Public funding, private housing: Homeowner raise concerns over land purchases for affordable housing

Mike Moran
Business Times

Kevin and Tanya Wold say they’re not opposed to government-backed programs that help people live in homes they otherwise might not be able to afford.

But the Wolds are concerned about being caught off guard when they bought an above average priced home in the Wine Valley Estates and Housing Resources of Western Colorado subsequently purchased most of the land in the Palisade subdivision for a self-help housing program for low-income families.

While the Wolds purchased their home with an eye on living in it until retirement, they say they’re worried smaller and lower-priced homes in the same neighborhood could devalue their home even more than the economic downturn.

The situation raises not only concerns, but also the debate over the interplay between public funding and private development. Those involved with housing programs say the programs help establish stable neighborhoods that encourage families to succeed. Moreover, the programs will help to erect homes on land that otherwise might remain vacant and overgrown with weeds and that construction is better than doing nothing. But those who already live in the subdivisions say the purchase of the property for the housing program will change the nature of the neighborhoods in which they’ve invested.

Ironically, the Wolds learned they’re eligible for the housing program. “It shocked us,” Kevin Wold says.

Instead, the Wolds saved for a down payment and qualified for a mortgage to pay for the home they had constructed. They live off his salary as a sales manager for Orkin pest control. Tanya is a stay-at-home mother and the couple raises two children.

Theresa Hall, a neighbor who purchased the first lot in the subdivision with her husband, Scott, is more upset than the Wolds. “You buy into the whole concept of what the subdivision is to be,” Halls says. “We’re not against Housing Resources and what they do, but to tell us it won’t affect our values. … We put $384,000 into our house.”

Hall has put that house up for sale.

The Halls were hit with something of a double whammy. They purchased the lot in May 2008, before the effects of the Great Recession hit the Grand Valley. They broke ground on their home in late 2008 and moved in the following January — just as a local energy downturn and global recession combined to begin to bring down local median home prices.

“We’re willing to take our hits (due to market forces),” Hall says. “If this were not low-income housing (in the plans), we would have at least been able to get out what we put into it. With what’s coming in and we look at our
long-term goal, there’s no way we’ll recoup our costs.”

So the Halls plan to sell and move from the lot they’d intended to occupy for about 10 years. Theresa Hall says she’s bitter that Housing Resources didn’t have to jump through the same hoops her family did. “We had to go through an architectural control committee. These rules that we have to follow to a tee can be changed in the blink of an eye by the purchase by government.”

Housing Resources, based in Grand Junction, received a grant of $946,240 from the Department of Agriculture Rural Development to build 40 homes in the Palisade area over the next two years.

Hall said she doesn’t oppose the Housing Resources mission in principal. But she feels the organization should offer to pay something to existing homeowners who made a higher investment than will occupants of lower-priced homes.

Dan Whalen, director of Housing Resources, defends his organization’s overall efforts — and the decision to purchase the land.

“People who spend more than 30 percent of their income on housing are spending too much,” Whalen says.

Indeed, government programs use that percentage as a threshold in determining eligibility for low-interest mortgages or rent-subsidized apartments. Government programs typically offer subsidies on a sliding scale that varies with family income.

In the case of Housing Resources, people who qualify can obtain a home for no down payment. But they must help construct the home and work with neighbors to help build their homes as well. The premise is that families who work together bond together and help build a community in which people interact. Whalen and others say studies indicate such neighborhoods feature families more apt to succeed financially and as citizens.

The Wolds and Hall paint a different long-term picture after they said they toured some Housing Resource housing projects. They said the concept of affordable housing entices young families to purchase starter homes with an eye toward selling and moving up someday.

Hall says the Palisade subdivision might not look as nice 10 years after people move into Housing Resources homes and then sell.

Katie Wilson, family coordinator for the Housing Resources Self-Help Program, disagrees, saying many first-time homebuyers end up staying in Housing Resources homes until retirement. She says such people might account for as many as 50 percent of the homeowners.

“A lot of people I know tend to stay in the homes,” Wilson says. “A lot of them are in their 40s and 50s (and plan to stay through retirement).”

The Wolds and Halls say Housing Resources has offered to shop for a private buyer, which could possibly put the original concept of the subdivision back on track. But Theresa Hall questions why there are no “for sale” signs on the properties or why there’s no sign telling people a Housing Resources project is on the way.

Whalen says he has purchased signs for the property. “We’ve not put them up yet.” He also says he’s talked to private developers about the potential purchase of some of the Palisade lots.

The situation in Palisade offers a stark contrast between private development and government-backed construction. Hall says the very name of the subdivision conveys a message of upscale homes, not starter homes for people looking to break into home ownership without a down payment.

Another clincher from her viewpoint is the subdivision is at the gateway to Riverbend Park, an entrance some town officials had hoped would present an upbeat image for the site of wine, peach and bluegrass festivals.

The Palisade example is just one of several in which government funding is intertwined with private financing. A similar situation exists in Fruita, where a developer faced with vacant lots sold part of his land to Housing Resources.

Government-backed financing also is helping to fund construction of apartments at the Corner Square complex at the southwest corner of First Street and Patterson Road in Grand Junction.

Habitat for Humanity of Mesa County continues to build homes for people who need not come up with a down payment, only without any government backing.
Meanwhile, hundreds of foreclosed homes sit vacant in Mesa County.

