Nobody’s Home (transcript)

Housing blight — concentrated areas of vacant properties — is harming communities across the country and posing a risk to the financial system. But governments seem powerless to turn it around. We're finding out why. A special 10-part series by American Banker.

Nobody’s Home (Transcript)

Housing blight — concentrated areas of vacant properties — is harming communities across the country and posing a risk to the financial system. But governments seem powerless to turn it around. We're finding out why. A special 10-part series by American Banker.

By John Heltman


“Do You Hear Me?”: How Blight Is Hurting America

JOHN BULLOCK: Good evening everyone, thank you for coming out, if you do not already have a seat, there is seating in the balcony so please feel free to grab one. Again, this is the Baltimore City Council Housing and Urban Affairs Committee, thank you for coming out this evening. The hearing tonight is on Council Resolution 170037, dollar house program …

HELTMAN: On a crisp evening last October, the Baltimore City Council gathered to consider a resolution concerning one of the city’s most visible and enduring problems — thousands of homes left dilapidated and empty — housing blight. This is City Councilman John Bullock.

BULLOCK: I know there’s so much interest in this subject, demonstrated by the attendance here this evening. We know that vacancy and blight is a huge challenge here in Baltimore City, we have thousands of vacant properties littering our city, and we have to be creative in our approach. 

HELTMAN: But for many city residents, patience is running thin.

RESIDENT 1: I live in southwest Baltimore. You want to talk about blight — blight leads to crime. Blight leads to people just not caring anymore because they’ve given up hope. Do you hear me?

BULLOCK: Yes, ma’am.

RESIDENT 1: Do you understand what I’m saying?

RESIDENT 2: I wonder if you have the political will to do the right thing. Because you’ve inherited a legacy. You’ve inherited 50 years, 60 years of doing nothing in regard to housing in this city, fundamentally. 

HELTMAN: It’s not like there isn’t any development in Baltimore, and it isn’t like nobody is building housing. But no one is fixing the vacant houses, they say. None of that development is reaching their communities. 

RESIDENT 2: Access to capital is the question, and guess what? Redlining is still alive and well. We’ve got to be the lightning rod in this nation, because every urban city in this country, through conspiracies, find themselves with thousands of abandoned houses. Don’t tell me that’s not by design. We’ve got to break out of that genocidal approach to people who want to live, and have a right to life, liberty, and the pursuit of happiness.

HELTMAN: Baltimore is the biggest city in Maryland, with a population of over 600,000. It also has an estimated 16,000 vacant houses and another 14,000 empty lots, many of them concentrated on the same streets, or even taking over entire city blocks.

Maybe you know that. You may also know that other cities have the same problem. And if you know those things, it probably wouldn’t surprise you that concentrated vacant housing brings with it a host of secondary problems, such as crime, economic stagnation, unemployment, lack of business investment and falling property values. 

And here’s the thing — the vacant houses themselves aren’t really the problem at all. The problem is the hazards that vacant houses pose to people who live nearby. 

What we call “housing blight” brings a whole range of negative associations for people who live there, at least statistically — everything from lower educational attainment, lower lifetime earnings, greater risk of health maladies like depression and diabetes, and even lower overall life expectancy. From what I can tell, there doesn’t seem to be a metric that social scientists use to measure quality of life that isn’t made worse by vacant housing. 

And this isn’t just a Baltimore thing, either. All across the country, vacant housing is a growing part of the landscape, from Indianapolis… 

RTV6 NEWSCAST: The Indianapolis Fire department announcing today that it fought 34 fires in 19 days, 15 of them in vacant homes and buildings. In the process, seven firefighters have been hurt. That trend continuing, overnight … 

HELTMAN: … to Cleveland … 

Fox8 CLEVELAND NEWSCAST: Heartbroken loved ones gather on Fullerton Avenue and east 93rd street in Cleveland Wednesday evening … to remember 14 year old Aliana Defreeze. Sunday police discovered her body inside this vacant home. “She was just a baby …” 

HELTMAN: … to Albuquerque …

KRQE NEWSCAST: … there are dozens of vacant homes in this neighborhood that neighbors would love to see something done with, and now a city task force has proposed more than 20 ideas — some of which could give the city more power in addressing this issue. 

HELTMAN: And that doesn’t even mention the countless rural communities all over the country that are struggling with too much vacant housing. 

But if this problem is so important, and if it affects so many communities across the country, then why isn’t anybody talking about it? What can be done to solve it? Why can’t these citizens have the communities they want? If these communities need help, who or what is going to bring it to them? Or is this just the way it is? 

My name is John Heltman, and I’m a reporter with American Banker, an independent newspaper that covers the banking, housing and payment industries. I am also, like those voices you just heard, a resident of Baltimore. Over the course of this podcast, I’m going to unwind the threads that lead to vacant housing, and try to find out the causes of — and potential solutions to — the challenges that it poses. Why are these houses vacant in the first place? What have authorities tried to do to address these concerns? And what actually works? How do you take these neighborhoods, these communities that have been struggling so hard for so long, and make them into the kinds of places that people want them to be? Is that even possible?  

From American Banker, I’m John Heltman, and this is Nobody’s Home.

HELTMAN: So let’s start by defining the issue. What is vacant housing, or blight? It might seem obvious, but there’s more to it than you might think. For starters, there are a lot of different words out there that describe what we’re talking about. “Vacant housing” is a little too broad, because an empty house that is up for sale or a vacation house doesn’t bring down house prices or correlate with the kinds of quality of life issues that we’re talking about here. Housing blight, or urban blight, or just “blight”, is a word that is used a lot, but it brings some baggage with it as well. “Blight” literally means a disease, so when you apply that word to housing, it makes it sound like the neighborhood is diseased or infected, and connotes that it needs to be cleansed. But, keep in mind, these are places where real people live and that real people care about, and people who live in those communities don’t necessarily see their neighborhoods that way. 

One definition that I found for blight is a quote “physical space or structure that is no longer in acceptable or beneficial condition to its community,” which kind of works, because the community is the arbiter of what is blight and what isn’t. 

So concentrated vacant housing, or blight, or whatever you call it — what does it do? Why does it matter? Why should you care? I asked this guy …

GOLDSTEIN: I’m Ira Goldstein, and I’m president of policy solutions at the Reinvestment Fund.

HELTMAN: The reinvestment fund is what’s called a Community Development Financial Institution, or CDFI, based in Philadelphia. CDFIs are banks that are specifically chartered to serve communities that other commercial banks don’t serve. In addition to making direct investments in low- and moderate-income areas, TRF — as they are known — also researches patterns in those areas to find ways to ensure their investments have the biggest impact. 

GOLDSTEIN: I describe us to people who are not necessarily steeped in the ways of financial institutions as a lending institution with a public purpose. So we lend and invest to create affordable housing and child care centers and arts and culture space and fresh food retail and health centers, and all the things that low-wealth people in places need to be able to have at a vital and equitable and healthy shot at a good life. 

HELTMAN: What role does housing play in giving people that shot at a good life? The costs to the cities are fairly easy to understand, from the loss of tax revenue to the costs associated with boarding up and policing vacant properties. But the costs to residents and investors in places where vacancy has taken hold are also acute, and occur in surprisingly predictable ways.

GOLDSTEIN: For your audience, bankers, they know that you know anybody who wants to get a mortgage is going to have to get an appraisal. When the appraisal is done, the presence of vacant properties detracts from the value. And so there's a pretty good literature out there as well that points to the, essentially, the economic costs in the value of a home for literally every vacant property within, roughly speaking, a tenth of a mile from the … property that is being considered. So, you know, depending upon what era you're looking at, it could be you know a percent or you know or more for every vacant property within a subject property. So if you think about a neighborhood in Philadelphia where a row, a row house neighborhood where within a tenth of a mile you got you know a thousand properties and there's 200 of them vacant. 

HELTMAN: That’s 20%.

GOLDSTEIN: That's a lot. Exactly. Exactly. So that is the kind of economic cost. Now you have the social costs and there what you're thinking about is what is it like for my children to have to walk up and back to school past a vacant and abandoned property. What are the safety issues? What are the fear issues? What are the … what are the things that impinge upon our ability to create a vital community on our block? How do you know who your neighbors are? You know all those kinds of social sorts of things that really attach to the kind of physically blighting influence of these properties. So there really are, I would say, a whole host of different kinds of effects beyond the economic that really attached to these vacant properties.

HELTMAN: Those effects of vacant housing —and, by extension, substandard housing — are actually measurable, and can be surprisingly specific. There are psychological effects that also negatively affect people who live close to it, and sometimes in surprisingly specific ways. The most obvious effect of vacant housing is that it makes people feel worse about the place they live — when your home is seen to have little value, you value it less yourself, and other people do too. A study of low-income women published in the Journal of Urban Health in 2011 found that disrepair can be linked with instances of psychological distress. Several studies have shown correlations between poor housing conditions and increased rates of asthma, heart disease, diabetes, elevated lead levels, stunted growth, venereal disease and even life expectancy

But the most well-documented correlations between vacant housing and public health are because of the increased instances of crime, and those crimes are typically perpetrated against people in those neighborhoods. One challenge here, however, is that there’s a chicken and egg problem. Is there more crime because the surrounding homes are vacant or are there more vacant homes because there is more crime? 

This question has not been definitively resolved, because the two are so closely linked. 

Here’s the thing — it almost doesn’t matter, because the solution is the same regardless. One study from 1999 suggested that blight and crime have to be controlled in order for any more constructive gains can be made in a neighborhood’s schools or local economy. Another study in 2016 agreed, saying that in order to reverse cycles of violence, the conditions that spark criminal behavior have to be seized for any future interventions to be effective. Whether blight causes crime or crime causes blight is beside the point — you can’t solve one independently of the other. That bears repeating: if you want to solve crime, you have to solve the issue of vacant housing. You can’t improve conditions in blighted neighborhoods without solving blight.

So how widespread is blight? How many vacant homes are we talking about?   

GOLDSTEIN: I don’t think anybody really knows. Most places, most municipalities around the country, couldn’t tell you, within thousands, how many they have. The best bet that you have is the last community survey for the nation, says that there are 16.8 million vacant properties, vacant housing units around the country. Of that 16.8 million that the census identified, these are housing units now, you have about 4 million or so that are for sale or for rent or about to be occupied … and about 5 million that are those seasonal, so what you’re left with is, you could say this, is about 5.8 million that are “other vacant” to the census. What does that mean? It means it’s not the identified categories, but our experience in places like Camden or Baltimore is, a lot of times that “other vacant” category really are the properties that you would identify as those abandoned ones.  

HELTMAN: 5.8 million vacant houses. As you heard, that’s an estimate, and it’s the best estimate we have. But Goldstein said it’s probably low.

GOLDSTEIN: The census doesn’t get all of those, so we really believe that 5.8 million is probably a really big underestimate of the abandoned properties. At some point they don’t send census forms or census takers, you mentioned Baltimore, some of the properties that you can see through the roof. They don’t send census forms to those places. So the 5.8 million really is a pretty big underestimation of that. But the long and the short of it is, cities don’t know. 

HELTMAN: Part of the reason why we don’t really know how many vacant and abandoned homes there are is because there isn’t a readily identifiable way of knowing when a vacant home becomes a blighted home. It’s a process, and homes that are abandoned or in the process of getting abandoned tend to arrive that way gradually and only become counted when they either are cited for property code violations, are foreclosed on or become the ward of the city or the state. Different cities have more or less streamlined processes for this, Goldstein said, but in all cases the process is imperfect. 

GOLDSTEIN: It’s like fish through a stream. These properties are kind of coming in and going out, and when you take that snapshot you know what it is in that moment. Five days later you could have 100 other properties come on and 100 other properties go off. 

HELTMAN: In Baltimore’s case, the 16,000 vacant homes I mentioned earlier is the number of “uninhabitable” homes in the city — that’s a designation the city makes for properties that not only do not have anyone living there, but are unsafe for anyone to live there at all. But when I talked to Amanda Davis at the University of Baltimore’s Jakob France Institute — they study neighborhood trends in the city — she said that you have to look at more than just the house itself to figure out if it’s vacant. She looks at all kinds of different metrics to find out where vacant housing is getting concentrated.    

DAVIS: So, some of the indictors we collect around those topics might be the number of vacant and abandoned buildings, 311 calls for service … dirty streets and alleyways, trash collection. We also collect, in addition to the city’s metrics on vacant buildings, we also collect undeliverable mail from the post office. That is an indication that nobody is living in that building. Sometimes just looking at one indicator alone is not enough to tell a story of a neighborhood, so you have to look at a number of indicators to sort of paint a picture of what’s going on in a neighborhood. Whether the population is growing, whether it’s declining, how many vacant buildings are there, we have to look at tall these indicators together.

HELTMAN: So if you look at that data, where do you find concentrated vacant housing? Is this limited to post-industrial cities? Is this an east coast thing? Is it primarily in cities? 

GOLDSTEIN: I believe it is everywhere to a different degree, and for different reasons and in different concentrations. So, places like rust belt cities, Philadelphia, Pittsburgh, Baltimore, Detroit, Milwaukee — places that over the course of the last 50 or so years lost 30-50% or more of their population. So when you have that kind of loss, it’s simple to understand why you have that kind of vacancy and abandonment. 

In other kinds of cities taken out of the rust belt phenomenon, you’re looking at a variety of causes that attach to housing obsolescence, to disinvestment, to disasters to a variety of other things that combine to create these vacant property areas. 

DAVIS: There are some common themes that cross geographies. A housing market, like any consumer market, is supply and demand. So when you’ve lost a large amount of population from the city, there’s less demand to fill those vacant properties.

HELTMAN: While vacant housing may look the same in different places around the country, it isn’t all necessarily caused by the same thing. Many cities lost population in the latter half of the 20th century, with former city residents moving to the suburbs. De-industrialization and the decline of factory jobs played a role in many places; natural or manmade disasters played a role in others. But the underlying result is effectively the same — people were moving out and no one was moving in to replace them. And this happened over decades, involving millions of people and millions of households. 

HELTMAN: Is blight kind of like a workable proxy for other kinds of societal effects, like crime and economic sort of disinvestment, lack of economic activity – if you solve blight, is it fair to say that you can maybe make a dent in some of these other kinds of problems?

GOLDSTEIN: I think you absolutely can. I’ll give you a concrete example: the City of Philadelphia had a program a couple of years ago where, where what they were essentially doing was making some creative use of some state law changes and local municipal building code changes, provisions. And what they were doing was actively going out and citing properties that did not have workable windows and doors. And the maximum penalty that could be assessed for those properties was $300, per opening, per day. So if you think about a two-story row house, you have two windows on the second floor and two windows on the first, and a door, right?

HELTMAN: And there’s two in the front, and …

GOLDSTEIN: … and two in the back as well. If you had one of those properties and you were missing a couple of those things, you could be fined $300, $600, $1,200 per day. What we found was, where the city was proactively going after these things, it really had a significant and positive unlocking effect on the value of property around it.

HELTMAN: So if lots of vacant homes are bad for communities — they bring down property values, they attract illegal activity, they discourage investment, etc. — then why don’t cities just knock them down? Well, they do. All the time, by the thousands. In fact, in 2015 Maryland Governor Larry Hogan, a Republican, and Democratic former Baltimore Mayor Stephanie Rawlings-Blake announced a nearly $700 million plan, known as Project CORE — which stands for Creating Opportunities for Renewal and Enterprise — to tear down some 4,000 properties over four years and subsidize redevelopment of those sites. 

But if this was just a matter of tearing down vacant buildings — or setting aside money to tear down vacant buildings — then this would be a really short podcast. The problem is that at the same time that housing blight is weighing down neighborhoods in Baltimore and elsewhere, people are having a harder and harder time finding an affordable place to live. Nationwide, almost a quarter of all renters spend more than half of their income on rent — a statistic that has been fairly consistent over the last several years. Those burdens are especially severe among middle- and working-class households, and Baltimore is no exception to those pressures. The rent, to borrow a phrase, is too damn high.   

That brings us to the subject of that city council hearing we heard earlier. A group of citizens want to bring back a program from the 1970’s called the “Dollar homes” program, where the city sold a property to people for a dollar and provided financing for them to fix it up. They don’t want those homes torn down, or at least not the ones that can be repaired. If the city and state spent some of the money dedicated to Project CORE on financing renovations, they argue, prospective homeowners could rebuild those homes themselves, or with assistance of certified professionals. One contractor named Ronald Stewart spoke at the hearing, and he said that the problem isn’t that there isn’t too much housing, and it isn’t too expensive to rebuild a lot of these houses. And if the properties are torn down and redeveloped, the new properties are never going to be within the financial reach of the people who live in the neighborhood.

RESIDENT 3: It’s not that we’re asking for an exorbitant amount of money to remodel houses that should be remodeled anyway. The people that live there shouldn’t be forced to move so that developers can come in and build bigger houses and sell them to people that have money. We don’t have the money. We don’t have the money to buy the houses that they’re building in my neighborhood, two blocks from my house. I think we’re making this too complicated. We’re making this too complicated. A person wants to buy a house, you’re willing to sell it to them for a dollar, you give them a loan, they get a contractor, they have a house. It’s as simple as that. 

HELTMAN: This is the question. Why can’t these cities fix themselves? What’s stopping them? And would a modern Dollar Homes program be part of the solution? We’ll find out next time, on Nobody’s Home.


Dead Pledge: The Rise and Fall of Urban Homesteading

HELTMAN: This looks like the place. That looks like Ms. Van Allen. 

HELTMAN: There was a program that Baltimore spearheaded in the 1970s and 1980s that was supposed to stem the rising tide of vacant housing. It was called the dollar homes program, and the idea was to allow prospective homeowners to acquire a vacant property for a dollar or some similarly nominal fee, and then give them low-cost financing to renovate the property, subject to city inspections and under a specific deadline. The idea was that prospective homebuyers could rehabilitate a vacant house on the city’s rolls, bringing them into the city and turning an otherwise unproductive property back to productive use. And I’m here today to meet someone who participated in that program. I wanted to learn what her experience was like, and whether that program from 30 years ago holds any clues into how to address vacant housing today. 

From American Banker, I’m John Heltman, and this is Nobody’s Home, a podcast about vacant housing, our communities and the financial system.

HELTMAN: I met Catherine Van Allen … 

HELTMAN: Good, how are you?

HELTMAN: … and this is the home she renovated, near Hollins Market in southwest Baltimore.

HELTMAN: I didn’t think I would beat you here, but…

VAN ALLEN: That’s all right. This snow kind of put me a little bit … nice to meet you.

HELTMAN: Nice to meet you, too.

VAN ALLEN: Let’s see here. Well I’ve just had it recently renovated, as you can see, because I thought it’s the time to sell it, but I think what I’m going to do is rent it for another couple of years … 

HELTMAN: Catherine said she used to shop at Hollins Market every day, and worked a few blocks away at Bentalou Elementary School, now named Mary Ann Winterling Elementary.

HELTMAN: What kind of teacher were you?

VAN ALLEN: I was a kindergarten teacher. What the heck is going on? I think I’m picking the wrong ones. I worked there for 20 years. 

HELTMAN:  When we get inside, the house looks great. In the years since she renovated the property she has rented it out as two separate apartments, but for a time she ran a store of her own out of the first floor.

VAN ALLEN: This is where I had my storefront. 

HELTMAN: Right. 

VAN ALLEN: Catherine’s Junk, QUE That was about right.

HELTMAN: That was, uh. So you had a store here?


HELTMAN: What did you sell?

VAN ALLEN: Just … stuff.

HELTMAN: So, like cheese and …

VAN ALLEN: No, just antiques and things. 

