NYT: Cut-Rate Homes For Middle Class Are Catching On

The New York Times
September 29, 2005

Cut-Rate Homes For Middle Class Are Catching On
By DEAN E. MURPHY


Photo 1:

Caption:
Jim Wilson/The New York Times
Janice Quinci with her children, Frankie, 1, and Sophia, 3, outside
their new home in Novato, Calif.

Photo 2:

Caption:
Jim Wilson/The New York Times
Their neighborhood would have once been unaffordable.


NOVATO, Calif. - Janice Quinci likes nice things: fashionable clothes,
dinner out with her husband, a private school for her daughter. With a
household income in the six figures, Ms. Quinci can pretty much enjoy
it all.

With the notable exception, until now, of a home of her own.

"We figured we would rent our whole lives," Ms. Quinci said. "We didn't
really think that we could afford to have a place to ourselves."

Ms. Quinci, 29, was speaking from the front porch of her three-bedroom
townhouse here in suburban Marin County, north of San Francisco. She
and her husband, Vito, a salesman for a wine distributor, bought it new
from a developer last November with no money down and at a steep
discount. Inside, the refrigerator was pushed aside as workers laid a
new kitchen floor - at no cost to the Quincis - because the original
one was not up to snuff.

The Quincis might not look the part, but they are the beneficiaries of
an unusual form of public housing that is gaining popularity in
real-estate-obsessed America.

Some middle-class families are buying homes at budget prices made
possible by government agencies, private developers, not-for-profit
groups and employers.

Affordable housing, once shorthand for low rents for the poor, is being
stretched like never before to include homeownership for people who are
more likely to have Starbucks cash cards than food stamps in their
wallets. These middle-income earners, priced out of homes from
Burlington, Vt., to Santa Fe, N.M., are being offered financial breaks
to live in hot real-estate markets and near their jobs.

"Our thinking is that a healthy middle class is important to the city,"
said Geoffrey Lewis, assistant director of policy at the Boston
Redevelopment Authority, which has overseen the building of hundreds of
units reserved for middle-income earners. "We want to keep these people
in Boston; they are the glue in the neighborhoods and the glue in the
economy as well."

Sometimes called low-cost, work force or inclusionary housing, the
cut-price units are most popular in places "suffering from success," as
one study described the cities where real estate costs outpaced incomes
and where government officials, businesses and housing advocates were
struggling to increase homeownership for all but the rich.

Unlike traditional government programs intended for the most
disadvantaged, the emphasis is on people with full-time jobs who earn
too much to qualify for federal assistance but too little to obtain a
conventional mortgage, at least not in the cities or neighborhoods
where they want to live.

Typically, those household incomes are 80 percent to 120 percent of the
median income, which, in expensive metropolitan areas like San
Francisco, Boston and New York, can extend into six figures for a
family of four.

Nicolas P. Retsinas, director of the Joint Center for Housing Studies
at Harvard, said, "In many places where housing costs have escalated,
that historical social contract appears to have been voided, the
contract that if you work you can find a decent place to live."

The price breaks are usually not achieved through direct subsidies but
a range of cost-cutting programs, including cities making zoning
changes for developers, providing land at reduced cost, expediting
approvals of building plans and allowing the construction of bigger and
more expensive homes elsewhere.

In some programs, like that of Burlington Community Land Trust in
Vermont, the units are subsidized with state property transfer taxes.
Elsewhere, employers and lenders offer financing packages direct to
buyers.

Even in New York City, where efforts to reach out to the squeezed
middle class began decades ago with construction of Mitchell-Lama
buildings, the ever-growing affordability problem has led to a flurry
of new programs, city officials said.

About 200 blocks in the Greenpoint and Williamsburg neighborhoods of
Brooklyn were rezoned in May to include incentives for developers to
build housing for a range of incomes, including households earning as
much 125 percent of the median, something that had previously been
reserved for high-priced Manhattan.

"By creating ownership, you are giving moderate income residents a
financial stake in their neighborhoods, so they benefit from the
improvement rather than be hurt by it," said Shaun Donovan, the housing
commissioner in New York.

The spread of the phenomenon is too new and dispersed to be quantified,
government officials and housing advocates say, and so far it occupies
only a small piece of the nation's affordable housing pie. Still, it is
catching the attention of home builders, city planners, educators and
business people across the nation, leading to workshops and seminars on
the subject as well as a spate of local laws that make it simpler for
developers to offer the units.

