Federal Dollars Help Gentrifying Neighborhoods, Not Most Distressed Communities
The following was originally published in The Chicago Reporter.
The house at 4419 N. Kimball doesn’t have much curb appeal. It’s an aluminum-sided, American foursquare on a narrow lot with a patch of grass for a front yard that’s barely big enough for a folding chair.
Two years ago, it sat empty — a casualty of the foreclosure crisis, one of thousands of single-family houses and apartment buildings left vacant across Chicago. But the building’s prospects started looking up in 2011 when it was acquired through the federally-backed Neighborhood Stabilization Program.
Money poured into the Albany Park house. New hardwood floors were hammered into place and granite countertops were installed in the kitchen. The private developer was contracted to rehab the house by a nonprofit organization. That nonprofit was hired by the city to oversee the program. When it hit the market, the three-bed, two-bath home — with stainless-steel appliances, two-car garage, small backyard and a bonus room in the basement — sold for $187,000. And the public was handed a $594,359 bill.
Chicago began receiving program money in 2009, roughly a year after the housing market crashed. In the six years since, the city has collected $169 million — of which $140 million went to rehabbing and demolishing homes. Phil Ashton, an urban planning professor at the University of Illinois at Chicago, says the federal aid “was never enough money to put a dent in the foreclosure problem.” It was, however, the first big chunk of federal money sent to Chicago to address the vacant properties left in the wake of the foreclosure crisis. And in the city’s poorest neighborhoods, where vacant homes can be bought for the price of a car, the hope was that it would go a long way.
But records obtained through the Freedom of Information Act show the city spent money on buildings with luxury finishes in gentrifying areas while distressed properties in some of the city’s hardest hit neighborhoods were left to languish. In their grant proposal to the U.S. Department of Housing and Urban Development, city officials pledged to rehab 2,800 units, a combination of apartments, condos and single-family homes. Less than one-third were completed.
Darlene Dugo, a regional vice president for Mercy Housing Portfolio Services, the nonprofit hired by the city to manage the program, chalks up the shortcoming to unforeseen circumstances. “We thought that you’d only need to put in $60,000 per unit but when we got into the properties, we found that they were gut rehabs,” she said.
Gut rehabs that, in many cases, were finished off with “condominium-grade finishes” like stainless steel appliances and granite counter tops, luxuries that Dugo says are standard in some of the neighborhoods her organization was tasked with targeting.
“We want to make sure we’re putting out a product that has sustainability,”Dugo added. “We want to give them the finishes they deserve.”
A tale of two neighborhoods
If ever there was a place in need of foreclosure relief, it’s Roseland, a beat up corner of Chicago’s Far South Side where the owners of tidy, single family homes are losing the battle over blight.
Roseland ranks third in the city for likely vacant residential properties, according to our analysis of foreclosure-related vacancies dating back to 2008. There are nearly 700 empty houses and apartment buildings sprinkled along blocks filled with tiny homes on wide lots. Central Roseland is the hardest hit corner of the community, and no matter how hard neighbors try to maintain a semblance of order — potting plants and manicuring their lawns — their attempts are overshadowed by boarded up houses and weed-strewn lawns.
The housing market there isn’t just in a slump. It’s unconscious. A Chicago Magazine analysis found that Roseland’s home values are among the lowest in the city, falling by 76 percent last year compared with 2006. Yet, the neighborhood got little attention through the stabilization program.
Less than three cents of every federal dollar spent throughout the Neighborhood Stabilization Program made its way to this part of the city. In fact, more money was spent rehabbing the one single family house at 4419 N. Kimball Ave. than the entire Roseland neighborhood. Records show there are three dozen other single family homes and two-flats across the city that got similar royal treatment.
City officials debated from the outset whether to spend the federal aid on blocks that were affected by foreclosures but border a strong housing market or to funnel money into places like Roseland where the prospects for private investment are slim at best. They opted to do both. As a result, nearly one dollar out of every five went to rehab buildings in gentrifying neighborhoods like Logan Square, Humboldt Park and Albany Park.
In the map below, darker shaded areas represent those with the most vacant residential properties. Each dot is a property either rehabbed or demolished through the city's Neighborhood Stabilization Program grant.
Mark Fick, a senior loan officer with the Community Loan Fund, a nonprofit that helped front loans for some NSP projects while the city waited to be reimbursed by the federal government, says politics played a role in deciding how the money would be spent.
He and other housing experts agree that spending would have had a bigger impact if it had been funneled into one small corner of the city where it could have put a dent in the blight. Instead, the money was dispersed among 192 properties, mostly single family homes and two flats, across 25 communities. The challenge, Fick added, is if you have 100 communities “how are you going to tell the other 99 communities that they don’t deserve to be picked.”
How much is too much?
One thing the homes had in common, no matter where they were located, was overspending.
A look at similar rehabs in Chicago funded by the NSP through the Illinois Housing Development Authority found the projects overseen by the city were consistently more expensive. It cost an average of $65,000 more to rehab a single-family home or two-flat when it was done through the city.
The most expensive rehabs show how striking the gap is. At $594,000, the house on Kimball was the most expensive single-family home rehabbed through the city. The most expensive single family home rehabbed through the state cost $355,000, and that included acquisition costs.
Peter Strazzabosco, a deputy commissioner with the Chicago’s Department of Planning and Development, says that there were a series of factors — including higher wage standards and vandalism — that drove up development costs. Many were in such bad shape that private developers wouldn’t touch them because rehab costs surpassed their value. “That's why [the Neighborhood Stabilization Program] was created in the first place,” Strazzabosco wrote in an e-mail, “to target homes that the private market won't touch.”
In most cases, Mercy bought the properties then turned them over to a handpicked group of developers.
PMG Chicago Group II, LLC, was selected to rehab six houses, including the one on North Kimball. Four of them — two single-family homes and two two-flats — were the most expensive in their categories. Noah Gottlieb, a senior managing director with PMG, the parent company that set up the LLC for the projects, said he couldn’t comment on why the costs were so high.
“Each property has its own scope of work,” Gottlieb said. When pressed further, he added: “We successfully rehabbed and transferred the properties to new owners under the program objectives.”
Rachel Johnston, director of operations for the Chicago Rehab Network, a local nonprofit with a history of closely monitoring city spending on housing programs says that the problems should have been caught sooner, like when Mercy identified the property or when the city gave the purchase the green light. “One of the benefits of having a subcontractor,” Johnston says “is the hot potato can get tossed back and forth and it’s not clear who is accountable.”