HELTMAN: Oh, I see. 

HELTMAN: She tells me the house was built in 1855, and before she got it, it had been a laundromat. But in the 1970s the owners died and their children didn’t take the property, so it was vacant for about ten years before she got a hold of it. And there’s a story behind that, too. 

VAN ALLEN: I camped out for a week on the sidewalk in front of the convention center. A friend of mine, a set of twin brothers and I, met each other here in Baltimore, and they wanted a house and I wanted a house, so we found Rehab Express. 

HELTMAN: Okay. What’s Rehab Express?

VAN ALLEN: Rehab Express was one of those programs, after the Dollar Houses. I had bid on a dollar house, and came in second on Montgomery Street. 

GEORGE: Hello!

VAN ALLEN: This is George. George is also a rehabber from Baltimore. 

HELTMAN: Oh, neat.

HELTMAN: George had rehabilitated a vacant rowhome in Federal Hill about ten years ago, but knew Catherine when she was rehabbing this house, which, as she said, she camped out for a week in order to buy.

VAN ALLEN: What I did was, my mother lived in Washington, and I would drive to see her all the time. And I kept coming by the convention center. We looked at the thing in the paper, Rehab Express, and they were going to sell the properties for $200 each. 

HELTMAN: So a big markup from the dollar homes, I guess. 

VAN ALLEN: Yeah. Still not bad. Still not bad. And at that time I think I was making about $10,000 as a teacher in Baltimore City, and you know, that wasn’t a whole lot, but I was single and didn’t have any encumbrances or anything.  

HELTMAN: This was in 1982. She said she and her friends had gone over the lists of available properties on Rehab Express for months, scouting out more than 100 different locations, at least from the outside, before they settled on this one and another down the block. They wanted to take on these projects together, and they figured if they were close to each other it would make it easier to help each other out. After they settled on this house, she was driving by the convention center and saw that someone else was already waiting for the Rehab Express event the following week. So she got in line. And then she waited.

VAN ALLEN: It was the summertime, so I could, you know, not go to school. And so I, we just started camping out there. We camped out, and finally we put up a tent, and, you know, they moved us up to the side and put up a porta potty out there, you know, people were going in the bushes . One of the brothers would come down, you know, they both worked. 

So they opened the doors after a week. They had different tables where, you know, you would give them your information, and you would tell them which property you were interested in, and they were, you know, “Yes we have that one” or “No we don’t have that one, that one’s been taken off the market.”

HELTMAN: She said she got the title to the property that day, for the price of $200, with the stipulation that she had to renovate the property within one or two years. But that same day, she got to see the house she waited in line for a week for the opportunity to buy.

VAN ALLEN: You know, they gave us the key to the property, and I mean, the key to the property was the key to a padlock that was chained on the door. 

HELTMAN: Right, right.

VAN ALLEN: And so, uh …

HELTMAN: What kind of shape was it in? 

VAN ALLEN: Oh, god. Bad. It had been abandoned for ten years, and the roof was falling in, and …

HELTMAN: So you could, like, see through the roof?

VAN ALLEN: Oh yeah. 

HELTMAN: Like, vermin? Like, what else?

VAN ALLEN: Oh yeah.  

HELTMAN: Was there still stuff here? Like old laundry or whatever?

VAN ALLEN: Oh no. It was just abandoned, you know? The steps were kind of rickety and you sort of had to be really careful going up the steps and things like that. I actually think I crawled in from the back.

HELTMAN: So you didn’t even bother with the padlock. 

HELTMAN: But she spent the next few years fixing the house up, doing a lot of the work herself. 

VAN ALLEN: I dug 18 inches down in the basement, because it was so short. It was dirt. 

HELTMAN: Oh so there wasn’t even a slab down there. Wow. 

HELTMAN: But eventually she finished the house, and by that time she had met a man in the neighborhood, and he and his teenage son moved in. A few years later, they had another child of their own and decided they needed more space, so they moved to Ten Hills, a neighborhood on the western edge of the city. She kept the house and has rented it out ever since. But she says the experience of renovating the house had an empowering effect that just buying a house wouldn’t have given her. 

VAN ALLEN: It was the foot up that I needed, you know, to have something for me, something that I owned. I had a car, you know, and I rented apartments. But this was mine. You know, it made a difference in how I saw … uh … my future. 

HELTMAN: That program — the dollar house program and the similar programs that followed — was an early idea of a young housing commissioner.

ROBERT EMBRY: Robert C. Embry. Well, I was a city councilman and then housing commissioner from 1968 to 1977. 

HELTMAN: He is now president of the Abell Foundation, a nonprofit organization based in Baltimore. He said when he became the housing commissioner, he was just 30 years old, and he had a dim view of the prevailing attitude toward neighborhood revitalization — which was then known as “urban renewal.”

EMBRY: My view of urban renewal and public housing programs was that it tore down blighted properties and replaced them with new properties. And after I became a housing commissioner various advocates in the community that were concerned with historic preservation sensitized me to the value of preserving the unique historic fabric of the city, as opposed to replacing it with things that were generic to any American city. 

HELTMAN: He got the idea for Dollar Homes from a similar program initiated by the mayor of Wilmington, Del., in the early 1970s. It was the early days of a concept in urban planning at the time known as “urban homesteading.” The idea was based on the 19th century model of frontier homesteading, where someone could acquire land for free from the government if they committed to improve it and live there themselves. This was the model that settled the West. The Dollar Homes program was Baltimore’s version of this old paradigm, but the urban version posed its own challenges.

EMBRY: One was the need for financing. That, if you were a vacant house by definition is a house that nobody wants to invest in — that's why vacant. And it means that it costs more to fix it up than it's worth when you fix it up. And so no lending institution would responsibly lend on a property that wouldn't appraise for the cost of fixing it up, because of the mortgage or the cost … the amount of the mortgage. So we needed to set up a financing mechanism. And secondly we needed to create an office that would help potential homeowners — who overwhelmingly had never rehabilitated a house — to find an architect and find a contractor and then supervise construction and make sure that the money was spent on fixing the house. You know there were draws, progress draws, monitored by somebody making sure the work you were contracted for is actually done. 

HELTMAN: The money for the program came from two places. The city got the capital to provide the low-interest redevelopment loans to the homesteaders by issuing a municipal bond to the public, then taking that money and lending it to the borrowers, who in turn paid it back at some nominal markup. The administration of the program came, at least in part, from federal dollars the city received from the Office of Housing and Urban Development, known as HUD. 

Congress liked the idea as well, and in 1974 passed a bill that allowed HUD to transfer properties it had in its inventory to cities for use in their homesteading programs. And that inventory was mostly foreclosed loans through the Veterans Administration or the Federal Housing Administration. Over the course of the next five years, HUD transferred some 2,300 properties in 22 cities this way.

And then, suddenly, it was over. 

HELTMAN: So what happened to the program?

EMBRY: So, it ended. I left to go to work for the federal government in 1977 and the city ended the program. Why it ended it, I don't know. One change was the Internal Revenue Code was amended in 1986 to say that you could not issue tax exempt bonds for housing redevelopment other than for moderate- to low-income recipients so that placed an income limit on the borrower. 

HELTMAN: That eliminated the city’s ability to raise bonds to pay for renovations, except if the borrowers earn a low- to moderate-income. That’s a technical term, which HUD defines as less than 115% of an area’s median income, adjusting for family size. But the city can’t rehabilitate a vacant house at a price that someone in that income bracket could afford. 

EMBRY: I mean, it's not a low-income housing program. Public housing, for instance, in Baltimore the average income of a public housing resident in Baltimore is $13,000 a year. If you say that your mortgage should not be more than three times your annual income you're talking about a mortgage of $40,000. To rehabilitate a house in Baltimore, depending on how big it is, ranges from $150,000 up to $3- or $400,000. So it's not a program for homeless people much less low income people. But for somebody making $80- or $90,000 depending on the House, the city, you know, you can make a loan to them and defend that that they could pay it back. 

HELTMAN: This is as good a place as any to lay out a primer of how mortgage lending — and by extension, banking — works. Everyone understands a loan — I borrow money from a bank, credit union or another financial institution because I need it but don’t have it on hand. The institution that lends the money to me does so based on the expectation that I will give it back at some later date. And as most people are probably aware, lenders charge interest, which is just extra money for the trouble of giving the loan in the first place. Interest is generally some percentage of the original loan amount. For example, 1% interest on a $100 loan is $1, 2% is $2 — you get the idea. 

The idea of a mortgage goes back centuries — the word is actually a combination of old French words meaning “dead pledge,” because the terms of the pledge are terminated, or die, either when the payment has been satisfied or the borrower fails to pay. A mortgage is also a prime example of a secured loan, which means that if the borrower fails to live up to the terms of the deal, the lender will take the property as collateral, since technically it was their money that purchased it in the first place.

When a borrower buys a house and secures a mortgage, the most important and often tedious parts of the process is agreeing on a price. Under normal circumstances, a seller offers a home for a price and a buyer will agree on that price or enter into negotiations. But the mortgage lender also has an interest in that price, since the property is acting as the collateral for the loan. 

So what is a house worth? It’s worth what someone is willing to pay for it. That’s it, there is no objective way of pricing homes, because unlike almost everything else we buy, each home is different. You can have two identical houses next to each other and they will be priced differently, if for no other reason that they have two different buyers with two different offers at two different times. 

But no one really thought about why people value homes the way they do, at least until the financial crisis. I asked an expert …

GARRIGA: My name is Carlos Garriga, I'm an economist here at the Federal Reserve Bank of St. Louis. 

HELTMAN: … about how the financial crisis got people interested in how housing markets work. 

GARRIGA: They view that as just another market, like automobile. And after the crisis, it became clear that housing was slightly different and it was more important. After the credit meltdown, you know, it became obvious that, you know, studying what's going on in that market and what was driving prices up or prices down was something that it was needed to be understood. It was not as automatic as, you know, studying the durable … durable market — so where, you know, production is more of a driver of cost, right? I mean you have you know in a lot of things that are manufactured, the cost of those things are, you know, basically driven by you know production costs and sales and things like that. Whereas is in the housing market, you know, a lot of the things that you're creating is existing inventory of homes. So the, you know, the construction and the production of new homes only represent a small fraction of the market. So a lot of value is driven by other characteristics than the production itself — you know, location, attributes to certain neighborhoods, and so on and so forth. And any homes might not be able to compete in some of these niche markets. So where new homes are built may be different from where old homes are built. So that's why you know housing markets, I would argue, are subtly different. 

HELTMAN: This may seem like a detour, but a lot of what makes concentrated vacant housing so hard to reverse is that it is, or at least can be, a representation of a collective attitude about a place, both by people who live there and by people who don’t. Those vacant houses are places where nobody lives, but they’re also places where everybody has chosen not to live. How do you value a place like that? How do you value the home next door? And while we’re thinking about it, why does anyone live anywhere? How do people decide what any home is worth, collectively, through markets? These questions occupy an almost philosophical intersection of people’s values and feelings — which can be based on almost anything — and hard numbers and prices. And those hard numbers can have a big impact on the whole neighborhood, or even whole cities. And it puts vacant properties in a particularly challenging bind. If you ask a banker …

JUSTIN WISEMAN: Justin Wiseman, associate vice president and managing regulatory council the Mortgage Bankers Association here in Washington, D.C. 

HELTMAN: … or, in this case, someone who represents them, they will say …

WISEMAN: … one of the issues with that is you have to get an appraisal. 

HELTMAN: An appraisal, by the way, is where an expert comes and inspects a property and assigns a price. Back to Justin …

WISEMAN: Because the banks want the appraisal and it's the improvements and the any area and things like that. So to be sort of one of the first people to turn around a block or to get into a vacant or abandoned property surrounded by other vacant properties ... It can be hard to find that sort of intersection of where the improvements and appraised value make sense when you look at the other vacant or abandoned properties. 

HELTMAN: In other words, even if you fix up a vacant house and make it livable, you would be left with a house that is worth less than the materials and labor used to fix it up. It’s like making a sandwich that is worth less than the bread, meat and cheese are worth on their own. And banks can’t make that loan, in part because banks themselves don’t actually own most of the mortgages they make. They sell them, primarily to Fannie Mae and Freddie Mac. Those government-sponsored enterprises turn them into securities — specifically Mortgage-Backed Securities, or MBS — which in turn are bought by investors. If a bank can’t sell a mortgage, it has to hold it itself, on its books. 

WISEMAN: If you can't get it off your books, you have to put the risk on your books. I mean, it's sort of the basic equation of mortgage lending — you either sell it into an MBS or you hold it on your portfolio. And if there's not an investor or an MBS aggregator that has an appetite for what you're trying to sell, and the only real recourse — and this is obviously simplistic — is to put it on your books. 

HELTMAN: He went on to say that, in neighborhoods where housing blight is prevalent, the problem isn’t that banks won’t make a loan. The problem is that they can’t. 

WISEMAN: I think — and this is going to sound somewhat vague so I apologize in advance — but I think looking to mortgage lending to solve the kind of community problems that lead to widespread blight is probably too shortsighted, kind of, a view. If there are people that want to buy in the neighborhood, I think you would see lending. If the neighborhood or the property for whatever reason isn't attractive to people who want to get the loan on it, that's sort of a second order effect. It's kind of down the chain, right? And absent community-wide development initiatives or things that make the area attractive, or you remove restrictions or environmental conditions that make it unattractive, it's hard to see mortgage lending as the solution to those problems.

HELTMAN: Which is why Embry, the housing commissioner who created the Dollar Homes program, said the entire point was to get whomever had the wherewithal and desire to rehabilitate a vacant property and live in it to do so, not just low-income borrowers.  One underreported fact about the program — and it’s a hugely important one — was that they had no defaults.

EMBRY: We had a 100% payback on the mortgages, so we didn't take any losses. And yes, we made money yes on the property tax yes on saving police and Fire boarding up costs, but we also just made one percent we were tacking one the interest on the mortgage. 

HELTMAN: Another underreported fact about the program is that relatively few homes were ultimately rehabilitated. Embry doesn’t know how many there were.

EMBRY: I don't have the slightest idea.

HELTMAN: And estimates range from as few as 200 to as many as 600, though those numbers may not include Rehab Express or other subsequent programs. But in the context of at least 16,000 vacant homes — and probably many thousands more — even giving vacant properties away can’t address the scale of the problem. And vacant houses in and of themselves are not necessarily the issue, Embry said. 

EMBRY: I mean I don't particularly care about vacant houses. I mean, I would rather house not be vacant. Where I care about this simplistically and the people that are there, and the disparity in America between the African-American population and the Caucasian population in terms of income in terms of jobs in terms of education, crime, so forth. And you're very familiar with the average net worth as a black American being like one 10th to one 20th of the average white American, and most African-Americans having no cash to fall back on if there’s an emergency of one kind or another. That's what concerns me. And yes I'd rather the House be not vacant but that's really a symptom of a larger problem. 

HELTMAN: Another under-reported aspect of the dollar house program is that, in many cases, the changes that it brought to certain communities were short-lived. The housing program helped Hollins Market for a time. But now, there are still whole blocks of vacant houses and storefronts and lots. 

VAN ALLEN: This neighborhood, when I was rehabbing this house, was a lot of really young people. You know, and a good stretch of people, you know, in different age groups, who were artists, and, you know, wanted to … some people, a fella who had come down from New York NS he opened up a wonderful restaurant right down the street called the Cultured Pearl. But you know, there were a lot of different kinds of people that worked in the neighborhood. But, you know, it was a very artsy community. You know, and then I think what happened was, people started having children, and they moved further out, you know, further out, you know, either to the edge of the city where the schools were better. I mean, my children all went to city schools, but I could choose which city school they went to. That middle school change is a really tough one. Because, you know, West Baltimore Middle was out there, and I didn’t want my children to go to that School. You know, I knew the educational situation, you know, so I took them to Canton Middle School, where Craig Spielman was the, uh …

FRAZIER: I think that’s where they, that’s where it kind of failed, where the Dollar Houses failed. 


FRAZIER: Was that they had, you know, it was sort of aimed at, you know, independent white folks who are in careers, wanting a house, you know, like yourself but also people with dreams, and artists, and so on.

VAN ALLEN: Right. 

FRAZIER: So it was sort of aimed at them. But as you say, when they had kids, and they had other options, um, you know, for the health of their family — there weren’t other people that were, say, came from the neighborhood that had rehabbed these houses that would be staying there. 

VAN ALLEN: Right. 

FRAZIER: And so it just, when it went down, it was just like a balloon. You know, losing air. That, if it had those kinds of legs to it, it wouldn’t have collapsed. 

HELTMAN: So if the dollar homes program and the urban homesteading movement didn’t solve blight, what are people doing now to create a better, more sustainable solution? I mean, how do you bring a neighborhood back from decades of disinvestment? Can you? We’ll find out next time, on Nobody’s Home.


Building From Strength: Inside Cities’ Battle Against Blight

STOSUR: I’d like to introduce myself. I’m Tom Stosur, planning director. And we’re here tonight with a whole bunch of planning staff and partners to give you a good flavor of where we’re at with the final draft of the Green Network Plan that’s been two years in the making. Next …

HELTMAN: This past March I went to a public meeting in Barclay, a neighborhood in central Baltimore, to hear about something called the Baltimore Green Network. The network is an outgrowth of more than two years of effort from the city planning department and other neighborhood partners, and the idea was to incorporate parks and trails and green space into the city’s landscape. 

When you look at what vacant housing does to a community, one of its most immediate and measurable — and compounding — effects is that it can bring down neighboring home values. That leads to more vacancies, which lead to still lower values, which leads to more vacancies. It’s a cycle, and once it takes hold, it can be hard to reverse. And it gets even harder to reverse the longer it sets in.

DUFF: In neighborhoods that are convenient to things that middle-class people want to do, you can get positive feedback loops …


DUFF: … such as you find in Canton or Hampden, most of D.C. and things like that. Other places you have to work at it. And you might have to mount a professional effort. My colleagues and I mount professional efforts for a living.

HELTMAN: That’s Charlie Duff, president of Jubilee Baltimore. They take on real estate development projects aimed at mounting, as he calls them, professional efforts, to both reverse the fortunes of neighborhoods beset by vacancy and to keep vacancy from taking hold in the first place. 

DUFF: Because of us, there are no vacant houses on the north side of Patterson Park, or on the east side of Patterson Park. And I think, if it hadn’t been for us, there would be 5,000 more vacant houses in east Baltimore than there are today. 

HELTMAN: He says the Patterson Park Community Development Corporation bought, renovated and sold some 400 houses adjacent to the park in the early 2000s, while another nonprofit, Friends of Patterson Park, focused on revitalizing the 137-acre park itself, improving amenities and bringing in new activities. Those efforts were bolstered by an unrelated boom in real estate in Canton, a waterfront neighborhood to the south of the park.

DUFF: We couldn’t have done Patterson Park if Canton hadn’t got hot. 

HELTMAN: Vacant housing is something that is a lot easier to prevent than it is to reverse … 

DUFF: Yes. 

HELTMAN: … and I don’t know if that’s something that people think about when they think about their policies.

DUFF: They never think about it. 

HELTMAN: From American Banker, I’m John Heltman, and this is Nobody’s Home, a podcast about vacant housing, our communities and the financial system.

HELTMAN: Baltimore, like many cities and other communities around the country, has a surplus of vacant houses — about 16,000, according to Baltimore’s housing commissioner …

BRAVERMAN: Michael Braverman I'm the director of the Department of Housing and Community Development in Baltimore City.

HELTMAN: But that isn’t a static inventory — it’s not the same 16,000 year after year. Some get renovated or demolished, but new ones come on to the city’s rolls to take their place.