Amy Rogers, executive director of Habitat, says building new, modest homes is more efficient than purchasing foreclosed properties and remodeling older homes. “Buying those homes would cost us more than if we built.”

Habitat recently broke ground on a 52-home subdivision at 3043 D Road. Habitat raises money through private donations and sales of donated merchandise.

Whalen says Housing Resources has already tested the purchase of foreclosed homes and owns five of them. But the organization faces the same roadblock as private investors — a dearth of willing buyers, at least until other investors perceive that home prices have “hit the bottom.”

Housing Resources also purchased land in the Hollow Creek subdivision in Fruita this year, and the housing organization acknowledges that people have expressed concerns similar to those voiced in Palisade. Like those in the Palisade subdivision, residents in Hollow

Creek are concerned that covenants changed after they bought lots.

Whalen says the subdivision is in better shape now than if lots remained vacant and overgrown with weeds. He also suggests that construction of homes is a better alternative than doing nothing.

“In a down environment, we’re using contractors and building,” Whalen says, adding that salaries paid to construction workers are recycled four to seven times through the local economy.

“If we weren’t building right now, who would be?” Wilson asked.

Indeed, there’s been a dramatic drop off in building permits issued in Mesa County over the past 18 months and unemployment among construction workers is estimated at nearly 20 percent.

Whalen also cites non-economic factors for building affordable housing neighborhoods. “A home is stabilizing,” he says noting that such stabilization can be linked to improved grades in school and lower crime rates for a community.

People whose income levels qualify them for the Housing Resources self-help housing program are required to complete 65 percent of the construction work on the home and help neighbors build their homes. In exchange, the lender waves a down payment requirement and offers a low-interest or no-interest loan. The loan is backed by the Department of Agriculture Rural Housing loan program.

Grants also are available to help people remodel their homes to make them more energy efficient. In fact, the local Housing Resources office originally was called the Energy Information Office since it provided information about energy conservation and recycling programs.

Housing Resources offers low-interest and no-interest loans to help make homes more energy-efficient. The organization also offers rental units, including apartments and duplexes, as well as conducts counseling sessions to teach people the basics of how to buy a home.

City officials routinely hear complaints in the midst of situations like the ones in Palisade and Fruita, but they have little to say about how a private development progresses once the developer obtains permits and follows zoning codes.

“We create lots for the subdivision process,” says Fruita City Manager Clint Kinney. “Our code cannot say who owns it.”

Terry Ruckman, the developer of the Hollow Creek subdivision, refused to comment when contacted by the Grand Valley Business Times.

Whalen says he has received calls from concerned neighbors in Fruita, but says those neighbors already live near Housing Resources homes located across the street. And he’s open to selling lots to investors.

“I sat down with homeowners and said, ‘You can buy,’” Whalen says.

Another upscale development that’s intertwined with government-backed financing sits at the southwest corner of Patterson Road and First Street in Grand Junction. Developer Bruce Milyard is constructing apartments with a loan guaranteed by the Department of Housing and Urban Development. The loan is issued by the Federal Housing Authority to the lending institution.

Rick Garcia, regional HUD administrator, visited Grand Junction to meet with media and celebrate the Corner Square development. “We looked at this as an investment that’s important to the community,” Garcia says.

The federal guarantee happened partly because of a federal study of housing needs. HUD is probably more noted for helping elderly, disabled or first-time homebuyers as well as people buying foreclosed properties.

Says Milyard: “They say Grand Junction is in need of apartments. This is certainly not a handout.”

While local apartment vacancy rates have risen in the past year, Milyard says his apartments could serve three growing sectors: health care workers moving here for jobs at St. Mary’s Hospital, energy workers moving here for a growing number of natural gas jobs and people who’ve lost their homes through foreclosure and want a nice rental unit on short notice.

Garcia says HUD determined the loan is worth

70 percent of the value of the project, making it a good risk. Still, there’s risk and Garcia says he’s heard concerns from people who point out that banks might not loan the money if not for the federal backing. He says HUD would prefer to see the private sector take care of such loans. “ If it’s in the best interest to get out of the way, then we should.”

Milyard says: “If government is going to get out of it, then the private sector needs to lend.”

Milyard said the reality is banks are reticent to loan money for construction projects. He pursued a traditional bank loan, “but right now they’re more cautious than anyone,” he says. So he saw HUD as the viable route. He said a projected debt to income ratio of 1:1.2 ($1.20 in income for every $1 he invests) was attractive to the federal loan backers.

He says the federal-backed loan was more difficult to obtain than traditional loans he secured in the past. “I haven’t been scrutinized as hard (in the past).”

Back in Palisade, the Wolds say they’re satisfied overall with how Housing Resources has responded to their concerns. While new covenants allow construction of homes that are as small as 1,200 square feet, the affordable housing organization has agreed to hold the minimum size at 1,450 square feet. The homes will feature a stucco finish to match the existing homes and blend in with the landscape.
“They’ve done a good job of flexing,” Tanya Wold says. “But not until we took the boxing gloves off.”

Hall is not convinced the homes will all be larger than 1,200 square feet. Whalen doesn’t discount the potential for some smaller homes. “There might be a small number. I won’t say there won’t be some.”

While the Wolds plan to stay in the subdivision and the Halls plan to move, the debate continues over public funding and private housing.