Opportunity Knocks



Cleveland is shrinking. Between 1950 and 2007, the population fell by more than half; today, some 3,300 acres of land within city limits lie vacant. It is not surprising then that, like its many sister rust-belt cities, Cleveland experienced a less buoyant housing bubble than the rest of America. Between 2001 and 2006, when median home values rose 50 percent nationwide, they crept up a mere 13 percent in Cleveland, and today they are about 20 percent lower than nine years ago (adjusting for inflation). None of this saved city mortgages, however: 10,000 Cleveland homes were foreclosed in a period of just two years.

But the scale of the problem has not defeated a dedicated core of Cleveland housing experts. Local non-profits are pooling resources and knowledge with community development corporations and the city government. Together, they have arrived at a comprehensive set of programs to address the crisis at each pressure point: counsel homeowners to prevent foreclosure, rehabilitate and resell vacant properties, demolish structures that are beyond repair, and re-purpose vacant lots for community activity.

The group Neighborhood Progress, led by executive director Eric Hoddersen, has played a pivotal role in making these strategies in six test neighborhoods across the city. The effort, called Opportunity Homes, aims to bring stability to marginal neighborhoods by providing energy-efficient, attractive, low-cost housing for the market. The Atlantic spoke with Hoddersen about the challenges and the achievements of their organization.

When did the foreclosure crisis start in Cleveland?

Foreclosures are always an issue. But probably five years ago, when the sub-prime crisis began, the number of foreclosures increased dramatically. They tended to be concentrated in certain neighborhoods where we've now seen convictions for fraud and various abuses by real estate brokers who were engaged in a whole series of illegal activities. They qualified people who were not ready for home ownership and flipped properties with the understanding that they would go into default. Since the peak in 2007, foreclosures have actually declined.

How has Cleveland changed as a result of the foreclosure crisis?

Many neighborhoods in the city are stable and have not been affected by the foreclosure crisis. But in struggling neighborhoods that were beginning to make a comeback as a result of investment, development, and neighborhood activity--that momentum really stalled. We saw streets with multiple vacancies, properties that were not being maintained by the banks, increased abandonment. And that created stress on a number of levels, including safety and market perception.

Why do foreclosures and vacancies cause that kind of stress?

One danger is that vacant houses are left standing but are not adequately secured, which results in criminal activity and a risk of arson.

The other problem with vacancies is that they are usually left to deteriorate. This creates a perception that the neighborhood has gone downhill, even when the other homeowners on the street are taking care of their properties. And then there is a lot of real estate speculation--properties are bought cheaply, minimum improvements are made, and then the houses are flipped back to investors who try to rent without standards. All this means that the value of the neighborhood collapses. You're no longer dealing with houses appraised at $80,000; you're dealing with houses appraised at $20,000.

Where did the idea for Opportunity Homes come from?

It began as a plan to restart the housing market. We recognized that foreclosed houses usually need significant improvement to make them competitive, so that someone would actually want to buy them. That meant they should be green; they should be completely renovated.

At the same time, we realized it wasn't enough to rehabilitate vacant houses; we needed to combine our resources and come up with a comprehensive approach. We had to have a plan to stop the foreclosures. We also realized that given Cleveland's declining population and economic stress, not all existing houses would be marketable, so some should be torn down. And then there was the question of what to do with the vacant land--we needed a land use plan that envisioned the new level of density.

What are some of the characteristics of the six neighborhoods that have been chosen for the program?

The neighborhoods we selected all had strong community-development corporations. They had a history of successful performance, and we believed some neighborhood-based capacity was necessary in order to carry out the strategies. All six are diverse in income; some are diverse in racial composition. Two of the neighborhoods are hip, gentrifying areas where the real estate values are at or above the county averages. A few adjoin the university circle, where there is a big agenda for expansion, so part of the strategy is to connect those neighborhoods to that opportunity.

And there's one neighborhood, Slavic Village, that was sort of ground-zero for the subprime mortgage crisis and was really knocked about hard. Each neighborhood is basically on the margin--not the most devastated, nor the most affluent.

What happens after the neighborhoods are chosen?

At that point, we map the streets using Northeast Ohio Community and Neighborhood Data for Organizing. They have one of the most sophisticated online real estate research operations in the country, I think. They are able to identify the properties at risk, the mortgage holders, when properties go into foreclosure, and when there's tax delinquency issues, all of which enabled us to map the concentrated problems in a very strategic way.

And then we have the question of economics. The Cleveland Housing Network has to make a judgment about the property: this is going to cost us $120,000 to repair and we'll be able to sell it for X; therefore, we can pay this much. Then the property either goes to Opportunity Homes for redevelopment, or it goes on the city of Cleveland's demolition list.

At the end of the day, it's the community organization that knows what needs to be done because these are not just color-coded parcels on a map. They're structures on a street that affect people.

How many homes have been helped by the program?

Fifty homes have been acquired. So far 20 have been sold, and the rest are under construction. In addition, 72 homes have been demolished and 35 of the properties have become new green applications--a community garden, a playground. We also have had 69 foreclosure interventions.

Who are your partners on this project, and how did they come to work together?

We have many partners. On the Opportunity Homes side, our main partner is the Cleveland Housing Network, a non-profit that has been developing affordable housing for 20 years. The primary organization we worked with on foreclosure intervention is ESOP: Empowering and Strengthening Ohio's People. We also have a real estate finance subsidiary called Village Capital. We said early on, what if the properties don't sell? How do you qualify people? All of that was a big component of what Village Capital worked on. They were the ones who arranged for the bank lending. They worked with the city and the national funders to set up a financing mechanism that allowed everyone to deal with the risk factors.

And the other important partner is the city of Cleveland. Cleveland received neighborhood stabilization funding, and they have agreed to work with us on the targeted demolitions. Cleveland also has a housing court with a very progressive judge, Judge Ray Pianka. He has been adamant about code enforcement and making sure the properties that are foreclosed are actually cared for.

Even though this is a small, targeted initiative, I think the critical component of what we've done is to beta-test all of these approaches that have application citywide, maybe nationally. We've found what works and what doesn't work.

So what have been the lessons learned?

We've learned that partnerships between community-based organizations, not-for-profits, and the city's public agencies are very effective. Public agencies on their own are bureaucratic and limited in terms of how they can respond. Community organizations don't necessarily have the capacity to take on the larger redevelopment agenda but they certainly understand the neighborhood dynamics.  An organization like Neighborhood Progress and Village Capital can be very flexible and timely in how it applies resources. Building the trust between the parties has been the work of a number of years, but I think it's been vital.

Ultimately, we think you need to find ways to bring the private market--the mortgage lending capacity--back in to neighborhoods. In the midst of all this, there's this idea that responsible home-owning for low-income families is not really a viable policy agenda. That's not what we've found to be the case. But at the same time, homeownership isn't necessarily the answer to everything.

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