500 in 10 years at a 6% interest rate, which is several hundred basis points higher than the City’s cost of capital. This is a profitable way for the City to invest in its own neighborhoods and produce more affordable housing for City residents. – Jack BeVier, The Dominion Group

    • housingpolicywatch

      So does this also mean your company would be willing to set the rental rates well below market to attract residents who would be willing to stay longer and therefore help to stabilize some of our more vulnerable “cusp” communities?

      • Amos

        I ran some statistics on our latest set of rehab-rentals, using an approximation of this site’s affordable housing rent, $625 for a 2 BR, $650 for a 3 BR, $700 for a 4 BR and $750 for a 5 BR. I found that the mean annual rate of return was 5.9%, omitting the zero-return downtime of 3-6 months from the initial purchase until the first rent check. Just as important, the mean total cost as a function of the assessed value was 81%. The latter statistic, sensibly assuming that the sales price of the finished, rented house was the new assessed value, showed that, upon completion, the owner was immediately saddled with a 19% loss of capital. In other words, educated, accomplished professionals like Jack BeVier, whose company transformed thousands of abandoned houses into beautiful rented homes, should be given a ticker tape parade and the Key to the City. Instead, this web site’s contribution is a suggestion that his investors should suffer an immediate 19% loss on a high risk, illiquid investment requiring local management, when, for a return of a point less, they could buy a safe, liquid utility stock.

  2. Amos

    I ran some statistics on our latest set of rehab-rentals, using an approximation of this site’s affordable housing rent, $625 for a 2 BR, $650 for a 3 BR, $700 for a 4 BR and $750 for a 5 BR. I found that the mean annual rate of return was 5.9%, omitting the zero-return downtime of 3-6 months from the initial purchase until the first rent check. Just as important, the mean total cost as a function of the assessed value was 81%. The latter statistic, sensibly assuming that the sales price of the finished, rented house was the new assessed value, showed that, upon completion, the owner was immediately saddled with a 19% loss of capital. In other words, educated, accomplished professionals like Jack BeVier, whose company transformed thousands of abandoned houses into beautiful rented homes, should be given a ticker tape parade and the Key to the City. Instead, this web site’s contribution is a suggestion that his investors should suffer an immediate 19% loss on a high risk, illiquid investment requiring local management, when, for a return of a point less, they could buy a safe, liquid utility stock.

  3. Jack BeVier

    The market would be able to afford to charge between $150 and $300 less per month in rent with a production subsidy in place like the one I described. Sorry for the late response, I didn’t see that you had responded to my post. So yes, the answer is yes. Lets make this happen! What are next steps?

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