Thursday, March 26, 2009

Affordable Housing

Once in a while in all of the muck that we sort through everyday there is a nice story. Instead of bulldozing and shutting down areas of a city, Trenton officials were able to rehabilitate a section of theirs. Using a Homeownership Zone and over a decade of due diligence a area Canal Banks was able to revitalize in such a way that the current foreclosure crisis has not had a big impact on the community.

If the story from the Christian Science Monitor titled NJ city: surprising leader in affordable housing is even half true we would like to congratulate those involved a great success. Lets take a look at this glimmer of hope in the current housing wreckage -

The Canal Banks transformation was a long time coming. For the past 12 years, this section of Trenton has been ground zero for one of the most ambitious federal affordable housing programs in decades. The experiment is just now coming to completion here, reviving debate over what it will take to revitalize troubled neighborhoods at a time when cities have been chastened by job losses and skyrocketing foreclosures.

The idea to rescue Canal Banks and 10 other unstable areas nationwide relies on an idea – homeownership – that now might seem almost quaint, if not misguided. The Homeownership Zone (HOZ) demonstration program, launched in 1996 by the US Department of Housing and Urban Development, has tried to turn entire neighborhoods around by flooding small, poverty-stricken areas with hundreds of new homes to be purchased by working-class, mostly first-time home buyers.

And it's an effort that seems to be working. Only a small handful of homes have gone into foreclosure – the result, administrators say, of extensive, mandatory pre-and postmortgage counseling that steered homeowners away from adjustable-rate loans.

"The intent was really to remake these neighborhoods, to give them some sort of identity," says John Kromer, a senior consultant at the Fels Institute of Government at the University of Pennsylvania and Philadelphia's former director of housing. "It was very ambitious.... It really was a radical departure from what had been done before."

"I think it's one of the more intelligent things HUD has done in its history," says Alan Mallach, a senior fellow at the Brookings Institution and Trenton's director of Housing and Economic Development at the time of the HOZ launch. "Homeownership is not a panacea, it's not for everyone, and doing it wrong can create more harm than good. But the fact is, it can be a valuable tool to stabilize and strengthen neighborhoods."

There are certain aspects of this story that were forgotten during the bubble. First, home ownership is not for everyone, nor should it be. There are numerous people where owning their own homes is more detrimental. Under normal housing periods it takes several years to recoup the initial investment. Second is the mortgage counseling involved with buying a property. Issues with ARMs are much more complex than many people originally thought. If they were as simple as they sounded the ARM resetting would not have been such a big mortgage mess. The solution of does not seem to be working out that well. Even the government program has restrictions.

With all the complaints and negatives written about affordable housing issues, it is great to see one that working so successfully.

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