BRAVERMAN: There are some number that are renovated each year and that number is significant, something roughly a thousand a year. There's some number that are demolished every year — that number is also significant, about 400 properties a year. But that said, the net number stays … there's no net change to the number. It stays roughly the same, because we are continuing to see depopulation in some markets and the trends that have led to this state we're in now are continuing in some markets and being, and there ... and we're seeing sort of increased occupancy and renovation and others, but we are running stable roughly 16,500. We're making progress in different … in different parts of, say, significant progress areas of the city where the numbers of vacant buildings are netting down by numbers like 30, 35%. Then there are other parts of the city where it is as much an effort as we are employing to combat the number of vacants, new ones are rising.

HELTMAN: The city has a program, known as Vacants to Values, that operates as a kind of clearinghouse for its vacant property inventory. Part of that program is aimed at conveying properties to buyers and developers, but it also has provisions meant to keep current homeowners in their homes.

BRAVERMAN: To do weatherization, to do slip and fall, to do the first step to put a roof on. All of these are important parts of keeping residents who are housed in their homes, and to be there to benefit from what we hope would be transformative change in their neighborhoods. 

HELTMAN: But while it can be easier to stabilize a neighborhood that is on the verge of a vacancy problem, it still isn’t easy. And whether an intervention is being mounted before a neighborhood gets blighted or afterwards, certain conditions have to be present in order to turn around a neighborhood’s narrative.   

DUFF: The two things you can do, if you’re too late for prevention, one is to rebuild. And if you’ve got a minute I can show you a good example of that. There’s only one, but since we catalyzed it, it’s three minutes away from here, I can show it to you.


DUFF: You can rebuild them, but only if you’re either really lucky, really rich, or both. Let’s take a ten minute drive.


HELTMAN: So we took a drive down to Station North, just a few blocks away. Station North, like much of Baltimore, is a former industrial area, dotted with old factory buildings. One of them is the cork factory, which produced the first bottle cap. And like other industrial neighborhoods in Baltimore, it started declining when the factories closed and nothing came to take its place. As we drove down Calvert Street, Charlie said half of the occupied homes we saw were vacant; an abandoned school has been restored and is now a public charter Montessori school; the old abandoned factories are now occupied as apartments and artist studios. 

DUFF: This is a neighborhood that, ten years ago, was 56% either vacant houses or vacant lots. What happened? Well, first of all, it was in a good location. It was next to Mt. Vernon, and Mt. Vernon turned around and began to grow. It was just south of Charles Village, Charles Village turned around and started to grow. Third, it was within walking distance of MICA, and MICA went from 900 students to 2,600 students, and students take up space, and create vibe. And then finally, it’s within walking distance of Penn Station, and MARC service got good and Penn Station commuting caught on. And all of that wasn’t enough.

HELTMAN: This is an important part of how governments approach redevelopment, and it can get overlooked. Michael Braverman, the City Housing Commissioner, said that cities like Baltimore have finite resources to put toward housing projects, and almost as a rule the more vacant housing there is to address, the fewer resources a city has to address it.

BRAVERMAN: The mayor and the City Council, our local government is as firmly committed to supporting the residents in every neighborhood. That means new resources. So with new resources you know and new and standing up the department of housing community development as an independent agency to address this particular issue, you know, they're doing this because they want significant improvements and reinvestment in some of our historically disinvested neighborhoods. And that's working with markets, building from strength, not expecting transformative change where you know it is literally would be a stretch, but in areas where it is possible but needs that additional investment in that application of technical expertise and partnering to get it done. 

HELTMAN: When he says “building from strength,” what he means is investing in projects in areas close to stable housing markets and anchor institutions. And that isn’t a new or unique idea employed by Baltimore — it’s the standard approach to redevelopment. If a block of vacant houses is one or two streets away from a neighborhood with a vibrant housing market, or a baseball stadium, or an arts college, or a transportation hub, those vacant houses are more likely to find buyers. Over time, the city’s investments in those borderline neighborhoods can build upon each other, and stable neighborhoods will begin to knit each other together. 

But that triage approach to investment has a dark side, which is that is basically acknowledges that, for those parts of the city that aren’t near a stadium or arts college or transportation hub, help is not on the way. At least not right now.  

BRAVERMAN: We expect to see significant declines and significant improvements in many neighborhoods in the city. But I think you know the larger problem really is one that you will take a longer period of time to see changes in. And that wouldn't be for lack of trying on the local level and lack of partnership with the state. This is the state and local government doing everything we can with the resources that we have to address the problem. It's simply not enough.

HELTMAN: Station North is an example of a place where the city and partners made an investment that has begun to reverse a housing market. Being close to robust housing markets and anchor institutions and transportation made it a promising candidate. But with a 56% vacancy rate, what it didn’t have was a housing market of its own. If someone wanted to buy a home — especially a vacant or abandoned home — they would face the same fundamental challenges that dollar home buyers face, particularly with financing. 

The city, along with community development groups like Charlie’s, sought to prime the real estate market’s pump by building a rent-subsidized artist’s colony in Greenmount West, known as City Arts. And that was in 2010.

DUFF: Our lenders thought it would lease up in ten months. It leased up in ten weeks. 


DUFF: We thought, you know, out of 69 apartments, we thought that half of them would move out, so we built, at the end of the first year — that’s sort of standard — so we built a waiting list of 35 people, and then when the leases came due at the end of the end of year one, instead of having 35 people move out, we had five people move out. 

HELTMAN: So the city built another one, City Arts II, which was completed in early 2017. That had a similarly robust demand, Duff said. And the local real estate market has also started to revive, with remodeled homes selling from $160,000 to upwards of $300,000. And then he showed me this.   

DUFF: These are the first new, unsubsidized houses built in this neighborhood since the 1800s. 


DUFF: And I’m going to their open house on Monday afternoon. Do you want to go?

HELTMAN: Yes, I do. 

DUFF: Good. 

HELTMAN: And so I did. 

HELTMAN: I’m sated at the moment, but I might trouble you for a glass of water in a minute. So this is Station North. 

FRANK: This is Station North, and this is Greenmount West within Station North …

HELTMAN: That’s Sam Frank, co-partner of Four Twelve Development, who built the house I’m visiting on a Monday afternoon last October. 

HELTMAN: So tell me about …

FRANK: Yeah. So what you’re looking at here … Shea, this is John, he’s from the Sun, Charlie …

HELTMAN: Oh, sorry, I’m with a group called American Banker.

FRANK: American Banker.


FRANK: Cool. So that’s great. 

HELTMAN: That’s Shea Frederick, the other co-partner at Four Twelve. And what they’ve built is a new rowhome in Greenmount West — that is, not a rehab of an existing rowhome, but new construction altogether. As Charlie said, it’s the first market-rate new construction in the neighborhood for more than 100 years. And rehabilitating vacant houses is what they were doing before they decided to embark on this project.

FRANK: Alright, so the story here is that we … Shea had been working on vacants, and I joined him as a carpenter’s aide, and we were kind of looking for a project that would help us ramp up and get both of us kind of full-time jobs, because it would have to be significant enough where both of us could work on it. So we found a plot of land which was four subdivided lots that were just grass lots. And we purchased it and we sourced a bank loan for it, and then we just started building. 

HELTMAN: Sam said that the home we’re in is the model home, and once they sell it, they will have enough capital to build out similar townhomes on the remaining three lots. And the house, by the way, looks really nice. It’s got a modern kind of feel — lots of exposed brick, open concept, stainless steel fixtures, that sort of thing.

FRANK: A couple of things are really interesting about this project. One, lots of reclaimed materials. So we used this company called Brick and Board a lot. They’re kind of like Second Chance, but more local, and they’re hiring guys, disenfranchised guys that, you know …

HELTMAN:  Need some work?

FRANK: Need a chance. And what they do is deconstruction, where they take homes, rowhomes, and basically instead of demolishing them, they pull them apart piece by piece, save the materials and then sell them to builders.


FRANK: So the wall that you’re looking at behind you, this is actually made with bricks dug out of the ground from the original homes that were on this plot of land. 


FRANK: Combined with some bricks from those guys, which are, you know, from a rowhome in Baltimore. 

HELTMAN: Right, right. So it’s all locally-sourced, as it were.

FRANK: Yeah, like, completely.

HELTMAN: Some of the labor was locally-sourced, as well. Four Twelve hired laborers from within the neighborhood to work on the house. This is Sam’s partner, Shea.

SHEA: We have a local crew of, uh, I guess interns, you’d call them. 

HELTMAN:  Right.

SHEA:  They live within the neighborhood, within at least six blocks. 

HELTMAN: Is that common?

SHEA: And uh … no, it’s not. But it was just, uh, something that we felt like we should do. 

HELTMAN: Yeah, yeah.

SHEA: Just put some money, like, directly into the neighborhood.

HELTMAN: Yeah. And some training, too.

SHEA: And training, yes. That’s part of it, too. These guys learn basic carpentry skills. So the steps were all done by our local guys. A lot of the painting and the trim. And even things like door hardware installation. They got trained on it and we just let ‘em loose.   

HELTMAN: Remember when Sam said they got a loan to build this house? I talked to the woman who gave them that loan. 

DANA JOHNSON: I'm Dana Johnson and I'm a managing director for Maryland and Washington D.C. at the Reinvestment Fund. 

HELTMAN: That’s the same Reinvestment Fund that you heard from in the first episode. Dana runs their Baltimore office, and she said she worked with the city and other nonprofits to rebuild subsidized houses in the neighborhood.

JOHNSON: As the vacancy rates started to come down and that the housing price of the sale prices started coming up, you know, you start to see a lot more private activity that doesn't need subsidy anymore. You know, if you can sell a house for well — and you mentioned the Four Twelve folks — you know if you can sell a house for, you know, $280,000 or, you know, whatever, like yeah, you don't need … you don't need you need or need to wait around for, "I've got to get this tax credit and I got to get this funder," to you know, whether it's a state grant or whatever you know cobbling — I mean these things take forever to cobble together all these different sources and when you don't need that, it starts to move more quickly. 

HELTMAN: She said that sparking a market for real estate in an area that doesn’t have one is hard, and it takes subsidy. But the Reinvestment Fund — like the government and all the other potential investors in underdeveloped neighborhoods — have to be judicious about where they apply their dollars.   

JOHNSON: I think there's a way of being smart about how you use subsidy. And being smart about how you approach reinvigorating the market, that, it's not about, well, “We need, you know, $50 million or nothing.” You know and I think lots of folks here in Baltimore have been kind of taking that kind of strategy of, you know, yes, initially you know figuring out where are those blocks, you know, that can be restarted, that are close enough to areas of strength that you can build off of that strength, and use subsidy and theoretically, over time, when you do the next block or the other half of the block you need less subsidy because you've now you've got properties that have appraised and sold. And so you know the … the lenders — whether they're us, or banks — start seeing that you know this is these are sort of financeable transactions that the economics do work. And so, over time, you know, the level of subsidy in those redevelopments can go down over time as you're building off strength. Now, if you start in like you know the toughest block in the toughest neighborhood, you know, it's very hard to figure out how to how to capture real estate economic strength. There's not a lot to grab onto. 

HELTMAN: This strategy of having neighborhoods grabbing on to each other — as if to keep them from some kind of an abyss — is just one of countless images that get used to describe something that is actually quite abstract. One of the blunter examples is calling a neighborhood “good” or “nice” versus “bad” or “rough.” Depending on who says it, those words can be code for “black” or “white;” “rich” or “poor.” But there are things that a nice neighborhood has that a rough neighborhood doesn’t, and vice versa. One of those things a “nice” neighborhood has is the absence of vacancy — or at least the ability to withstand it. One of the properties of a “rough” neighborhood is that few businesses will risk their investment there. And if a city wants to change those perceptions — to change the market — it can be costly, and time consuming, and it may not even happen at all. 

And it also leaves those neighborhoods for which interventions are not being mounted out on their own. That doesn’t mean no redevelopment is happening — it just means that redevelopment is being done on a small scale by individual investors, who may or may not have a vision for where they want the neighborhood to go.

JOHNSON: You know on the one end of the spectrum, there's a lot of what they call “hard money” lenders that are out there that are. You know they're not — they're not really like underwriting the transaction. They, you know, they don't sort of get in the weeds of people's … they're almost like, they're lenders, but they're almost sort of play that kind of equity-like role but they that — they charge a lot of money. They'll still charge 12% interest. And so you know they have that sort of kind of money running around, and how do you connect to that. You know, that can be...

HELTMAN: I mean, is this — are these banks? Or...

JOHNSON: No, they're, like, individuals. Yeah. Yeah. Not firms but like...

HELTMAN: You know, a guy who says "Hey, you want some money?"

JOHNSON: Some of that. Yeah I mean I've heard you know different sort of varieties of that. But or just like you know, wealthy individuals sure I have. I'll take a flier and give you know you give me 12 percent and yeah there's a chance that like I never really money back. But yeah. 

HELTMAN: But if I do, I get 12% interest.

JOHNSON: Yeah exactly. I mean the risk-reward, all that. So there's kind of that kind of money that you know smaller, you know, folks doing one or two houses — it's, there's not a lot of process around it so it makes it easier to use. Now, of course, you know, if you're if you can't sell the house and you're hanging onto debt at that kind of interest rate, like, that it really makes things challenging.

HELTMAN: The fact that these neighborhoods don’t have access to the traditional housing market — you know, realtors, comparable homes on which to base appraisals, and, for the most part, prospective owner-occupants — makes things challenging for developers who might build. 

That isn’t to say people don’t buy and sell these properties, because they do. Some people buy vacant homes and flip them — that is, fix them up well enough that they can sell them for a profit. Some people buy houses and rent them for as long as they can, even if the accommodations are substandard. And there’s a tactic known as buy-and-hold, where someone buys a vacant house for, say, $5,000 or $10,000, and neither flip them nor rent them. They just … have them. And they hold on to them indefinitely, hoping that the neighborhood might get hot someday and they can sell high. 

But what about the people who live in these neighborhoods? What do they think about this strategy, about building from strength? Well, that’s why I went to that Green Network meeting that you heard earlier. The city’s plan is to launch a number of pilot projects in the near term, including things like bike paths and parks and community gardens. And these pilots are slated to move forward in places that have vacant housing issues; neighborhoods like Druid Heights, Broadway East, and Sandtown/Winchester. But those are neighborhoods that abut sources of strength, like the stronger housing markets of Reservoir Hill and Bolton Hill or the Johns Hopkins Campus.

And at least some of the folks I talked to didn’t seem very impressed.

RESIDENT: How do I feel about it? I think it was short-sighted. I think they had their preferred way they wanted to go. Their preferred communities. Baltimore City has a lot of neglected communities that should have been a part of this process, areas that have a … are getting a glut of vacant properties. But, you know, ain’t nobody looking at. You know, instead they want to look at the other places. And of course they want to tear down everything, and, like the young lady said, concerned about gentrification — yeah, that’s what they’re making the way for.  

GRANDPRE: My name is Lawrence Grandpre, I'm the director of research here at Leaders of a Beautiful Struggle. We go by LBS. We're a grassroots think tank here in Baltimore.

HELTMAN: I met Lawrence at the LBS offices in downtown Baltimore. And he said the fundamental problem with the city’s strategy — and, by extension, the prevailing revitalization strategy out there at the moment — is that it is focused on bringing in affluent buyers from elsewhere rather than empowering residents or attracting potential residents of more modest but solidly middle-class means.

GRANDPRE: Baltimore City has had a very specific redevelopment strategy that I call hunting the White Whale. Now, the White Whale is affluent individuals from a place like Washington, D.C., who can buy an expensive home in Baltimore City. And that expensive home would generate more property tax revenue. And these houses would appraise at a higher value, which will bolster not just the city's budget, but the city's perceived prestige and the city's perceived strengths. So a substantial, substantial part of Baltimore's housing strategy has been hunting these white whales, and I think to a substantial extent Baltimore, as of now, has largely failed in the effort of turning that into a sustainable strategy, long term, for reviving the masses of neighborhoods in Baltimore. 

HELTMAN: Incidentally … that’s me he’s talking about. I’m one of those white whales. My family moved to Baltimore in 2015, in part because of price. And we love the city — my children were born here, and to us, it’s home. But he’s right — housing prices in Washington got us interested in Baltimore in the first place. Now, I don’t think anyone is telling me to go away, but the point he’s making is that perhaps the city shouldn’t be trying to find ways to attract another five to 10,000 me’s into the city. Because if the city is successful, and another couple of thousand me’s start showing up, that could create new problems. 

GRANDPRE: Assuming there isn't a major financial bubble bursting, the next decade is going to see a massive wave of gentrification in Baltimore. And that gentrification will be framed as addressing the vacant housing dilemma, but I fear will be addressing it in the very market-centric way that does not take equity and the indigenous population as much into its account as it should be. 

HELTMAN: This is what lies on the other side of the redevelopment coin: for all the discussion in Baltimore and other places about how hard it can be to reverse blight, to increase investment in a community, sometimes investment takes hold. And when it does, it can also take on a life of its own. And when that happens, it brings with it a whole other set of challenges.  We’ll explore those next time, on Nobody’s Home.


“Brown in a Different Way”: The Gentrification Dilemma

GORDON: And I think … I was going to do this, like, right before you came, but I failed. But you take your time to set up.  

HELTMAN:  Are you ready?

GORDON: Sure. Let’s do it. With a baby on. 

HELTMAN: With a baby. 

GORDON: He’s pretty chill. 

HELTMAN: Could you introduce yourself?

GORDON: Yeah. My name is Meghan Gordon, I’m a staff attorney at the East Bay Community Law Center, and I represent low-income communities in Alameda County, primarily doing eviction defense for low-income tenants.

HELTMAN: It’s January, and I’m in Alameda County, California, visiting Meghan, who graciously let me interview her one afternoon while she was on maternity leave. 

Alameda County comprises much of the eastern portion of the San Francisco Bay area, and includes Berkeley and Oakland and is home to about 1.7 million people. It is also the site of one of the biggest real estate booms in recent memory.

I’ve been talking a lot about vacant housing — and that makes sense, it’s the subject of this podcast. But there is a challenge within the challenge when it comes to vacant housing, namely that even if a city or community is able to reverse the negative cycle of disinvestment within a community, that reversal can also spin out of control. 

From American Banker, I’m John Heltman, and this is Nobody’s Home.

HELTMAN: In some ways, what is happening in Alameda County’s real estate market is representative of what can happen when housing markets go from cold to hot. That rapid increase in property values has the effect of reducing the number of vacant and abandoned properties, but it also has a secondary effect — and that is putting additional pressure on low-income tenants. Alameda County, like many urban jurisdictions, has rent control laws that limit a landlord’s ability to raise a tenant’s rent when market rates go up. The idea behind those laws is to ensure that longtime residents don’t get pushed out, but Meghan says unscrupulous landlords can find ways to get them to leave.

GORDON: Well, one thing that they'll do is, for example, there was a developer in Chinatown that did this, where they bought a building, and the tenants contacted a local organization that helped them organize and kind of fight back. And what did the landlord do? The landlord cut off the elevator, and said that they were doing, you know, construction and so they had to turn off the elevator. So a lot of people in this building are elderly and disabled. Now they can't get up and down. Then they tore out the bathrooms. So this was a building that was structured kind of like a single room occupancy, so, or like a dorm room, for example. So a lot of the tenants had their own individual space where they sleep and maybe they have a small kitchenette, but then they share bathrooms. So they tore out all the bathrooms except for one in the entire building. So now we've got tenants who are disabled who can't get out of the building and tenants who are getting UTIs because the lines for the bathrooms are so long. And you know landlords just, that's called, like, a constructive eviction. They make their property so horrible that they want tenants to just give up and leave. Some landlords will cut off the water. Some landlords will cut off gas. Some landlords will just ignore requests for repairs, thinking that once the tenant leaves — at least in this area, once of once your tenant moves out you can raise the rent to whatever you want when you get a new tenant, right?

