Open Book: Housing [Part 1]

How can an organization be an open book? How can an organization simultaneously do and explain what they are doing? One of our primary goals is to be transparent, which is hard, not because we have anything that is really all that privileged or sensitive, but because who wants to read every minute detail of any thing that we do, much less all of the things that we do?  But to be transparent is to make yourself and all that you do available and accessible for everyone else to learn from. And accessible is a core tenet of our mission. So: to lay it all out there, and let each individual decide how deep they want to delve into one or another aspect of what we do - that is our open book. I'll open the book on our housing work - Richard will write on other topics, but as far as housing is concerned, here goes. As my dad would say, "Take 1."

We are building housing to be many things: affordable, owner-occupied, flexible, inspiring, energy-efficient, innovative. How are we doing that? And why? First, the how:

HOW

We wrote a grant proposal and received funding in 2013 from ArtPlace America for $425,000 to build "Makers Spaces" in the North Limestone neighborhood, because we saw a need in Lexington for artist housing. Simple enough. With that money, we bought 17 properties on York Street and 1 on Eddie Street, bought from 4 property owners. Most of them were condemned and/or vacant (or should have been condemned, due to decades of disinvestment). We inherited a few tenants, and have maintained almost all of those tenants to this day. That funding also went toward masterplanning, neighborhood analysis, and a design competition. It also was the seed money that formed North Limestone CDC and got all of our formal incorporation in place. After all of that, the remainder of the money went toward gutting all of the vacant houses in preparation for remodeling, as well as to fully remodel 1 house (138 York).

Sadly, through the process of gutting the houses, we discovered that they were either too rotted out or termite eaten, too structurally unsound, or were not originally built sturdily enough to in good conscience renovate them and sell them. That was simply not an ethical path, in my mind. We also discovered that, to remodel one of these shotgun houses "correctly" would prove cost prohibitive as well. Our initial plan was proving to be unsustainable, and infeasible. We needed a new plan.

So we went back to the drawing board. We revised our original plan (to build "Artist Houses") to be open to any and all. We started having conversations with neighbors about transitioning long-term renters to home-owners.  We also created the new Planned Unit Development (PUD-2) zone, with the intent of creating an innovative and flexible zone of 171 properties that would allow a wide range of uses. In effect, returning to the "pre-zoning era" approach of people working from their home at small-scale trades - we even found a ledger in 128 York that proves that a JW Miller did radio repair out of his home in the 1940s, which only substantiated our position on the importance of small-scale entrepreneurialism. That rezoning process took more than a year. We will outline that process in greater detail in a future post, not only because we want people to know the challenges and expenses associated with that, but also to empower people to be able to learn from what we did and how we did it.

We replatted a number of properties, taking 10 properties (128-146 York) and turning them into 8 wider lots.

We applied to LFUCG's Affordable Housing Trust (AHT) in March 2015, and in June received approval to proceed with our proposal to build 6 houses on York (130, 132, 136, 140, 142, 146 York). We had crunched the numbers over and over again with numerous contractors, and the lowest we could get the raw construction costs for a new 700 square foot shotgun house was about $75,000. The problem we kept bumping up against was that plywood and concrete and toilets don't get cheaper for affordable housing. So, this put the all-in development cost at $105,000 per house.

The issue with this number was two-fold: This is significantly higher than the cost of similar sized new-build houses in the immediate area (a Habitat-for-Humanity house on Eddie St. recently sold for $80,000) and it is too expensive for many individuals who live in the neighborhood. Though these are two different issues, we took a single approach to address them - trying to get a gap subsidy to knock a chunk of the costs off the sale price. A key to our AHT proposal was asking LFUCG for a $27,000 grant to bridge that gap between the total development cost and the anticipated appraisal value / sale price. This was the only way we could make it work.

So we pulled together a $100,000 Program-Related Investment (PRI - basically a line of credit) from the Knight Foundation, $100,000 line of credit from Peoples Exchange Bank, and coupled with the $322,000 grant / loan ($163,000 grant / $159,000 construction loan) from LFUCG and the original ArtPlace-funded land purchase, we had enough to build 6 houses, which we will sell once complete.