Public and private investors are also discovering the trend. Investment
funds totaling $190 million have been created in the past year in Los
Angeles and San Diego Counties for the purpose of building
middle-income housing in so-called urban infill areas that have access
to public transportation.

The funds' manager, the Phoenix Realty Group, expects to finance more
than 3,000 homes in the next five years. As in many work force
projects, the builders will be allowed to construct more units than
typically permitted under zoning laws. The "density bonuses" enable the
developer to make up the lost profit on each unit by selling more of
them.

"It's an unserved niche," said Tammy Harpster, Phoenix's vice president
for acquisitions in San Diego.

Conrad Egan, president of the National Housing Conference, an
affordable housing advocacy group in Washington, said the stepped up
focus was due in part to a "turnaround on the part of political leaders
and office seekers" that the market cannot provide affordable housing
for many Americans, even those who are financially secure.

"The picture has shifted because more and more constituents of these
local and state leaders are affected," Mr. Egan said.

A lottery is under way for condominiums in a seven-story building on
the harbor front in East Boston, with all 30 units reserved for people
earning 80 percent to 120 percent of the median income, or as much as
$99,000.

More than 550 other subsidized homes have been built in Boston over the
past few years - some in buildings where other units sell for millions
of dollars - that have been reserved for middle-income earners at
prices as low as $190,000 for three bedrooms.

In South Burlington, Vt., a 60-unit condominium project opened in
February, with half of the units reserved for people earning up to 140
percent of the area median income. The Burlington Community Land Trust
provided a direct subsidy of $25,000 on the homes, which sold for
$119,000 to $169,000.

As in most of the arrangements around the country, the Vermont buyers
agreed to restrictions on the resale of the homes, including how much
profit they could make in order to keep the units affordable.

"There are seven teachers in there, and a couple of them are college
professors," said Brenda Torpy, executive director of the land trust.
"The gap between what people earn and what they can afford is really
creeping up. These people are not who you would think of as low
income."

In Lincoln Heights, a neighborhood just north of downtown Los Angeles,
families making double the county's median income, or about $100,000,
are eligible for reduced-price condominiums now under construction.
Without even advertising, the developer, AMCAL Multi-Housing Inc., has
compiled a list of 2,000 hopeful buyers a year before the homes will be
available.

"It's not surprising," said Percy Vaz, the company's president. "The
alternative is for people to go out to Riverside, Palmdale or Lancaster
and spend two and a half hours on the freeway."

Not so long ago here in Novato, a bedroom community in Marin County
about 30 miles north of San Francisco, the Quincis' household income of
roughly $111,000 would have disqualified them from any housing breaks.
But in Marin County the median sale price for houses in June was about
$925,000. The Quincis would need to triple their income to afford that.

Under a complex formula devised by Novato city officials, some new
housing on the former Hamilton Air Force Base is being offered at
reduced prices to people with household incomes up to 120 percent of
the median.

The Quincis are at the top end of that scale, meaning they had to pay
more for their townhouse than families that earn less, but they
qualified just the same. The couple paid $390,000, about 30 percent
below market value; while single-family houses on the former base not
part of the program sell at market value, recently as much as $1.8
million, real estate agents say.

"Often in our culture, it is the middle class that gets left out of
everything," said Roderick J. Wood, the city manager in Beverly Hills
who held the same post in Novato when the Hamilton project was
conceived. "We wanted to help that group."

Ms. Quinci, who grew up in Novato but had been living out of town with
her husband at his grandmother's house, said the special housing was
the only way she could afford to move back home. A high school friend
lives a few doors away, as does a high school science teacher.

"We see deer out back and wild turkey, and there are rabbits in the
morning," said Ms. Quinci, a stay-at-home mother, her year-old son
cuddled on her shoulder and her 3-year-old daughter rubbing her eyes
after an afternoon nap.

Preferences in Novato were offered to police officers, firefighters,
teachers and other public employees, but some of the 351 affordable
homes are also available to the general public through lotteries, the
most recent one in August.

On lottery day, it is a lot like Christmas, said Laura Levine, the
Hamilton project manager for Northbay Family Homes, a nonprofit housing
company that has overseen the sales.

"If you're over 18," Ms. Levine said, "come on down. It's a beautiful
place."