HELTMAN: So you can cover the cost of whatever repairs need to be made but … 

GORDON: Maybe. But a lot of people here in the Bay Area, because housing prices are so high, they will move into places that are uninhabitable because they have no other choice.

HELTMAN: And that’s just what is called “constructive” evictions. She says she gets cases from tenants whose landlords serve them with eviction notices that can’t be enforced, or threaten to call Immigration on tenants who they suspect of being undocumented. And she said the number of calls her agency gets for legal assistance with these evictions has gone up dramatically.  

GORDON: I'd say that we're seeing not only more evictions but we're seeing evictions on a bigger scale, because there's so much money to be made by developers now. And every week there are mandatory settlement conferences set for eviction cases. And now we see anywhere from 30 to 50 evictions a week. Those are just cases that made it to trial to trial phase. So there are lots of cases where a landlord might file an eviction lawsuit and they never though tenant gets scared and moves out and so that doesn't even make it to the mandatory resettlement conference days so 30 to 50 evictions a week is a lot.

HELTMAN: That actually make it to trial.

GORDON: That are making it to, yeah. 

HELTMAN: So it's not even, like, the number of evictions ... 

GORDON: Yeah. 

HELTMAN: ... there are a week ... 

GORDON: Yeah. 

HELTMAN: That's just the ones that don't get either settled or ...

GORDON: Exactly. 

HELTMAN: ... otherwise kind of withdrawn. 

GORDON: Yeah those are the ones where cases are filed and yeah they don't get settled. So there are tons of evictions where the landlord will file the eviction lawsuit and then maybe the tenant moves out before it gets set for trial. But then there are also cases where the tenant moves up before the landlord even files the eviction lawsuit. Maybe they get a notice from their landlord and that notice might be an illegal unlawful notice but they're scared. And so they move out or the landlord just harasses them into moving out. And so yeah 30 to 50 a week that we see this is just Alameda County and that is probably just the tip of the iceberg. 

HELTMAN: And this phenomenon isn’t confined to the Bay Area.

WESTIN: Uh, Jonathan Westin director of New York Communities for Change. We're a community based organization working locally within low income communities of color across New York City and on Long Island. So we're mainly working in central Brooklyn, Southeast Queens, the South Bronx, upper Manhattan, and then some other places on Long Island. And our core focuses are around housing is probably our biggest focus. 

HELTMAN: Like Alameda County, New York City has experienced a major upswing in property values in the last 30 years, and especially in the last 10 years. Jonathan says landlords are resorting to many of the same tactics to get rent-controlled tenants to leave.

WESTIN: They will continuously cut off your heat and hot water. You know, in the middle of winter, you know, there's buildings that go months without heat and hot water. There's you know they'll you know harass you continuously and not — not do the repairs in the apartment that you're supposed to have done. They'll just you know continuously delay, delay, delay. I mean it's even as stark as, like, in some buildings, the new tenants move in have brand new fixtures, brand new everything. They get the repairs done. They never had problems with the heat and hot water, and then literally the tenant across the hallway will have a rundown apartment that's never been painted never been upgraded never anything. And, you know, continuously has, like, problems and in need of repairs that don't get done. So, I mean, I mean, it's a form of harassment that the landlord just continuously harassed tenants to push them out.  And it’s lot of what we spend our time doing, is just working with tenants that are really struggling with landlords to get repairs and to get things fixed to get water back on, etc. So I mean that's a lot of the work that we do as well too. But then the other ways the landlords do too is just you know offering people cash. There's been huge cash incentives to try and get people out.

HELTMAN: Like a buyout.

WESTIN: Yeah. I mean you know like I've heard, you know, from some of our members and tenants in Brooklyn you know upwards of, you know, $15-, $20,000 to go leave. And for someone who's paying $800 a month rent, like, that's a lot of money. But it's like, “Where are you going to go live?”You know, even if you get $20,000, it doesn't take you very far in a market where you know rent is $3000 a month. It just doesn't, you know — it doesn't help.

HELTMAN: Clearly, these actions are immoral, and in many cases illegal. There’s nothing that excuses this kind of forced eviction, especially against people who are the most vulnerable and for whom tenant protection laws are designed. 

But landlords in these cities aren’t shutting off water and buying out low-income tenants for no reason. They’re doing it because the economic incentives are incredible — they can stand to make thousands, even millions of dollars by turning out their tenants or selling their buildings to developers. 

So, where did these incentives come from? Why is real estate so valuable in these markets while property in, Baltimore, say, is so much less expensive — especially since it wasn’t so long ago that many of these cities had the same problems associated with vacant housing. 

To tell that story, you have to tell another one — namely, how the population of the United States has moved around over the course of its history. The U.S. was, from its inception, a primarily agrarian society — the appeal of immigrating to the New World, at least for Europeans, was the availability of arable land. That began to change in the 19th Century with the advent of industrialization, and city populations grew quickly, as did the facilities necessary to house them. Cities actually had a seemingly insatiable demand for housing through World War II because more and more people were moving to manufacturing jobs, which were, for the most part, located in cities.

That started to change during the Great Depression, and accelerated after the war. People with the means to choose their housing chose to move out of the cities and into a new kind of place: the suburbs. 

NEWSREEL: Five years ago, this was a vast checkerboard of potato farms on New York’s Long Island. Today, a community of 60,000 persons living in 15,000 homes, all built by one firm. This is Levittown, one of the most remarkable housing developments ever conceived. 

HELTMAN: Levittown is a classic example of a phenomenon that was replicated in cities across the country after the Second World War. Literally replicated —there’s a Levittown, Pennsylvania, a Levittown, Puerto Rico, and there was a Levittown, New Jersey, but they changed their name to Willingboro in 1963 because they were too close to the Pennsylvania Levittown. Other companies also created housing developments in the suburbs in the postwar era under different names. But the point is, while suburbia might be thought of as a place for upper middle-class households to buy bigger houses, it gets forgotten that the concept was initially a means of creating affordable housing.

NARRATOR: So here’s the home that cost its happy owners jut $9,000. And that includes such extras as a completely equipped kitchen, a two-way fireplace, a finished room in the attic — and even a washing machine. 

HELTMAN: Between the availability of mortgage financing offered by the G.I. Bill and the Federal Housing Administration, families could buy a house for as little as $400 — less than $5,000 in today’s dollars. But these opportunities were not available to everyone. 

BARADARAN: In America, it's fair to say that race — race is housing, or housing policy is more about race than it is about anything else. 

I'm Mehrsa Baradaran, I'm a law professor at the University of Georgia and an author of The Color of Money and How the Other Half Banks.

And that that was sort of prior to the New Deal but much more so after the New Deal. And so I think you cannot talk about housing policy without talking about race. They're so tied in together that you could talk about race without talking about housing, but I wouldn't recommend it.  But you certainly can't talk about housing without talking about race, because there really is no other explanation for the way that we've mapped out the country, the … what explains, sort of, pockets of poverty, and homeownership versus non-homeownership, and that all of the other stuff. All of that police violence, and, you know, payday lending, it, that … all of that stuff stems, I think, from these housing decisions, and really I think the ugly … but kind of the nugget of truth that's at the bottom of this is that we have not had a population of white citizens who have wanted to live next to blacks.

HELTMAN: The federal government has not always had a housing policy, but as you just heard, much of the architecture of our modern housing system dates back to the Great Depression and the New Deal. But racism in housing policy, especially toward African-Americans, didn’t start in the 1930s — it goes back to the Civil War. 

In the closing months of the war, President Lincoln and members of his cabinet started thinking about what they were going to do with all these newly-freed slaves, and some provisions were put into place to allot them land for homesteads. They even created a bank — known as the Freedman’s Bank — to hold their savings and earnings. Those projects were essentially nullified with Lincoln’s assassination and the inauguration of Vice President Andrew Johnson — himself a former slave owner who was loyal to the Union, but was also willing to offer former Confederate States and southern landowners far more favorable terms than the abolitionist Republicans who controlled Congress at the time.

Within a decade, the prevailing standard in the south for African-Americans was something like an indentured servitude, where former slaves were neither enslaved nor able to own land of their own.

BARADARAN: That was the housing policy at the time, is, "You can stay on the master's land, essentially, and work it, but, you know, you get — it's a different arrangement." It's not slavery per se, but it kind of looks like it, because it's debt slavery. And you're not also allowed to bargain for anything, right? There was no, you know, sort of collective bargaining, there was no individual bargaining. The master said, "This is how much cotton you grew," and that's what you grew, you know? 

HELTMAN: Starting in the early 20th Century, many African-Americans migrated to northern industrial cities, drawn by the demand for factory labor and driven away from the south by increasingly savage violence aimed at maintaining the status quo. What they found in the North, as far as housing policy, was segregation not unlike what they had left behind.

BARADARAN: First there's violence. Then there's racial covenants, and then there's homeowners associations, right? The beginning of homeowners associations, right? The beginning of homeowner’s associations is to enforce racial covenants. So you have all of this going on even before the new deal, so segregation really starts in earnest well before the redlining maps. 

HELTMAN: Before the government created a formal housing policy, mortgages were generally short-term affairs, usually lasting less than five or six years and featuring adjustable rates of interest or large lump-sum payments at the end. The stock market crash in 1929 and the Depression that followed initiated a wave of bank failures, and thousands of mortgage loans came due. Many of the borrowers could not afford to pay them off, leading to a wave of foreclosures unlike anything that had ever come before.

The government reacted by creating a couple of new and innovative products and institutions. First, it created the Home Owners Loan Corporation in 1933 to buy and refinance those foreclosed mortgages, instead offering 15-year amortized loans at relatively attractive interest rates. Soon thereafter, Congress authorized the creation of the Federal Housing Administration, which offered, for the first time, the 30-year fixed-rate mortgage — an instrument that never existed before, and which, for the most part, does not exist elsewhere in the world.  

Those innovations stabilized and standardized mortgage lending, and made it possible for millions of Americans to move into the middle class, to leave behind the poverty of the depression forever. But African-Americans were categorically excluded from this historic opportunity. In fact, the HOLC created maps of neighborhoods in cities across the country, ranking them as red, yellow, blue and green. Those maps were used by realtors, appraisers and bankers, as well as others in the housing industry, to determine what areas they could service and which they could not. 

BARADARAN: They say, you know, the green neighborhoods are basically homogenous and race was the most important indicator of the riskiness of a neighborhood. And the subtext that the implicit decision underlying all of this was that people didn't want to live in black neighborhoods and so those there was less of a market. And this was probably true, but then it became much more true after the FHA made it lawful, right?

HELTMAN: So, wait — these maps, this government commission actually had a list of things that makes a green neighborhood a green neighborhood and a red neighborhood a red neighborhood, and among those was, like, race. 

BARADARAN: Top of that list was race. 

HELTMAN: Right. So it wasn't implicit, or like ... 

BARADARAN: No, right, no. What was implicit was, wh-what didn't have to be said is that living in black neighborhoods was not desirable. 

HELTMAN: And not something that the government was willing to … to subsidize, or underwrite.

BARADARAN: Yes, absolutely. Absolutely. And so banks followed these maps — as you would, if you were a bank, right? And then you had these absurd things, where, a neighborhood in St. Louis, there was a white neighborhood were applied for mortgages and they were being denied because they were too close to the black neighborhood. They were saying it was true it was — what do you call it — "inharmonious racial mix" — that was the word they used. In other words, there are too many black people. And brown people, too. And Jews, right? That … they were a less popular group, but more so blacks. And so what they did in this St. Louis neighborhood is they built a concrete wall between the white neighborhood and the black neighborhood, and after the wall was built the people on the right side the wall — the white side of the wall — got mortgages. 

HELTMAN: That practice of extending loans to properties in white neighborhoods and excluding nonwhite neighborhoods is known as “redlining”, and it’s called that because of those government maps. Nonwhite neighborhoods were colored red, white neighborhoods were green or blue. The effect of these policies over time was a gradual concentration of nonwhites in cities and whites in suburbs and in concentrated wealthy pockets within cities. Homeownership rates among nonwhites was relatively low; homeownership rates among whites was relatively high. The civil rights era changed some things — importantly, redlining, segregation and housing discrimination became illegal and those explicitly racist policies were no longer in place. But the combination of disinvestment and de-industrialization led to more and more vacant properties in the cities, especially in those redlined areas.    

BEEN: So in the ‘70s when, you know, when New York City was on the brink of bankruptcy, or financial disaster, lots of property owners walked away from their buildings, right? Rather than paying the city's property taxes they just abandoned. And the city became the owner of those buildings through the tax foreclosure system. 

HELTMAN: This is Vicki Been …

BEEN: Vicki Been, and I'm the Boxer Professor of Law at New York University School of Law.

HELTMAN: She also knows about housing in New York City. 

BEEN: I was commissioner of Housing Preservation and Development for the city of New York up until February of 2017. 

HELTMAN: She said that New York had a surplus of vacant or derelict buildings and faced many of the same challenges that Baltimore and other cities face — crime, unrest, and a dwindling tax base that made it harder to address those problems. In 1975, things had gotten so bad for New York that its mayor even asked the federal government to step in. 

WALTER CRONKITE: New York’s Mayor Abraham Beame led a delegation of fellow mayors to Washington today seeking federal financial aid for New York.

ABRAHAM BEAME: The state has done all it can. The city has done, and is committed to do in the months ahead more of what we’ve done. And if the federal government does not help us, I think it will find the problem afterwards — which it will have to help us with — much more serious. 

HELTMAN: New York was unable to service its municipal debt — it was literally on the verge of bankruptcy. That problem, as Mayor Beame described it, was one of potentially global significance. Thousands of banks around the world held New York City’s municipal debt, and a default, it was feared, could lead to a wave of bank failures and a systemic shock not unlike the European Sovereign Debt crisis of 2011. The city ultimately did avert bankruptcy and did receive federal aid, but it also suddenly had a lot of property on its hands. 

BEEN: We went from a time when the city literally owned more than hundred thousand buildings to a situation today where the city has fewer than a couple of thousand buildings still in its in its portfolio that it continues to own and, you know, a handful, less than a thousand, really — between a thousand and 2000 vacant lots. So we’ve gone full circle, right?

HELTMAN: So how did it do that, exactly? One thing it did was to offer these buildings to developers with the agreement that the new owners would maintain them as affordable housing for 30 years, after which time they could go for market rate. That took a lot of those buildings off of the city’s books and sparked investment, but it also sowed the seeds of the current crunch in affordable housing. 

BEEN: We actually have a great natural experiment of that in New York which was the first … the Mitchell-Lama program which was a state program that funded essentially middle income housing to be built. So Co-op City, other major developments around New York City were Mitchell-Lama, financed by the state and federal government, basically. And the first version of Mitchell-Lama housing required developers to enter into a 60 year agreement. There were no takers. The … so, a few, you know, a little bit of time passes they lower the requirement to 50. No takers. They kept lowering, and 30 was the sweet spot, right? So now it's a little unfair to criticize the 30-year agreements. I think one of the lessons learned is that the — a city dealing with vacant land or vacant housing really has to think not just about the crisis right now and removing that blight and providing affordable housing, but it has to think about its portfolio really over the long run, and think about what it's going to need — to the best of its ability — in 30 years 40 years 50 years and try to build in flexibility for it to deal with whatever situation comes, you know, in the future.

HELTMAN: Washington, D.C. faced a similar decline from the 1960’s through the 1990’s, and, like New York, experienced a similar resurgence. 

TAYLOR: My name is Yishan Taylor, I'm the executive director of the DC Policy Center. It's a new think tank that focuses on economic and … demographic factors that shape the District of Columbia. 

HELTMAN: Before that, she also worked for DC’s Chief Financial Officer, examining revenue estimates and scoring city legislation. 

TAYLOR: Let me give you a sense of how different it is today compared to say, even 20 years ago. At the end of January the district had an auction, hired an auction company to put 36 properties that were vacant or blighted to be turned into what we call workforce housing — it basically means middle income families can live in it. When these properties went on the market, they were immediately snatched up. I think two were pulled back from the auction, everything else. The other 34 properties sold and they sold for prices that are rather close to market rates.  Some of the single family homes I looked at were in the range of $400-450,000. It's cheaper than what you see in the city, but it's not cheaper than where you want to see the neighborhoods where these homes were located. 

HELTMAN: And these are blighted homes, right? 

TAYLOR: Vacant, blighted, and maybe underwater, they couldn't pay the taxes. The kinds of houses that you don't want to see in the neighborhood. When you compare it to what happened … and to complete that thought, the people who bought it are not people who are going to update it and live in it. They are all developers or investors. We did something similar back in the 1990s along New York Avenue and sold some houses to people to live in there, so long as they upgrade their houses and stay in the neighborhood and stay in the house. The idea was to create some stability. And at that time the homes went for, you know, $5, $10. So right now when we do an auction — and, you know, granted we don't do a whole lot of them — but the expectation is that even the communities where there is blight or vacant properties, things will change.

HELTMAN: One thing that helped turn Washington’s fortunes around was an overhaul of the city government’s financial accounting in the mid-1990s after the city’s finances had reached a crisis point.

TAYLOR: We had a very few years with terrible finances. The revenue estimates were absolutely made up. I think one year the city had the first quarter basically declared that this year we're going to have five quarters, because revenue for four quarters is not enough to pay for our expenditures. 

HELTMAN: Congress actually passed a bill — the National Capital Revitalization and Self-Government Improvement Act of 1997. And that took budgetary powers away from the city government and vested them instead with a Congressionally-appointed control board. I grew up in Washington, and I remember when Congress passed that bill.  I had just started my sophomore year at Wilson High School at the time. DC residents have always had a complex relationship with Congress, but people hated that bill. It smacked of all of the condescension and imperiousness that residents resent about Congressional oversight. What I didn’t remember about the Revitalization Act was that, in addition to taking budgetary decisions away from the local government, it also relieved the city of some of its expenses, notably its pension obligations for city employees and its disproportionately high Medicaid payments. It was also an alternative to putting the city into receivership, which arguably would have been worse. And over time, the city’s finances stabilized, and the city’s population — which had been declining for decades — started to grow. A lot. 

TAYLOR: Things started looking better after 2000. And the first wave of increase in population was the singles and the professionals. When the city started improving, a lot of single and … sort of the singles and mingles — a lot of couples moved into the city, and that was followed by — we were gaining a lot of households but losing a lot of families sometimes the number of households increased, but actually the population declined because two singles would come in but that family would leave but households are the relevant units for tax purposes — they are the sources of revenue. So even when the population seemed like it was going down, our finances had started to turn around, and that's fed into more families staying. By 2009 we started seeing more families staying. And right now we've added about a hundred thousand people between 2010 and now, but there are … about a million people moved in and out of the city. We are a very transient city. 

HELTMAN: I asked Taylor whether the Revitalization Act is what turned DC’s economy around, and she wasn’t quite willing to go there.