We are taking nearly no developer fee: $3,000 per house, which works out to 2.9% as opposed to the 15% maximum outlined in the LFUCG Affordable Trust Fund Guidelines. This saved the project over $90,000. We are able to do this because our operations are largely supported by grants and donations, so we did not have to roll this expense into project.

We are aiming to sell these houses for between $70,000 and $80,000. This is more or less in line with comparative properties developed by other non-profit developers in the immediate area. A new-build Habitat for Humanity house located directly behind these houses on Eddie St. was recently on the market for $80,000. The Fair Cash Value of a Faith Community Housing House a couple doors down on York St. is $100,000. Another Habitat House on Maple Ave. recently sold for $81,000. We even had appraised 138 York recently, and, as an ostensibly new 700 square foot 1 bed 1 bath house on York Street, it appraised for $70,000. 

We are presently under construction on these 6 houses, projected to be completed in June 2016 for sale. The houses will be deed restricted for 15 years to only be sold to persons earning at or below 80 AMI for Fayette County KY. LFUCG's standard is 5 years - we requested that it be lengthened to 15 years. We felt this was important to not only ensure longer-term affordability, but also to ensure that the first buyer didn't profit from the LFUCG grant. To that end, we also are working to ensure that the houses are required to be owner-occupied, to prevent purchase of these properties as investment properties, and by extension prevent absentee landlords from profiting from that LFUCG grant.

As an implementation of the PUD-2 zoning, the first 6 new houses are being constructed as Live/Work Units under the Kentucky Commercial Building Code. This is important, because it will allow for a large range of uses permitted in the zoning without requiring the owner to make extensive modifications to the unit. It is the first embodiment of the PUD-2. However, it will not include, for example, a commercial kitchen hood and fire suppression system for production cooking - for intensive and specific uses like that, additional measures will have to be taken to ensure that use-specific requirements are met. But, the basics are there for the majority of the commercial uses, to allow people to live and work in the same place, to bring up to 5 employees into the space, to bring customers and clients into the space, and to claim more than 25% of your home as your "home office" on your taxes (which is the current provision in a residence).

So that is the how. Now for the why:

WHY

This project is not intended to be everything to everyone. It is intended to be a discrete product that meets a specific need and gap in the community, which is well-built, affordable, owner-occupied housing. The owner-occupancy rate in the neighborhood is below 40%, whereas the conventional wisdom is that a "healthy" percentage is 50%-60%. And of those 40% of existing home owners, in talking to people in the neighborhood, many of these owners came into this by inheritance, not purchase, so mobility was limited by a lack of experience with the home buying process. In terms of building stock, we felt that there were limited options for people who want to own their own home - they could either spend $25,000 on a house that might fall on them or cause asthma from mold, or cost $500/month in heating bills in the winter. Or, they could spend $180,000 on a "flipped" house that may be of more aesthetic value, but could still be of dubious quality. And there didn't seem to be anything in between.

We realize that home ownership is not for everyone. this project is not intended to be a one-size-fits-all. It is intended to be just one choice in a range of options. Home ownership should be a viable, affordable option. And with the limited and diametrically opposed options listed above, it seemed that that gap needed to be filled in order for home ownership to be more of a possibility for more people that live in this community. 

We realize that owning a home comes with responsibilities and a need for certain resources. We are working to identify the responsibilities so that the people who buy these houses know what they are signing up for. Debt is a big part of that. But, from our perspective, you can either pay the bank interest directly, or you can pay your landlord's interest, as well as his profit, in the form of your rent. Either way it's your money, so you might as well build some equity with it. Home ownership is just cutting out the middle man, and growing the home owner's equity. And in terms of the resources required, we have a number of financing partners, from non-profit organizations like Community Ventures, to more traditional mortgage partners who are prepared to help address down payment, bad or no credit, and other challenges.

So that's it, in a nutshell. We will delve into a number of topics in future posts: equitable and affordable housing issues, challenges, and methods; the PUD-2 process; the importance and value of design in affordable housing; neighborhood history and contextual design; the true costs of building; and much more. But for now, this is our start. Our start at showing our hand in this effort to be a model of what to do, what not to do, how to do it, what works, and what doesn't work, so that the knowledge gained in our little corner of the world is not relegated to just here and now, but can be a model and a precedent for others who want to learn from and improve on all of this.

[KMN]