TAYLOR: I would not feel comfortable saying that's the reason a lot of things happened. I think one of the things that happened with the Revitalization Act there was that one period where, it became very serious that you run this ... you have your city, but you can't make any decisions. And the people on the Revitalization ... the board, were fantastic people, but they are not voters, they are not representatives, they're just appointed there. So I think there's a great desire not to ever go back to that place. But also, when the city finances are good … what the Revitalization Act did is make sure that this city did not squander its money. And it also happens to be at a time when it became more interesting to people who want to come and live in the urban areas — the traffic is one of the biggest deterrents of living in suburbia. And what it made sure is, any person who comes in as a taxpayer, they did not feel like their public funds will be squandered. And it's changed a lot. I mean this government is very, very well run. You know people will tell the stories about this crises and that ... you know, scandal. But when you look at other local governments, our scandals are not particularly scandalous. 

HELTMAN: That may be so, but it’s not like DC doesn’t have problems. Housing prices are high and exerting those same pressures on low- and moderate-income residents that New York and San Francisco are experiencing. It’s kind of like no matter what happens with housing, poor people are always left out. At least that’s what Meghan Gordon thinks. 

HELTMAN: If you had to choose between a problem of having kind of vacant housing and housing blight and low property values or the problems that you see in your job with super high property values, like, which is better?

GORDON: Yeah. And the thing is I don't practice and I've never practiced landlord/tenant law in a community that has a high vacancy rate. So, I …

HELTMAN: But, like, does the grass look greener at all?

GORDON: But mostly what I think is, I don't know. I just don't have the experience, I don't know. But it is tough in the Bay. And I think what's really hard  about the Bay, and maybe is different in places, like, that, is that once a tenant loses their housing in the Bay, it feels like they have to leave their community and eviction is not just homelessness, it's displacement from your from your community and your life. Maybe that doesn't happen as much in communities like the ones you're talking about. And that is a really difficult part about practicing here. But I'm sure it's … the grass is never really greener when you work with low income communities. It's just brown in a different way.

HELTMAN: Would you rather have D.C.'s problems from 20 years ago, 25 years ago, or D.C.'s problems now, vis-a-vis housing?  

TAYLOR: Definitely now. The most important thing to solve problems is the ability to throw money at it, right? And the richer the city is, the stronger its finances, the higher the chances of throwing money at a problem. I think is one area — and that's the district has particularly done bad in the past, I mean, I'm talking about 1940s and 50s — is this sort of, right, racial disparities, especially when it comes to housing. And I'm sure you're aware that lots of people have studied this, and of course buying a home is one of the ways in which you can build wealth, and a lot of the blacks were excluded from those opportunities because they did not have the income, this is like the FHA loans was closed to them, G.I. Bill was closed to them, veterans laws were closed down because they didn't meet the income requirements. Sometimes they were like blatantly discriminated against. So I think there's a burning issue right now is the racial disparities in housing. I'm not even sure that homeownership is a good idea, personally. But I think given that it's a major means of building wealth, and if people think of it that's also stabilizing communities and things like that, I think this is one area that we should really be working very hard on right now. But we have a better chance of solving a problem now that we did 20 years ago.

HELTMAN: But there’s another problem that has been stubbornly resistant to intervention, and that’s segregation. That exodus to the suburbs, redlining, blockbusting, all of those racist legacies have left us segregated, not just racially but economically as well. There is a lot of research that suggests, perhaps unsurprisingly, that segregation negatively impacts poor families, but there is also a growing field of research that is finding that segregation is actually bad for the wealthier households as well. It hampers economic growth, maybe even makes wealthier children less empathetic. There’s actually a field of study dedicated to this idea called inclusive growth. So maybe there’s an opportunity here. Maybe what we call gentrification could — emphasis on could here — be a signal that one of the most stubborn attitudes in housing is changing, that the idea that was kind of at the heart of a lot of those racist housing policies in the first place is eroding. Maybe there is a population of white people who want to live next to blacks, not just displace them.    

WESTIN: I think we already missed that opportunity. I mean ... 

HELTMAN: In New York, or ... 

WESTIN: I think everywhere. I do. I mean I think there was an opportunity right after the foreclosure crisis to come in, have the government really step in and you know all these homes that were being lost that were going vacant, and all of these buildings in New York City they were going into foreclosure. There was a moment for the government to step in and really say we want to actually take control, keep it permanently affordable for families to stay and live. But the opposite happened. And we kind of already missed it, you know? So in some ways if you know what we should have in hindsight is 20 … hindsight is 20/20. We should have done it then. I mean that really would have been the best anti segregation program we could have envisioned. It feels like it was just a huge missed opportunity. And Obama and his administration were very complicit in kind of exacerbating this sort of segregate — like, re-segregation, I feel like is about what happened.

HELTMAN: He’s talking about homeownership, the same vehicle that propelled millions into the middle class after World War II. It’s also the vehicle that hollowed out inner cities and enforced segregation. But it could also be a break for gentrification and displacement. So is homeownership the answer, or part of the answer, to the housing crisis? We’ll find out next time, on Nobody’s Home.


The American Dream: Is Homeownership Really the Answer?

HELTMAN: September 15, 2008. 

CSPAN:  … daily White house briefing, today with Treasury Secretary Henry Paulson. Press Secretary Perino at the podium.

PERINO: Secretary Paulson has graciously given us some of his time today — he doesn't have an endless supply of it … 

HELTMAN: Financial crises tend to come on slowly, and then break open all at once. The financial crisis of 2008 that precipitated the great recession was no exception. 

PAULSON: Good afternoon, everyone. And I hope you all had an enjoyable weekend. (Laughter.) Well, as you know, we're working through a difficult period in our financial markets right now as we work off some of the past excesses. But the American people can remain confident in the soundness and the resilience of our financial system.

HELTMAN: The mortgage market had actually been teetering for some time. Freddie Mac said almost 18 months earlier that it would no longer buy the riskiest subprime mortgages. A few months later, New Century — one of the leading subprime mortgage originators — filed for bankruptcy. By July Countrywide and Bear Stearns were under pressure. In August, Countrywide’s credit rating was downgraded severely; the following January it was sold to Bank of America. A few months later, JPMorgan Chase agreed to buy Bear Stearns in a deal facilitated by the New York Fed. But the crisis was still not contained.

PAULSON: I commend the SEC and the Fed for their work over the weekend, convening leaders of financial institutions from around the world to meet the current challenges and put measures in place to reduce market stresses. 

HELTMAN: By July, Fannie and Freddie themselves were in trouble. The Fed said it would extend emergency liquidity to those firms as well, and the same day the Treasury said it would extend its credit and give itself permission to buy Fannie and Freddie stock. Two days later, the SEC banned the short-selling of Fannie and Freddie securities. And two weeks after that, President Bush signed a bill that overhaul led how the government oversees the companies, creating a new agency, the Federal Housing Finance Agency, for the task. By September they were broke and came into government conservatorship, where they remain to this day. And even then, the crisis was still not contained.

PAULSON: As I've long said, the housing correction is at the root of the challenges facing our markets and our financial institutions. I believe that we've taken very important steps with respect to Fannie Mae and Freddie Mac, and they're amongst the most important actions we can take to work through this turmoil. 

HELTMAN: September 14 was the day that Lehman Brothers, one of the nation’s oldest investment banks, collapsed. Bank of America announced it would buy Merrill Lynch, another of the nation’s oldest investment banks, the next day. While financial crises build slowly, when they finally hit, they do so in an atmosphere of panic. Seemingly impenetrable institutions collapse, backstops fail, confusion sets in, markets freeze. The financial system is in free fall and no one knows how much farther it has yet to go, and what it will bring down with it. 

Most people know the financial crisis of 2008 was bad. In fact, we came close to another Depression. Just under a million foreclosures were completed in 2008, with similar figures in 2009, 2010 and 2011. Almost nine million people lost their jobs in what is now called the great recession. Most of the biggest financial institutions required some kind of assistance. 

There is virtually no product or market or institution in finance that wasn’t affected during the crisis. But none was more central than the home mortgage, and perhaps none as dramatically changed since.

Talking about the financial crisis is tricky. For one, people’s eye tend to glaze over a bit when you start talking about “securitization” and “capital standards.” But think about it this way: The home mortgage, once thought to be the safest of investments, came very close to destroying not only the American economy, but the world economy. 

The aftermath of the crisis has raised a lot of questions, including how did this product, which created to give ordinary people a measure of wealth and financial stability, turn into a monster that almost destroyed the financial system? 

It also raises another big issue. Does homeownership actually achieve those goals of community stability and wealth creation? For decades, America, regardless of which political party was in power, has been pro-homeownership. Did that lead to the crisis? And if it did, is more homeownership the answer to solving blight? Or are there other ways to go?

From American Banker, I’m John Heltman, and this is Nobody’s Home, a podcast about vacant housing and what it means for our communities and the financial system.

BRYANT: Want some water, coffee, tea, anything?

HELTMAN: I’m good. Sorry to catch you, just, uh …

BRYANT: Oh, no. I’m always … I’m always running, man. 

HELTMAN: This is John Hope Bryant. 

BRYANT: I’m John Hope Bryant, I’m the founder … I’m an entrepreneur, and some people all me a philanthropic investor, the author of several books, advisor to some government leaders, but the two entities that people would know most of are Operation Hope, which is America’s largest nonprofit financial inclusion organization, and created financial literacy policy with President George Bush in ’08, and I’m also CEO of Promise Homes Company.

HELTMAN: Operation Hope is an organization that, among other things, promotes financial literacy and the expansion of financial services to underserved communities. And if you’re not familiar with John, he has a philosophy. 

BRYANT: Poverty has nothing to do with money. So beyond sustenance poverty — which is a roof over your head, and food on the table and dinner on the table, and health care, all other poverty is mental. It's a frame of mind. So if I have low self-esteem, a lack of confidence in myself. I mean, try to write this article without confidence. Try working at the American Banker, dealing with the politics of the world, without weaving yourself through the lens of confidence. It’s very hard.

HELTMAN: I mean, it isn’t that hard, but you get his point. And it’s not so much a bootstraps-first self-help philosophy as it is an appeal to disenfranchised communities to learn the financial system, understand it, become conversant in it, and then use it and benefit from it the same way other communities do. Or, as he puts it …

BRYANT: People never got the memo. You think you're a good person. You're working your tail off. No one gave you a memo on free enterprise, or capitalism, or economics, or ownership, or how money works, or how compound interest works, or how leverage … reasonable debt leverage financing works, or the magic of a mortgage that that has deductions — nobody told you any of that stuff, nobody in your family owned a home, right? Now, but, you don't know anybody who's ever done this.

HELTMAN: And if you want to change that, it has to start with the home. After all, that’s where it started for everyone else.

BRYANT: If you think about where America has succeeded, it was between 1950 and 1975. Hello. That just happens to line up perfectly with that 30-year mortgage that was given after World War II to GIs. And if you talk to GIs, they'll tell you that home was the most transformational experience, thing, in their entire life. Right? But yet we seem to think that doesn't apply to everybody else. . 

HELTMAN: I mean, it sounds like you're saying that, basically, homeownership ... 

BRYANT: It's a gateway.

HELTMAN: ... as a, a proxy for home security ... 

BRYANT: It's a proxy for wealth creation, a proxy for dignity, a proxy for home security . 

HELTMAN: It's foundational. 

BRYANT: It’s foundational. It's a proxy for self-esteem. 

HELTMAN: You can't really do anything that you want to do if you don't feel secure in your home space.

BRYANT: Correct.

HELTMAN: Research backs this up. Homeownership in and of itself has been shown to correlate, albeit somewhat weakly, with greater civic participation, as measured by things like membership in neighborhood associations and voting, so it has a social benefit . But much more research has demonstrated that homeownership results in less turnover in housing for neighborhoods, and homeowners move a lot less frequently than renters. That’s important, in large part because frequent moving can have serious consequences for children, even when they have grown into adults.  

All other things being equal, the stability that homeownership confers tends to be beneficial to communities and children. And there’s other stuff, too.

VAN TOL: I’m Jesse Van Tol, and I'm the chief executive officer for the National Community Reinvestment Coalition. 

HELTMAN: Or NCRC, for short. They’re a national organization whose offices are just around the corner from the White House, and whose members are grassroots community groups.

VAN TOL: Six hundred community based organizations around the country. And we champion fairness in housing banking and business development. So at its core, a feature of a 30 year fixed rate mortgage, of home ownership, is the ability to kind of lock in what you're going to pay for housing for 30 years. And what that brings with it is a lot of stability in communities. And so, you know, as a public policy, stability in communities is a relatively attractive thing. It means that you have a person living in a home who's going to pay property taxes. It means you have someone who, in terms of being active in that community, caring about community issues and expressing that care in terms of voting and weighing in on local public policy issues and concerns, is much more motivated than someone who might just leave the neighborhood if or the city if things are not going well. 

HELTMAN: The government does support homeownership in a number of different ways — the mortgage interest deduction, for example. But one of the most important ones is through securitization. Fannie Mae and Freddie Mac were chartered to securitize mortgages — or, in other words, bundle a group of individual mortgages together into a single product, or security, that an investment firm can buy and count on for a reliable return over a specified period, typically 30 years. If one or two of those mortgages defaults, the security is big enough that it will continue perform. 

The benefit of securitization is that, so long as the individual mortgages are up to some basic standards and comply with applicable laws, banks and other mortgage originators can sell you a home, and then sell the mortgage they just made with you to Fannie and Freddie, who in turn bundle your mortgage and lots of other mortgages together into a security, which they then to whomever. This makes it easier and routine for banks to make mortgage loans and creates a market for those loans that institutional investors like insurance companies, hedge funds and pension funds find attractive to buy.

The market for mortgage-backed securities has been around for decades, but its role in the overall housing market has changed a lot. 

MICHEL: I’m Norbert Michel, I work at the Heritage Foundation, where I’m director for the Center for Data Analysis. If we go back, way back – so, say, postwar, the post-war boom, the 40’s all the way through the 50’s to the 60’s, until the end of the 60’s, all government-backed mortgages were never, in any given year, were never more than about 5% of the market. 


MICHEL: That’s changed dramatically. That started changing in the 70’s. Started changing in the 80’s. In the 90’s — that’s when it blew up, as in the 90’s.

HELTMAN: Before securitization blew up, the vast majority of the mortgage market was held on banks’ books. When banks made a mortgage, the mostly held onto it.  But in the 1980s, regulators made banks start putting extra money aside for mortgages still on their books. 

That made the idea of selling them off to somebody else a lot more attractive. Banks could still make mortgages, but they could be sold to Fannie and Freddie, which bundled them into mortgage-backed securities. And those mortgage-backed securities were considered lower risks than the underlying mortgages because surely they all couldn’t go belly up. 

MICHEL: Now, at that time, mortgage-backed securities? Small part of the market. Well, in those rules you had a capital advantage to securitize the mortgage and not hold the mortgage on your books any longer. It would be unfair to say, at the time, anybody thought, “Hey, I know how we can get more securitization going.” It was just …

HELTMAN: It was just an unintended consequence.

MICHEL: Yeah. And, now, in the 90’s — and this is not to pick on Bill Clinton, because it’s not just him — but it is true, it is factual, that he started, in the 90’s he started his national homeownership program, and said, “We want the national homeownership rate to go to 70%. That’s our stated goal.” [10:56]

CLINTON: It’s hundreds of specific actions that address the needs of people who are trying to build their own personal version of the American Dream. Today, all across the country, I want to say to millions of young working couples who are just starting out, “By the time your children are ready to start the first grade, we want you to be able to own your own home.”

MICHEL: George W. Bush certainly extended that. This is not a Republican/Democrat thing. This is both sides of the aisle going hog-wild with this from the 90’s on. 

BUSH: I do believe in the American Dream. And I believe those of us that have been given positions of responsibility must to everything we can to spotlight the dream and make sure the dream shines in all neighborhoods, all throughout our country.  Owning a home is a part of that dream. It just is. Here in America, if you own your own home, you’re realizing the American Dream. 

HELTMAN: Congress passed a law in 1992 that allowed HUD to set lower-income lending goals for Fannie and Freddie, and numerous other programs were launched or expanded to encouraged homeownership among lower-income borrowers. And the reason for doing that was just what we’ve been talking about, giving lower-income people a chance to have the same security and savings benefits that middle-class and wealthy communities have enjoyed all this time. 

 HELTMAN: And so extending homeownership to more people — that’s not a crazy public policy.

MICHEL: It’s not necessarily a terrible idea, it’s just a question of how you do that. And what ends up happening — or at least what ended up happening — is at some point, you get beyond a stable homeownership rate, and you get beyond a stable supply-and-demand rate for these loans. So there’s nowhere else to go. And you’ve taken these relatively small entities, and you’ve let them get very large and become a dominant part of the market. So, you have nothing left to do. If you want to get more loans, you have to lower down payment requirements. You have to increase DTI requirements. And so on, and so on.

HELTMAN: That’s one take, from a conservative.  Consumer groups, which tend to be liberal, have their own view of how the mortgage market got overheated in the early 2000s, however. They see the crisis not as a failure of encouraging homeownership, but a lack of regulation. 

VAN TOL: So what you saw, you know, in the mid-2000s, you see this kind of bust-and-boom cycle with the economy and you see federal government reacting to it, you see markets reacting to a lot of people remember you know the tech bubble, when the Internet bubble burst. Well where did the money move? Well, the money moved into housing, and, to an extent, you know, monetary policy supported that. And what you also I think saw was that, you know, the rise of independent mortgage companies, which were less regulated than banks. 

You saw capital chasing returns, capital being heavily invested in those companies in the housing market. And, I think, you saw a discovery by the market that there was a significant amount of value, both in terms of people's built up equity and savings. As mortgage companies competed with each other, as others kind of entered the fray, you saw degradation of credit quality. You saw innovation of the worst type. Somebody said, you know, “What if we just stop verifying income? That would be a big market advantage because we can make the loan faster it's a lot less work.” And, you know, the other thing sitting behind the scenes and all of this is securitization. You had a lot of private capital buying mortgage backed securities, because historically mortgage backed securities have been a very good and safe bet. And one of the reasons for that is, historically, mortgage-backed securities have … have been essentially government-backed securities. You know, most mortgage backed securities were from Fannie and Freddie, and people believed — people believed that there were certain quality standards associated with those. 

HELTMAN: And when Fannie and Freddie couldn’t keep up, banks started making their own securities, and people started buying them. 

VAN TOL: And so, in the private sector, private label securities started doing the same thing. You know investors came to those in droves. And, you know, historically, housing values have gone up, and as, you know, sort of the boom progressed, housing values were really going up. So the returns became more and more attractive, and people doubled down on those positions. 

The problem with all of that — a few problems — underlying all of that was the degradation of the credit quality of the mortgage. Lenders were making mortgages it made no sense; that people couldn't afford to pay back. And underlying that was that many lenders were not on the hook for the ultimate risk of the mortgage.

HELTMAN: This probably goes without saying, but these views do not represent an exhaustive account of the financial crisis. I just want to make a single point, which is that before the housing crisis was a crisis, it was a push to expand homeownership to more people — particularly those in most need of housing stability and those who were categorically excluded from earlier housing programs. 

Ultimately, however, it was many of these same people who paid the price when the market collapsed. The crisis sparked millions of foreclosures, and not just among those who took out loans they couldn’t repay. Thousands of people walked away from their mortgages after the crisis, even though they could afford to keep them. No one knows exactly how many people engages in so-called “strategic default” after the crisis, but some estimates put it as high as almost a fifth of all defaults in 2009. 

But if the goal, from a policy perspective, is to make more communities more stable and build wealth among the working class, is homeownership the only way to go? What do other countries do?  Well, I asked someone with a different perspective.  

DOMBRET: Andreas Dombret, from Germany, from the German central bank. We have rather low home ownership in international comparison.

HELTMAN: And if people, individuals, don't own their homes, who does? Banks? Or, like ...

DOMBRET: No. First of all, Germany has all these insurance companies, so these institutional investors, they own real estate which has residential real estate, but they own this big time. And you have also the more the richer Germans, who, as a means of having a future pension, buy like 5, 6, 7 houses with 10 apartments each in order to make sure that they have a regular income and the family is secured.

HELTMAN: So it's sort of like a mom and pop sort of... 

DOMBRET: That's right. That's right. So it is... But, but again, it is a lot of residential real estate with lots of apartment buildings is owned by insurance companies, by pension funds, and also by the city. So, public.

HELTMAN: Germany also has renter protection laws and tax rules that make flipping residential housing less attractive, he said. The government also has a more expansive social safety net, the result being that a family may or may not own its own home, but it doesn’t have to in order to get ahead. For those who own homes, the investment is justified because of reliable returns, not an appreciation of the value of the home itself.

DOMBRET: Germany has a principle of compensating the ones who are not that successful in the economy for the negative. Let's, ah … there's a, there's a … there's a wealth creation, and the wealth creation may not go to everybody, so the German Social Security system sort of takes care and makes sure that there's a cohesion in this society and to compensate those who may not have profited that much from that wealth creation. So that's a German principle. And that also relates to the housing market and to the rental market, in that we have protected rights not only, let’s say, as a member of the labor force, but also as a member of the rental market. That is part and parcel of the German home owner market, and everybody who invests knows that. It gives you more stability, but also less upside.

HELTMAN: Germany has also had its own experience with advocating homeownership. After the fall of the Berlin Wall, West Germany had to integrate the communist East Germany into its capitalist democracy. Homeownership was … well, it was zero. Everything was owned by the state. So the new German government tried to incentivize homeownership with many of the same policy levers that were used in the U.S. And it resulted in a similar boom-and-bust cycle.  

DOMBRET: I am a little bit skeptical of politicians and political programs to try to increase home ownership with, you know, with government incentives. That is you know — it never really works, because you if you give those incentives like for example Germany did in the east after reunification those side effects may be quite negative and you may not get the way you want. So you have to let the market play out and you have to probably have programs to build social housing and offer affordable housing to everybody. That's the best thing you can do rather than work through tax incentives and other means, and ... I'm very wary about this. And you can also overdo these rent controls. There comes a point, there comes a tipping point if you are you know having so much emphasis on rent control that nobody wants to buy apartment houses and rent them out anymore. So there comes a point where this becomes so unattractive that that ... that that will harm the rental market. So you have to try to find a good balance.

HELTMAN: But what is that good balance? Since the mid-1960s, the number of owner-occupied households has been between 63% and 70%, peaking in 2004. Right now it’s on the lower end of that range, at about 64%. And homeownership is down worldwide, suggesting that people maybe don’t want to own their own homes the way they used to.

Surveys, particularly of younger people, suggest otherwise. One study found that 80% of millennials want to be homeowners, though only about 35% actually are. Student debt is a significant barrier here, but not the only one. The homes that young people tend to buy are less expensive, more bohemian. Lots of those kinds of home are being bought up by investors for rentals, keeping more people off the bottom rungs of the housing ladder. 

VAN TOL: Promoting homeownership is part of the solution. And I think, I say that, you know, we have an affordable housing crisis in this country, really. You have, you know, in terms of rental affordability you've got a growing number of markets where it's simply unaffordable to rent a home and you've got home ownership, you know, near a 50 year low, and those two things, I believe, are related. Housing, affordable housing, you know, it's a ladder. There's different rungs on it. It's a group of people who cannot move up into homeownership who are, you know, occupying properties that could be rental properties for other people. There's just supply and demand aspect to this as well, that, as people move up by their first home maybe buy a second larger home. You know that's where the market is really good at producing supply. And if there are people able to move up and move into that supply, I think you'll open up supply at the lower ends of the ladder for people to be renters, to be first time home buyers. And separately there's a whole piece I think we need to think about in terms of construction of affordable housing. How do you do that without making sure that we don't experience something similar to what happened during the foreclosure crisis? I think you do that by doing what we did, and that's mandating certain lending standards.

HELTMAN: But there is a diversity of opinion about whether moving up the homeownership ladder is even a good thing. This is Norbert Michel again.

MICHEL: Do people want to own things? Sure. I mean, is owning a home emblematic of a certain lifestyle? Sure. Does that mean you know everybody should do it and … and we should push people to do it? I don't think so. I mean I ... I like renting. I think we talked about this a little bit on the phone you know a lot of people think that it's a better deal financially to own the home, and that's generally not the case. I mean, it’s just, when you figure in — especially with a long-term no-equity or low-equity loan, the last thing we should be trying to get somebody who is on the lower end of the income scale to do, in my opinion — it’s a terrible deal. When you factor in interest costs, tax, maintenance costs, and you compare that to what your rent would be and what you could have done with that money instead of paying interest, taxes and maintenance, and you invest it in something like an index fund or a small-cap fund, you come out way ahead, at least as good, just by doing that. 

HELTMAN: Homeownership is an investment, but it’s not just an investment. You can’t live in your 401k, you don’t raise your kids in the S&P 500. This is also about quality of life, and opportunity, and values. And if more people want to be homeowners, there are also homes that need occupants. 

BRYANT: Vacant housing is an indication that we're missing the memo, we've lost our storyline. We've … we've forgotten how we got here, right? We were ... and … Because that is the ... Every one of those vacant homes is a ... is a ... is a family is not being nurtured. Kids who don't see homeownership as a role model. A mother and a father who are not there giving their children a sense of who I can be and what I can do and where I can go. We're seeing it the wrong way. It's not a liability. It's lost potential. So not every home needs to be rehabbed some of them need to be bulldozed. All right some of them are havens of drugs and crime and rape. 

HELTMAN: Some are structurally unsound ... 

BRYANT: Structurally unsound. And some of them are worth better were worth more dead, right? Some of them should be parking lots. But but there are a good portion of homes I should say 30 percent of all abandoned homes in America that are just untapped, unleveraged potential that could be creating tax bases and jobs and opportunity.

HELTMAN: Opportunity. That’s kind of what all of this is about, isn’t it? When you buy a house, you have the opportunity to own a home, but it’s not a guarantee. It’s a dead pledge. There’s a sort of modern proverb, sometimes attributed to Winston Churchill, to the effect of “Democracy is the worst form of government, except all the others.” Homeownership as a vehicle for building up the wealth and stability of the middle class might be described in a similar way — it has its limitations, but it’s what we have.  

Owning a home isn’t the only opportunity that matters, though. You need to pay for that home somehow – you need a job. And it’s the lack of jobs that led to a lot of these blighted communities becoming blighted in the first place. So how do you get the jobs where the housing is? That’s coming up next time, on Nobody’s Home. 


The New Blue Collar Job

BRAVERMAN: Our housing blight problem, our vacant housing problem is not just a housing problem. It's perceived as sort of you know a — solely as housing problem, when it's actually representative really of lack of effective demand for all the reasons that we've talked about.

HELTMAN: Baltimore Housing Commissioner Michael Braverman. 

BRAVERMAN: So the solution lies in increased economic opportunity. The solution lies in the public safety efforts the mayor is making, in the improvement of our schools, in providing affordable housing options for our residents and attracting buyers of choice and new residents. It's so much about so many other things before it's ultimately seen as only a housing problem. It's really precipitating out of much, you know — decades of sort of macroeconomic changes.

HELTMAN: It might sound obvious, but one distinguishing characteristic of blighted neighborhoods is that the people who live there don’t have very much money. And when you don’t have much money or the opportunity to make it, your options for everything, including housing, are limited. In other words, you can’t really treat housing blight as an infrastructure problem — houses come and houses go. The issue is as much about creating economic opportunity as it is about old houses. People need money, and to get money, they need jobs. But if you’re in a city like Baltimore, where do you find them? 

From American Banker, I’m John Heltman, and this is Nobody’s Home, a podcast about vacant housing, our communities and the financial system. 


BOOKER: So you want to … you want to do some walk arounds?

HELTMAN: Yeah, sure.

BOOKER: You might want to … what I would really like to do, um … is show you why it may be a little challenging for some stuff to come back. 

HELTMAN: Uh huh. 

BOOKER: OK? And talk to you a little bit about what happened over time.

HELTMAN: I’m standing on the corner of East Preston and North Broadway on Baltimore’s east side. Broadway is the dividing line between two neighborhoods: Oliver to the west, and Broadway East … well, to the east.

HELTMAN: Can you tell us who you are?

BOOKER: Eric Booker, I am a resident of the new Broadway East Community Association, and also the Deputy Commissioner for Code Enforcement for the city of Baltimore.

HELTMAN: That’s the, uh, I see the, uh, Amtrak train just off in the distance there. 

BOOKER: Yeah, the train track is just a little bit to the north of where we’re standing. And, you know, back in the day, and even sometimes today, the train is a …the train track is a break point between neighborhoods. 


BOOKER: You know, you would often hear, as I was growing up, that, uh, you don’t want to live on the other side of the tracks. OK? 

HELTMAN: I mean, a lot of places …

BOOKER: Yeah, a lot of places have that expression. Right? And I didn’t, uh …

HELTMAN: But here it’s literal. 

BOOKER: Yeah, I didn’t … exactly, it’s literal. I didn’t understand what that meant because this was the space where I grew up in … 

HELTMAN: It’s a crisp morning in April, and Eric is showing me around his neighborhood. And it’s changed a lot since he was a kid. Back then, it was basically a working-class, blue-collar neighborhood. 

BOOKER: In fact, we’re walking past these lots here, this was all houses back in the day. OK? This Gay Street corridor right here was retail. OK? We’re coming up on the corner where I used to get my hair cut. We had the Arundel, over here on Gay Street and Oliver. That was our ice cream shop. Our hardware store, which is now a barber shop, was sitting right over here. Mr. Lee, who extended everybody credit, was right here on Gay Street and Oliver as well. So this was all vibrant retail back in the days when I was a kid. 

HELTMAN: Well, what happened?

BOOKER: Um. Here’s where … here’s my take on what happened. As … we had the ’68 riots, after Martin Luther King. 


BOOKER: Some stores shut down. Not all. 

HELTMAN: Just right away, or …

BOOKER: Not right away. Some people decided they weren’t going to open back up if they were vandalized during that time. And then you had industry, blue collar jobs that just started to go away. Alright?

HELTMAN: Baltimore City recorded its highest population in the 1950 census, topping out at just under a million people.  It now sits at about 610,000, and while there are still manufacturing jobs in the city, it’s not the cornerstone of the local economy that it used to be. And as in other places, the manufacturing facilities that remain don’t employ the numbers of people they used to. Manufacturing makes up about 5% of all jobs in Baltimore—about half the national average — whereas health care related services make up closer to 20%, about 50% above the national average. 

But deindustrialization happened everywhere, not just in Baltimore. Manufacturing jobs went away from New York and San Francisco as rapidly as in Detroit or St. Louis — it’s just that New York and San Francisco had other white-collar industries to take their place. And the power of those industries in the overall economy is creating something a little different in the field of urban economics. 

SCHUETZ: My name is Jenny Shuetz. I'm David M. Rubenstein a fellow at the Brookings Institution's Metropolitan Policy Program. I'm an urban economist and I focus primarily on housing and neighborhoods. We're seeing a divergence between the most productive cities and sort of the rest of the cities. So, housing markets are a good indicator that this has been happening. The handful of really hottest markets in both jobs and housing — the Bay Area, New York, Washington D.C. — those cities have really diverged from, say, Chicago, Atlanta, Dallas, in terms of their housing prices, and in part this is an indicator that it really is a draw for people to be in those cities. It's not just that people coming out of college want to be in any large city. If you're in a particular field you want to be in the city that's the biggest deal in your field.

HELTMAN:  And when it comes to certain industries — particularly good examples might be technology and financial services — all of the top firms are clustered in the same place. But that concentration of firms isn’t a market distortion, she said. It actually the most natural thing in the world.

SCHUETZ: So one of the reasons why we see very strong employment markets and the handful of cities — particularly in sort of knowledge-based industries — is that cities really exist because workers and firms are more productive when they're close to one another for these sort of high-skill, knowledge-based industries. 

Technology is a perfect example. Individual software engineers, program developers, are more productive when they work with other people in the same field who are good at what they do. So a software engineer is going to be more productive working in Silicon Valley interacting with smart people not only in their same company but in other companies that if that same person were living on a farm in the middle of Wyoming without other people to talk to, interact with and bounce ideas off of.

HELTMAN: But isn’t that what having a company is for? So, if you have Twitter, you know — there's enough technologically-minded coders in that company to interface with each other. Is there a real added value to be next door to Facebook or being next door to Oracle or whoever?

SCHUETZ: There absolutely is, for both workers and firms. It's better to be someplace where there are multiple firms doing the same kind of activity. Some of this on the worker side you can imagine if you work at say, Facebook, but you decide that you want a change of pace, it's good to have other employers in the same general area that you could move to so that you've got a number of different employers that you can find the one that's the best fit, you can change jobs without having to pick up and move across the country. So it's a big advantage for workers. For firms, it's also an advantage to have lots of workers they can draw from and they're pulling from the same skilled labor pool. And so Facebook and Google and Twitter, Microsoft would all like to have competitor organizations nearby so that they can hire one another. There's also a fair amount of informal knowledge exchange that happens for workers who work at different companies so they may be friends, they may have common classmates from school and they'll go to happy hour and be talking about, "I'm working on this, you know, problem, I'm trying to figure out a bug in my software, or have an idea for something." And a lot of this sort of informal exchange of ideas that happens makes places more productive just because you've got people sort of bumping into each other and generating new ideas together.

HELTMAN: This is actually a pretty well-established phenomenon, and it’s even seen as the source of the productive advantage that cities have over more dispersed communities. 

SCHUETZ: This is sort of the big theory of why cities exist. So economists call this agglomeration economies: the idea that workers and firms are more productive when they're spatially clustered together. 

HELTMAN: There’s a lesson here, she says: don’t try to be Silicon Valley, or Wall Street, or Capitol Hill. Luring big companies from other cities isn’t the way you’re going to solve your jobs problem. And there’s a particularly visible example of this going on even as we speak. Online retailer Amazon announced last year that it was going to locate a second headquarters somewhere in North America, bringing along with it some 50,000 jobs, and invited cities to essentially make a case for why the company should pick them. But there’s some irony here, in the sense that the kinds of things that Amazon is looking for in a HQ2 city — educated workforce, good public transportation, available housing — are things that could help any business in any city grow. 

SCHUETZ: Well the big employers can extort things from local governments because there's such a big fish. So sure, Amazon or, you know, Google setting up a new headquarters they can ask and there will be places willing to give them tax incentives to locate there. Again, it's not clear that that's something that lasts in the long run, and local governments really would be better off investing the same kinds of tax resources in making themselves a good environment for existing local businesses making sure that they have reasonable business tax rates that they have good public school systems so they're turning out workers that businesses can hire, that they have functional transportation systems, reasonable cost housing. Cities that have all of these things are going to do well with their local homegrown businesses. They're going to have a leg up attracting the big companies but they also don't need them as badly.

HELTMAN: There’s also an outer limit of how much more production you get from agglomeration economies. You may remember a couple of episodes back, I talked with Dr. Carlos Garriga, an economist with the Federal Reserve Bank of St. Louis. He said markets can only get so hot before people and companies decide it isn’t worth it anymore to stay.

GARRIGA: Now eventually certain areas become too expensive, or people are wiling to give up part of their compensation and move to an area where the cost of living, at the end, is substantially lower. I mean at the end of the day what people need to understand is you know some of these most desirable locations also have tremendous you know expenses. So as a result, even though that you know jobs may be paying more, the cost of living, uh, you know, undoes most of it. As a result certain areas that were not as attractive they become more and more attractive, especially for firms to relocate. If you want to if you want to start up a company and attract a whole bunch of you know computer … computer programmers, you know, doing it in certain areas is becoming prohibitive … prohibitively expensive. Whereas the other ones where you never thought about doing it, they become more plausible. So you know so that at some point might revert. Each has become so expensive that nobody can afford only the very very top, and that's just one of the things that we'll see over time. You know, there's plenty that there's plenty of space for firms to relocate. You know, we're seeing this in St. Louis, and we're seeing these things, you know, throughout the Midwest, you know, in Kansas City, in Oklahoma or other areas. You know that more popular for technology.

HELTMAN: So, that’s good news, right? Maybe some of these post-industrial neighborhoods like Broadway East could see some of the population they lost when the blue collar jobs went away come back if new jobs took their place. Unfortunately, it isn’t quite that simple.

BOOKER: People who lived here, as things started getting bad, it’s like Maslow’s hierarchy of needs. There’s physiological needs: safety. When things started getting bad, people who could afford to move to higher ground, they moved to higher ground. So they moved further northeast. And as they moved further northeast to places that had amenities, it left places vacant. We are in a community that is a food desert. The supermarket shut down … oh, boy. I was away in college, Brown Supermarket. So it was back in the 80’s. 

HELTMAN: Wow. So there hasn’t been a supermarket, a place to buy food for 30 years? 

BOOKER: Yeah it’s been, it’s been … it’s been bad. OK? It’s been bad, you know? 

HELTMAN: I’ve said this before, but when people describe neighborhoods or communities, they tend to use language that is both vague and blunt at the same time — words like “bad” and “good” or “nice” or “rough.” It’s just enough to give someone the unmistakable impression that you’re trying to convey, but it isn’t specific. It’s really just a description of how a place makes you feel. 

But if you think about a neighborhood as either “functional” or “non-functional,” it can give you a little bit of a different perspective about the landscape. Think of it as kind of like an ecosystem — an environment where plants and animals and water and air are all in balance are functional, and if something goes out of balance for too long, it ceases to be functional. Eric talks a lot about this grocery store that left the neighborhood several decades ago. 

BOOKER: The yellow building, it wasn’t yellow back then, but that was the supermarket. 

HELTMAN: That was Brown’s?

BOOKER: That was Brown’s supermarket, right there. 

HELTMAN: What is it now?

BOOKER: It’s 35,000 square foot asset that doesn’t have any life in it that we want to bring back to life. And the concept that we have, because we don’t have a supermarket, is to have a continuous … what is it called … the farmer’s market. A continuous farmer’s market. On the south end of the building, where you see the little bump-out at the top, it used to be a movie theater when I was a baby, in that section, like, in the malls you have the food courts. OK? That could be a food court.

HELTMAN:  When neighborhoods stop being functional, they tend to follow the same pattern. Jobs leave, followed by the first order of retail, then more critical retail infrastructure like grocery stores. And the longer those amenities are gone, the harder it becomes for people still in those neighborhoods, which causes more people to leave, making it harder to bring back the amenities that could attract people in the first place.

BOOKER: You know, it’s the chicken or the egg. Do you put the vibrant retail there and wait for the people to come? Or do you put the people there and the retail comes after?  So we keep getting stuck in this tug of war, and at a time when we are struggling and pulling back and forth on what’s first, the people that actually live here have no amenities.

HELTMAN: But there’s something else, too. A lot of the blue collar jobs that used to be in the neighborhood left around the same time, and they never came back. But something else did come in to fill the void.

BOOKER: OK so let’s do the laundromat. That used to be a place that provided blue-collar jobs. 

HELTMAN: That was an industrial laundromat?

BOOKER: That was an industrial laundromat, that was fueled by Hopkins. 

HELTMAN: So they did the laundry for Hopkins.

BOOKER: They did the laundry for Hopkins — and others. 


BOOKER: OK? That’s when we had a supermarket. And my grandfather used to stand on this corner down here, hold out a paper bag and people that worked down at Sparrow’s Point, you could get a ride. Because everybody in the community, they worked down at Sparrows Point.

HELTMAN: So that’s the steel foundry.

BOOKER: The steel factory. Uh, Continental Can, another blue-collar job. My Aunt Doris worked at Continental Can. London Fog, my mother worked at London Fog. My granny worked at Sinai Hospital, in the laundry room. So all of the blue collar jobs that people used to get up in the morning and go to, somewhere in that 70’s timeframe, that started to fade away. And as that started to fade away — again, that’s post-1968, we’re moving into the 70’s — and now industry is starting to move out. And as industry starts to move out, houses … people start to struggle, because they’re looking for jobs — right in that, the beginning of the 80’s, we start having this crack cocaine piece. Alright? Crack cocaine becomes popular. And out corners, people start selling crack cocaine. Crack cocaine is now the street corner pharmacist — it becomes the new employer for people who can’t find that other job. 

HELTMAN: So that’s the new blue collar job.

BOOKER: That’s the new blue collar job. We had a couple of … uh, a building that we in the neighborhood — I don’t know if you’re familiar with the movie New Jack City

HELTMAN: Yeah, sure.

BOOKER: The Carter Baron. We had a building on North Avenue and, uh, Washington which was the Columbus School. It was a school when I was growing up, now it is a renovated apartment facility, it has, I believe it’s 51 units in it. And I was growing up, folks used to sell drugs in and out of there. People I grew up with actually were murdered in that building.

HELTMAN: Wow. Once it …

HELTMAN: when it was a school?

BOOKER: Once it moved from being a school to an apartment building, you know, the drug guys took over …

HELTMAN: Gotcha.

BOOKER: … that building. You know, it was bad. City shut it down. Even, back then I think it was Mayor O’Malley had went to that building and they tried to sell him drugs.


BOOKER: They thought he was just a white guy trying to cop some drugs, right? So we shut that building down. But it has since been renovated and, um, it’s doing very well.

HELTMAN: I didn’t mean to laugh, but it’s kind of funny. Selling the mayor …

BOOKER: Selling the mayor some drugs . Just another guy coming in the neighborhood, and he’s out of place. But we would have people come through the neighborhood from Hopkins buying drugs. 


BOOKER: So, you just never know who has that addiction.

HELTMAN: But that, that’s just what was happening.

BOOKER: That’s what was happening at that time. Now, what we still have in the neighborhood is those historic drug shops are still drug shops. You know, they might not be as active, but it’s still present.

HELTMAN: The drug trade plays a big role in neighborhoods like this, and it operates on a couple of different levels. The first, and maybe most obvious, is that drugs, especially more addictive drugs like cocaine and opioids, make it harder for users to live and work. 

STIRLING: Our drug laws discourage employers to hire drug users and discourage landlords from renting to drug users, drug users become unemployed and homeless. This is Eric Stirling, I’m executive director of the Criminal Justice Policy Foundation in Silver Spring, Md. So they are ...  as unemployed they need to get the money to get drugs, so they get involved in petty crime and those that are homeless they'll move into abandoned housing. They may be in neighborhoods with less expensive housing to begin with, and so they are suppressing economic development in the community by making it unattractive for retail. And by making it unattractive to redevelop a neighborhood, because the property values are low rent, the cost of redevelopment are particularly high and the return on investment is going to be low.

HELTMAN: Then there’s the hazards for dealers, who might be attracted to the outlaw nature of the business, but probably are more drawn to the fact that it’s a paying job, something to do.

STIRLING: Selling drugs can look like, in the absence of any other kind of job, one that makes sense. There are no barriers to entry. Nobody, you know — you don't have to fill out a job application online that you're not able to fully answer, right. You know you are quickly sized up, you know are you going to be dependable? Will you follow orders? Can I trust you, right? It's not a glamorous job. So it's there are many ways is extremely undesirable for business to enter into and you know the … the violence is of course a major factor.

BOOKER: You see that house that guy just went in?


BOOKER: Just shut the door?


BOOKER: He’s going in there to grab his product to serve his customers. 

HELTMAN: Right. 

BOOKER: So this corner is, this is the corner store that the guy wanted to open. I know what happens when you open a corner store. It gives them a haven and an excuse when law enforcement comes, to say that they’re buying some French fries.

HELTMAN: Mm-hm. 

BOOKER: OK? And sometimes, because their customers come, their customers actually bring profit to the corner store. But nobody from the community goes to the store. Everybody that comes into the community for other reasons comes into the store. 

HELTMAN: So the store isn’t really a store at all. It’s a …

BOOKER: it’s a haven. 

HELTMAN: It’s a front. 

BOOKER: Yes. I mean, they come with good intentions, but the money that they make — I mean, I’m going to call it … it’s blood money. Because people die on these corners. And the stores, they help, because they’re not calling the police.

HELTMAN: The hazards of the drug trade are self-evident. Baltimore has suffered more than 300 homicides every year since 2015, and though a large number of those murders are unsolved, a tidy majority have been gang and/or drug-related. But drugs play a role that other kinds of high-risk, high-reward jobs play in areas with few readily available alternatives — you get money and status. But unlike ice road truckers or offshore crab fishermen or coal miners or lumberjacks, drug dealers have to contend with an extra layer of risk.   

STIRLING: My grandfather was a coal miner in West Virginia and survived a blast, an explosion. There is, you know, there was a lot of, you know … driving a garbage truck, being on the crew of a garbage truck. You know, people in garbage trucks fall off. You know, they get injured. There are many low-paid kinds of jobs that are very, very risky. People will look for those jobs, you know, because they need jobs. They don't have a high school diploma. They, perhaps they were kicked out of the military — there are any number of reasons why somebody is, finds it hard to get a “legit” job. Or, you know, we certainly have very few high status jobs. 

HELTMAN: Right. But the difference being that, like, garbage men aren’t, you know, fighting each other over territory, right? The important difference is that the illegitimacy of drug dealing brings with it not only sort of inherent risks of the job but also the fact that, like, it's hard to, you know … if you say you want to you do want to quit and you want to go straight, if some employer asks you what you've been doing the last 10 years or five years …

STIRLING: Sure, you're correct. Not only, you know, is quitting, you know, doesn't do anything for your resume for a future job, but when, you know, you propose to quit, your employer says, “Well, wait a minute. You … you are now a threat to me. You ... you have information that could send me to prison.” It's very hard to sort of stop being a drug dealer. It's not you know mobility into other kinds of professions. Readily.

BOOKER: Yeah. You see the challenge. OK? You see the challenge, over there standing on that corner you have probably about, probably about a good 12 people, standing on that corner. That’s their community. 

HELTMAN: Right. 

BOOKER: OK? That’s their community. They’re surviving. 

HELTMAN: Right. 

BOOKER: They’ve probably broken into that house, which is now their stash house, and they took the lightpole down on the block on this side so they could, uh, reduce the visibility. 


BOOKER: So, they get creative. Once again, I love them. 

HELTMAN: Well, they’ve got all day. 

BOOKER: They’ve got all day to figure it out. So, once again, I love them. We’ve got to do our best to make this a reality for them as well.

HELTMAN: What do you see as the biggest challenge? I mean, you’re in the mayor’s office – not the mayor’s office …

BOOKER: Housing and community development.

HELTMAN: Housing and community development. But you’re at the city level, in an executive office. 

BOOKER: Mm-hmm.

HELTMAN: What’s the hardest part for you in addressing this issue?


HELTMAN: Like, technically. What’s the biggest obstacle you have to overcome?

BOOKER: Well, this is going to be interesting. I, um Hey, hey man! Alright? 

The thing that’s challenging is when you come into the community space and you try to talk to them about what’s coming, try to create that spark of hope. They’ve been disappointed far too many times to even believe anything what you’re saying. So trying to have credibility in these spaces, um, is the thing that is challenging for me. You see? Because they could say to me, “Brother Eric, I want a job.” But I have no job to give them. You know? They want to work, and I keep coming back to the same space knowing that people want a job but that they may not be able to read. Because they’re on the corner, they’re not going to school. So what is the skill set that they would bring to a job, other than maybe being a laborer? Um. So, it’s a challenge 

HELTMAN: A few episodes back I met some developers who were building new townhouses in Greenmount West. They’re called Four Twelve Development, and a big part of their model was that they were trying to employ workers from the neighborhood itself to help build their houses, develop some basic carpentry skills and honest wages. But it went beyond that. 

FRANK: The way that we built this first house was with a hundred or a thousand hours of unskilled young black labor from our neighborhood, from young African-American men in our neighborhood. Like, within – like, four men basically four to four to six guys that live within four blocks of their houses which is pretty freaking awesome. But I mean when one of these young guys you know decides to drink a beer and go out on a motorcycle that that he, you know, swapped, and didn't have the title on, and gets in a car wreck, you know, and ends up in the hospital with a bruised spinal cord, you know, for six weeks and then … 

HELTMAN: Did that literally happen?

FRANK: That literally happened. Absolutely. 

HELTMAN: You made it sound like a hypothetical thing. 

FRANK: These are all real. 

HELTMAN: That row house finally sold, by the way — they actually closed just a few days after that interview. But it was after it sat on the market for a few months and the price came down. And Sam said they’re moving away from building houses. There’s just not as much money in it, and they worry that there aren’t enough buyers for all of the market-rate housing that exists, much less the development being planned.

FRANK: Just watching development over the last little bit, like, the ... like, the last couple of years, since we've been here, seems like lots of housing is getting built. But, like, where are the jobs? You know? Like, Under Armour is awesome. They created a lot of jobs, and they can build an ecosystem community — you know restaurants, like retail around what they're doing. We need more people that have high paying jobs in this town in order to support all this real estate development that's happening. Like, there's projects that are coming online right now that are like you know 300 units of housing like I know talking to some of these guys that are building those projects that they're having a hard time leasing up these spaces fully. You know these nice new apartment buildings that are you know of … of affluent rental rates. So like. And there's more, there's a lot more planned in the pipeline over the next 10 years to come online. So, like, who's the next you know a billion dollar company that's going to come to Baltimore? I think it makes sense that people … that, that should be in Baltimore. Baltimore is on 95. You know it's a harbor like a town on a harbor. I mean you've got like, just go down unless you know of who else is in this area. It's Boston, New York, Philadelphia, D.C. Like, Baltimore to me seems like a super logical place for some big company to post up and just grab a bunch of real estate and create some jobs. But I think that needs to happen in order for this. I think that's a missing … big missing piece in this equation.

HELTMAN: Sam said they’re changing gears, focusing on roofing instead of full-blown homebuilding. The margins are better, the work can be completed faster, there’s a lot of demand. And they’re still going to hire workers from the neighborhood, because they think it’s the right thing to do. But they have to be choosier, they can’t just help anyone.  

FRANK: We're still, you know, creating work for some of these guys but we need to do what's … what's going to allow us to build the best organization. 

HELTMAN: Unemployment can push a community into a downward spiral, and the drug trade can solidify and hasten that decline. And if you want to nourish a community that has ceased to function, you have to find a way to give people meaningful employment and constructively address the drug trade. But if you do that, will the affordable housing return? Will the vacant houses get magically rehabbed or replaced? Do places with plenty of jobs — very low unemployment — also have problems with blight and affordable housing?

They do. And I know that because I visited one of those places. And I’ll take you there, too, next time, on Nobody’s Home.


"You're either growing or you're dying"

HELTMAN: So we’re going down what looks like … uh … Main Street. 

MESCHER: This is Main Street right here.  And this is, we have two major highways — well, I say “major,” they’re two-lane highways. We’ve got Highway 18 and Highway 183. And they intersect right over here.  

HELTMAN: I’m in Kansas. Plainville, Kansas, to be exact — population 1,858. It has a few gas stations, a car wash, some restaurants, a Pizza Hut, car mechanic, coffee shop. It’s kind of what you imagine a small town in Kansas might look like. West Kansas is typically very dry, but as you can hear, on the day that I was visiting, it was raining. Hard. Very hard.

MESCHER: So right here, this is an oil field-type thing right here. An oil field company, and oil field company right here. And they’ll sell quite a bit of stuff out of here, whatever oil field guys buy and use, that’s … [inaudible]. And for not having much rain, we have a boat seller. We have a reservoir up north that’s a pretty good size. People go and recreate at. This used to be a drive-in many years ago. Many, many years ago. Now the drive-in part doesn’t …

HELTMAN: Jim Mescher is Plainville’s city administrator and town clerk. He offered to show me around town, despite the rain. 

HELTMAN: Little burgers and beer joint over there.

MESCHER: Yep. Little burger and bar.

HELTMAN: I’m in Plainville because this town is in a battle for survival, just like many other small towns in rural areas around the country. Jim says that struggle isn’t acute — the population is actually relatively stable, there’s a good number of shops and amenities. It’s not like a plant or mine closed down or anything like that. Actually, one problem they don’t have is a lack of jobs. Kansas’ unemployment rate is 3.4%, well below the national average. Part of that is because of two key industries — oil and agriculture.

HELTMAN: About what percentage of the local economy is attributable to the oil industry, would you say? 

MESCHER: Oh, my. Let me think about that.

HELTMAN: I mean, not just, like, directly working in the oil fields but, like, secondary businesses, and …

MESCHER: Well if you put it that way, that’s going to be … you’re going to see a pretty high percentage, because a lot of the money that’s done, whether it be at the flower shop, whether it be at gas stations, the furniture store …


MESCHER: … anything like that, a large part of that — whether it’s agriculture, this … I’d say 70%.


HELTMAN: Despite the presence of jobs, however, there are vacant homes here. And those properties have much the same impact on these communities that they have elsewhere. It’s proof that blight, so often seen as an urban problem, is hurting rural areas too. .

So if Plainville’s problem isn’t that it has a lack of job’s, why is it struggling? Why are some places in Kansas going to the extreme step of giving away land? Two words: Affordable housing. From American Banker, I’m John Heltman, and this is Nobody’s Home. 

HELTMAN: Kansas has a population of just under three million people. The biggest population centers in the state are Wichita, Topeka and the counties adjacent to Kansas City. But those metro areas combined amount to only about a third of the population, and most of the remaining towns in the state have fewer than 50,000 people. Actually, all but 22 cities in Kansas have fewer than 20,000 people. My first stop in Kansas was Hill City — population 1,455. I was there to meet this gentleman.

RANDY HRABE: I'm Randall Hrabe. I'm the director of the Northwest Kansas Planning Commission. 

HELTMAN: They’re a nonprofit group that builds affordable housing in the region.

HRABE: The way it came about, I'd had had an employee at that time that talked to me about, he says, “You know, everybody's hollering for housing. Every community says we don't have enough housing for, you know, when we recruit somebody to come in.” And so we got to looking at it and we end up forming the nonprofit housing organization. We've actually built about 130 houses or duplexes throughout northwest Kansas over the last 17 years or so.

HELTMAN: There is housing blight in many of the communities in northwest Kansas, and it tends to be of a particular vintage. A lot of homes were built in the 1950’s, during an era when agriculture and oil prices were doing well and great swaths of homes were built to accommodate workers. Those homes were built quickly and were typically smaller, with fewer bathrooms, and less variation in floor plan. Those are the homes that are most likely to fall victim to neglect, for which there are the fewest prospective buyers. 

HRABE: I think the younger generation’s expectations for houses maybe more than what it was 50 years ago. You know, 50 years ago, a lot of people would get into you know real small two-bedroom house, just kind of make it do until they could find something better. Now we find, you know, a lot of people — the starter home expectations are more than what it used to be. And I would say that's more than has caused more issues than anything, is so much of the housing stock that was built, you know, 60, 70 years ago wasn’t kept up as much as it should. And so it's a little bit run-down.

HELTMAN: For Hrabe, those homes are challenging to rehabilitate, mostly because prospective buyers want something different.

HRABE: We've done a little bit of housing rehab where we bought some houses to fix up. I won't say we've been terribly successful at that, to be honest. 

HELTMAN: Why not? 

HRABE: The very first ones we did in Osborne, we bought four houses. We put about $25,000 apiece into the houses. But we put it mainly into useful items like new furnaces — stuff that fixed up on the inside part of it. What we found is, people driving by still saw the same old house that was worth $25,000, so that's what they were willing to give, even though we put another $25,000 into it. Then, like, Goodland ... We had actually a repossessed house from, uh … Wells Fargo Bank. But they actually kind of pass through the city and actually just gave us the house. We put $65,000 into it to, you know, make it look pretty nice put new siding and stuff on. If we get our money back out of it that's about the best we can do. And that's when the house was given to us. And so you know if we had to go out and buy a house and put that much money into it there's no way you could come out on it.

HELTMAN: A big part of why those homes don’t make economic sense to rehabilitate is because of the geography of the region. When I visited Kansas in May, I came in from the West. I passed through some of the bigger towns in northwest Kansas — Colby and Goodland — which have about 5,000 residents each. The biggest town in the region is Hays, with a population of about 20,000. 

But there’s a lot of space between towns. It can be 20, 30, 50 miles from one to another. And that has a big impact on the local economy. Whatever you want to buy or sell or do, there’s just more ground to cover to do it, and so businesses, retail — and, most importantly, people — all gravitate toward the larger communities in the region. Not to get all Radiolab on you here, but it’s kind of like how gravity pushes matter in space toward stars and planets. People want to live where the things they want are, and that creates a self-perpetuating cycle — more people in those bigger communities means fewer people settling in smaller communities. 

HRABE: The little bigger communities got maybe a little more choice. And so I think the additional shopping choices in larger communities just tend to naturally attract people and there might be more places to go out and eat or something like that. 

HELTMAN: Are there some communities for whom that migration, shall we say, is, like, more acute? That you could point to a place that's really hurting form that? 

HRABE: Oh I think all small towns are hurting from it. And small towns I'm referring to probably the kind of towns of about 2,000 or less. You know, I get it, because I'm the director of the Planning Commission and I get into some of the economic development strategies also, and you know it's like I've told a lot of communities, you know, you lose your school, you lose your health care, and you've lost your community. I mean, there might be a place to live but you're not necessarily going to have, you know, any kind of commerce come to that community. Because you know a lot of companies that move to a place, they want to make sure there is health care. And when families move in there's a good school system for their kids. But then you get to looking at the school systems, and you know we've got some schools that might only have you know 25 or 30 kids in all of high school. Well, you know, where's the feasibility of, you know ... 

HELTMAN: Keeping the lights on ... 

HERABE: In just keeping the lights on, just paying for it, that it might become too expensive. But then we've got such a vast area, too. You don't necessarily want to be trucking your kids for 45 minutes just to go to school there and back. Yeah, every day and so you know. 

HELTMAN: And that makes it more attractive to move closer to ... 

HRABE: Exactly. Exactly.

HELTMAN: Back in Plainville, they have this same issue. This is Jim Mescher again. 

MESCHER: Many communities aren't as lucky as we have been, with a couple of different developers, and with our location — we're 25 miles from Hays 20-30,000 people somewhere in that neighborhood. 

HELTMAN: So you can work in Hays ... 

MESCHER: We're … yes, so we're somewhat of a bedroom community. Not solely, but a large percentage work in Hays which helps us. It's a detriment because people go there to shop, but at the same time, they're here to live so that helps us out, whereas other communities don't have that locale. Thereby they just slowly die. First thing, their post office leaves, then their grocery store — there's a grocery store? That's huge. The post office leaves? The school is gone? You're done. 

HELTMAN: This is something that’s really interesting to me, is that, you know, in the sort of urban context, it's the same kind of thing. 

MESCHER: Mm-hmm. 

HELTMAN: There's a part of town ... people leave, and nobody comes back. 


HELTMAN: Right? So this is where you get the vacancy. You know, they go someplace else, right? So their loss, that loss is the gain of maybe the suburbs. 

MESCHER: Exactly, yeah. 

HELTMAN: But like it seems like it's sort of smaller scale version of that is happening in rural places, too. Where, like ... 


HELTMAN: You have kind of like the economic concentration is in Hays, or in maybe in Plainville, or maybe in Goodland, or ... is it Colby? 

MESCHER: Colby, yes. 

HELTMAN: So there are a couple of places where this sort of gravitational pull of economy is like drawing people in, and drawing people away from ... 

MESCHER: Yeah, it's a geographical aspect. So you have all of those that you had for the most part are going to be on I-70, right? They're easy to get to. They're quick they're going to attract things. And when you when you start looking at businesses whether they be small fast food whether it be ... Target, whatever, Hobby Lobby, things like that. We'd love to have a Subway or a Sonic here. But many times we've been told, when we ask your 20 miles from what you have — a couple of them there already. So why do we want to build here, because you're already 20 miles away. That somewhat hurts us but yet we can still go there and have people live here. There are people willing to travel. And when you have a lower housing cost as we do, versus, let's say, Hays, which has a higher housing cost, that makes it viable. 

WOOD: Here in Hays, our issues are a little bit different.

HELTMAN: This is Jacob Wood. 

WOOD: I'm the assistant city manager for the city of Hays. We have a university and that means the rental market here is much stronger than it is in most other places. So if a single family house goes on the market, people snatch those houses up really quickly and they'll turn them into rental houses, and they'll rent them. So that has caused our housing market to be a little bit more expensive. Because, if I've got a you know a three or four bedroom house that typically would be you know $120,000-130,000 anywhere else, I can buy that house in Hays and I can rent each bedroom out for $300 or $400 a month to college kids, and, you know, make some money. So everybody in Hays that you talk to has a rental property. I mean it seems like that, you know how, “I've got two or three houses over here that we rent,” or, you know, “I've got one,” or “We just bought one that we're going to turn into a rental.” So that's a really big. It's a really big thing here in our community.

HELTMAN: In some ways, Hays’ housing market is the worst of both worlds — the rental market drives up home values, but not enough to spur enough new construction to meet demand.

WOOD: You know, our growth has still been very slow. And you know we're at maybe 1% growth a year it's a very slow steady methodical growth. So we're a town of about 21-22,000 people. We have maybe 20 new houses that are built every year. So it's very slow.  

HELTMAN: And they face a lot of the same competitions for commercial activities that Plainville and other towns do, but just on a different scale. 

WOOD: What you're saying about Subway going in Plainville is how we think about Target. Why can't we get a Target here? Well we don't have 50,000 people or we don't have ... why can't we get a Buffalo Wild Wings? Well, the population is not big enough for those types of places to come here. So yeah, we think there … we think that way. But we're really dependent ... I think we're more dependent on northwest Kansas and surrounding area than a lot of people think. And we have a very strong pull factor, which means you know people a lot of our sales tax comes from people from outside of our community and that's because we have the Walmart, and we have those businesses that people come to. And it's really, you know, as Northwest Kansas continues to decline in population, you know, we ... even though we're the big fish in northwest Kansas, we have to look at that and go, "What does that do to us?” Because we're really dependent on those sales tax dollars coming in from those other places.

HELTMAN: Well, maybe if they're coming to Hayes, that's OK.

WOOD: Right. Right. But they're not all coming to Hays, and a lot of them are going to Kansas City or they're going to Wichita.

HELTMAN: Or they’re going to Portland or Chicago or Atlanta or Boston. Hays may be the big fish in the pond of northwest Kansas, but they’re a small fish compared to some of the bigger cities in Kansas, or even in the country. And that’s who Hays is competing with for population. And he touched on something that is at the heart of the housing crunch in Kansas, and it’s true of rural places all over the country: population is going down. And it’s been going down for almost a century. 

That is in part because of urbanization — the trend of people moving from the countryside into cities. And it’s been observed all over the world, from China to Africa to Europe and almost everywhere in between. The economic advantages of living in a city, as well as the mechanization of agriculture, are draining people from the countryside. 

ROGER HRABE: I mean we've done had some studies done and looked at birth rates versus the death rates and I guess as long as they're pretty close, you feel like, for us, we're making progress. I’m Roger Hrabe, I'm the economic development director in Rooks County Kansas a county of about 5,000 people approximately.

HELTMAN: Roger does a lot of jobs for Rooks County. 

HRABE: The Economic Development Director is responsible for everything from startup businesses to existing businesses to housing to tourism to the airport manager. There’s a variety … you wear a variety of hats.

HELTMAN: He’s also Randall Hrabe’s brother. I talked to him in his office in the Rooks County Courthouse in Stockton, Kansas. That’s about 20 miles north of Plainville. He said rural places like Rooks County have to grapple with the realities of their demographics. 

HRABE:  I don't think anybody's under the impression that somehow a miracle is going to happen and you're going to reverse 50 to 60 years of decline and it's going to happen overnight. I think what most of the mindset of most communities — and not all — I mean it's a sad fact. And I've got some communities even in the … can that … some communities aren't going to survive. It’s just, it’s just, probably not going to happen. For the most part, the mindset of most of the communities is that ... it sounds kind of bad, but if you can maintain what you have, then they view that as a success.

HELTMAN: That demographic reality plays itself out in rural housing markets as well. Small towns have fewer houses, which means less inventory, fewer buyers and less turnover. That makes it hard to assess the value of a house based on the sales of comparable homes. It’s a less liquid market, which means that home values appreciate at a much lower rate, and usually only after a significant initial hit. It’s the same economic problem that keeps vacant houses from being economical to rehabilitate — the finished product is worth less than it cost to build. 

Jacob Wood said he saw this firsthand when he worked in a small town.

WOOD: I was a city administrator and Oakley, which is a town of 2,000 about 90 miles west of here. You couldn't build a new house if you wanted to build a new house. You can't get a loan to build a new house because the minute that you finish your house is worth less than what you paid for it. So if you're going to build a house in one of those towns and pretty well anywhere in northwest Kansas you're making a decision that I'm going to live in this house for the next 30 years because you can't sell it, because you'll never get a loan, or you have to save up so much money in order to do it on the front end that you can never afford to do it.

RANDALL HRABE: The new houses that we build, you know, might cost us $180,000-$200,000 to build — and that's fairly modest house — will appraise for $30,000 less than what it actually cost to build. Well then … a lot of people too, we found out, once you get up past … it seems, $7-800 a month in house payments, then everybody gets to looking at them and think, “I don't think I can afford that.” It really gets to be an issue. You know my … my personal opinion is you know part of it is our wage level is probably below the national average somewhat.

HELTMAN: As I mentioned before, there are jobs in northwest Kansas. But according to the Kansas Department of Labor, the median hourly wage in the region is a little over $14 an hour. That’s just about $30,000 per year, before taxes. Now, that’s a median income — half of all workers make more than that. But the other half makes less, and even at that income level, it can be hard to afford a place to live that is close to where you work.

Hrabe’s organization builds houses using the Low Income Housing Tax Credit. That tax provision has been around since the 1980s, and works by allotting states a certain value of tax credits, which they award to developers like Hrabe’s group, though not all recipients are nonprofit. Those recipients then sell those credits to companies that want to save money on their taxes, and the developers then use that money to build housing and collect a below-market rent for a fixed period of time, usually at least 15 years, after which the properties can either revert to market rent, or be optioned to the renters to buy, depending on the state’s program. 

Hrabe said they started building duplexes — and even a triplex — as a way of building more units with the same money. 

RANDALL HRABE: Really the only reason for duplexes is economizes the cost of building them. You know we can build a duplex, each living unit, about $50,000 cheaper than you can a single family house. And so it's just a matter of making the money go as far as we can. 

HELTMAN: And I guess a triplex is the same thing. 

HRABE: Right. Exactly. 

HELTMAN: Three for the price of one. 

HRABE: Originally where the triplex was we were going to build a couple single family houses and we decided we could build a triplex ... they're each three bedroom units, but it's all on one block. And so for the cost of building two houses we could get three housing units. And that's strictly the reason, I'm going to reduced trying to think out of the box a little bit on how we can get the most for our money. If we could build a house for $100,000 we could probably sell it all day long. You don't sell as many as we can build. But you can't build a house for that. And in the end if you get too much above that, then the payment gets too much to worry about, or they don't have the down payment to afford it.

HELTMAN: But there’s an outer limit to how much of an economy of scale a builder can utilize before running into problems of demand. 

RUSSELL: I’m Jenny Russell, I’m the community development director for Jewell County, Kansas. We ran the numbers on a four-plex — if you built a four-plex with no basements, no garages, and then you can make your payments, because you have four different people paying in on that. But if you build a spec home, you have to build it with no garage, no basement, it would probably not be three-bedroom, and that’s what the market wants. 

HELTMAN: Right. 

RUSSELL: So you would be building something, it would be smaller, it wouldn’t be for everybody, it wouldn’t be what the moderate-income housing needs are.

HELTMAN: Jewell County is right on the Nebraska-Kansas line, about two hours from Hays. If I were to employ that planetary analogy I was using earlier, Jewell County would be like deep space. The biggest town is Mankato, which has about 900 people. The whole county has just under 3,000 people. And of all the counties in Kansas, it has lost the most population — at least proportionally — of any county in the state since the late 19th century.

A lot of the economics of home building and commerce are the same for a town like Mankato as they are in some of the other cities we talked about, but the big difference is that there isn’t a Hays nearby — the nearest town of that size would be Hastings, Nebraska, which is more than an hour away. Hays and Manhattan, KS, are each about two hours away. That helps, in some ways, because the consolidation of public resources can only go so far. The county went to a unified school district some years ago, and now all of the county’s schools are located in Mankato. That’s about as consolidated as it can get.

RUSSELL: At some point consolidation doesn’t make any more sense, and I think that’s what you’re seeing out here, too, is that … We have one school here in the county, instead of three that we had, even in the late 90’s. 


RUSSELL: So you’re starting to see, we have pared down our services, and now we’re at a point that makes more financial ... I don’t know … more lean, financially and service-wise. If you bussed your kids much further than they’re bussing right now, then it just won’t make sense. 

HELTMAN: Mankato and Jewell County — like a lot of these small communities — are trying new things to attract young people and families to come and live there. Kansas has something called “Rural Opportunity Zones,” which give college graduates up to $15,000 over five years toward their student loans if they live and settle in an opportunity zone county. That actually helps, she said, because they’ve found that graduates who enroll in that program are better able to afford housing than those who are not. 

They’re also giving away free land. Well, free building lots anyway. In fact, there are a lot of towns in Kansas that have free lots that they will give to you if you build a house on it and move there. It’s actually not that different from the Dollar Homes program, which itself was an appropriation of the homesteading program that brought farmers to the Great Plains in the first place. Most of the towns I talked to said the idea for free land came about in more or less the same way: a company or developer bought some land for home development, and then either moved away or went out of business, leaving the town with lots that were ready to build, but with no actual houses on them. Some towns have had more success than others, and in the ten years that Mankato has been giving away lots, only about six have actually gone up. One of them was built by this guy.

RHEA: I’m Chris Rhea, I’m the city administrator here in Mankato.

HELTMAN: Chris moved around as a kid, and actually lived in Mankato for part of his childhood. Then he moved to Denver, and he and his family lived there for a number of years. But, he said, the city was changing. He wanted that slower pace of living that you get in a small town. So when he saw that there was an opening for a job in Mankato, they packed up and moved back. And he said young professionals who may be able to work remotely are starting to think the same way.

RHEA: It’s young professionals. In my case there was a management position open. My wife works in tech and she was able to work from home now. She used to go to an office in Denver, but now she just works from home, and, basically, the way she does her work is unimpacted. And it’s, from my experience here — I’ve been here a year — the people who have done this have been young professionals that can either work from home or can bring what they do with them. Denver has grown so rapidly, and it really has changed the way that, we really felt that it wasn’t what we wanted for a lifestyle anymore.

HELTMAN: At the risk of pushing my astrophysical metaphor past its breaking point, there is a force — a dark matter, let’s say — that is keeping these small towns together. And that force is people’s preferences — some people just like to live in a small town, with small town friends and small town traditions and small town problems. 

RHEA: You know, the fulfillment we have here is incredible ...


RHEA: … compared to the amenities we had in Denver. You work really hard in a large place like that to have a sense of community, you have a lot of groups you’re involved with, but here, it’s … you step into it. You walk out your front door into it. Because you’re an important part of the community here. Because there are fewer people, each person almost becomes almost more integral to its success …


RHEA: … and you feel right away like …

HELTMAN: You’re one …

RHEA: … win or lose, you’re a part of it.

MESCHER: This is our hospital. Relatively new. The other one, that was there for ... oh, my goodness … many years … has been ripped down. And we built this. 

HELTMAN: The migration of people out of rural areas is also changing the culture of these places, and sometimes in unexpected ways. 

MESCHER: There’s always — apparently, to my knowledge — been this longtime rivalry, if you ask anybody of age, between Stockton and Plainville. 


MECHER: And it got quite fierce, apparently. They would have the rumbles of old that you would hear about, with boys meeting the other boys and …

HELTMAN: Oh, so like the …

MESCHER: … the schools going against each other, and …

HELTMAN: So like the Jets and the Sharks?

MESCHER: Yeah, that kind of a thing, is my understanding, and what I was told. And there’s still a few of the seniors that will bring that up on occasion, you hear that. 

HELTMAN:   So like, “My daughter’s not going to marry a guy from Stockton,” or whatever?

MESCHER: That kind — yeah, that kind of thing, yeah.

HRABI: It goes back to a football game that was played back in the 1950s and there were ... the outcome was disputed.

MESCHER: They have their own school, and we’d play against each other quite a bit. I think we may on occasion, but it’s not as much as it used to be. 

HRABI: I think there's a fight at the end of the game or something and the fans were coming out of, the parents coming out of the stands and ... you know … I don't even know. I just know that I know that the story is true because I know people that were ... that played in the game. A former teacher of mine that I was a colleague of mine at one time, and he could talk about that. There was a rivalry, and it's still there. I think it's lessened over the over the years, especially as schools and towns have cooperated on different things. We got it when we built the new hospital in Plainville which as you know is a big deal and the question was asked by a number of people, "Well, why not build it over here?" You know, and I mean, it just, well why even ask that question? I mean, it's ... what's good for them is good for all of us.

MESCHER: And we try to, as best we can — between Stockton, us here in Plainville, and the county — help each other mutually, in any way possible. You have to out here. And the big word — the “C-word” — in western Kansas: consolidation. 

HELTMAN: Huh. That sounds …

MESCHER: It’s talked about a lot. Some of the schools up north of here, 45 minutes, an hour away, have consolidated. You have to. Counties will close here, close here. And the kids will be shipped to the other. There’s no way you can, in some of the communities that are slowly dying, that still have kids there, continue a full school. And it’s been talked about from anything from emergency management, to police, to fire. And it comes up on occasion, comes up quite a bit. And people don’t like it, people are afraid of it. They have pride in their community …

HELTMAN: And there’s naturally, kind of winners and losers, right? I mean …


HELTMAN: Your school closed, and so …

MESCHER: There’s compromises, on both sides. And we don’t want that. I mean, you want … it’s a denial thing in some respects I think as well, that, “We’re not going to say that we’re dying.” You know? And there’s some point where you’ll have to admit that we’re lacking in this area, so we’re going to come together. And if you can recognize that as communities, and we can come together quicker and sooner, you avoid issues. 

 HRABI: In my opinion, it's … it's a matter of communities like Plainville and Stockton and ones like that … is making continual progress through the years. I mean through the, you know … this year we've got to be a little bit better at this, and we see these improvements and continue to make infrastructure updates, continue to make quality of living improvements, and, just, you know … you don't have to do it all at once, it isn't going to happen. You don't have the money or the materials to do that. But if you make steady progress on those, and continue to do those — and housing is certainly at the top of the list of those. You've got to make progress year in year out on those. And if you don't, it's just like, me, as an old coach, used to tell my players that you're either … you're not … you're never staying the same. You're either getting better, or getting worse: one or the other. And I think that's the way it is with a lot of communities, is you're either … either growing or you're dying. There’s no staying the same. 

HELTMAN: What was striking to me about the housing problems that these small towns are facing is that the fundamental economics are more or less the same there as they are in blighted communities in cities. The cost of building or rehabbing a home is too high to be affordable for lower-income people, so you need a subsidy. And that subsidy is becoming increasingly scarce. So, why is that? How come Bill Levitt could build affordable houses for World War II veterans but no one can build them for working people today? What does it really cost to build a house, and why? We’ll find out next time, on Nobody’s Home. 


Sweat Equity: What Does it Cost to Build a Home?

HELTMAN: It’s late July, and I’m at the Motor House, a coffee house on the corner of North and Howard in Station North in Baltimore. I’m sitting here, enjoying my iced coffee, killing a little time, because I have a question, and I’m hoping that the person I’m meeting here has an answer. Here he is now.

BREEDING: Are you podcasting?

HELTMAN: What’s that?

BREEDING: Are you podcasting now? 

HELTMAN: I mean, I’m not, like, live. I’m just …


HELTMAN: … checking the levels. 

BREEDING: I wasn’t ready for all that. 

HELTMAN: The question I have is this: what does it actually cost to build a house? Or rehab a vacant house? Or build a tiny house, or a mobile home, or turn a shipping container into a house? What factors go into those costs? And to what extent are those costs negotiable? 

I ask this because there are a limited number of things you can do with vacant housing. The easiest thing to do is nothing, and that solution is pretty widely adopted, if only by default. But it has drawbacks, as we’ve discussed. The other option is to tear blighted homes down, and then either build new housing, build something else, or build nothing. Yet another option is to rehabilitate those blighted homes, either as housing or to repurpose those buildings as something else. 

All of those options — including doing nothing — have costs. But they also have benefits, and if one of the benefits of rehabilitating vacant homes and turning them into affordable housing — which is in short supply in many places — then potentially one could solve two problems for the price of one. So I wanted to ask someone who has actually done those kinds of rehabs how they work.

BREEDING: I'm Joseph Breeding, I'm a woodworker and a carpenter here in Baltimore, Maryland. We had a perfect one up on 27th and ... uh, near Barclay. House was going for $12,000. And it was a complete shell which scares a lot of people. For me that's better. 

HELTMAN: Why is that better? 

BREEDING: Because now I have all the brick exposed, I get to the point work. I don't have to rip anything out. I can put a fresh roof in. I can get flat floors. I can get square corners. 

HELTMAN: Right. 

BREEDING: So a lot of people who don't have the construction background, they see they don't have a roof, and yeah, it is going to cost them $20,000 - $30,000 dollars. 


BREEDING: But they don't know what the fuck they're doing. 

HELTMAN: So what I've heard people say is, you can't build a house for $100,000. Is that true?

BREEDING: You probably can't buy a built house for $100,000. 

HELTMAN: Right. But you could build one. 


HELTMAN: So ... 

BREEDING: If you're doing it. 

HELTMAN: What's the difference? 


HELTMAN: Labor. Like sweat equity? So you can do it for less than the actual cost of the materials and the permits and whatever else you ... 

BREEDING: I mean, like, you know, a small two-story row home. I could get a shell and have it put up for like 30 to 50. Well if you have a shell that's like, you buy it for like $5,000-$10,000. You're looking at probably doing some point work, which would average around $10-12 per square foot, plus a scaffolding fee. That's the brick, you know, spaulding brick. You got to make sure your support structure is good first. And then you're looking at framing it in. So even just getting to the roof just to have something ... and I personally for me I don't like reusing the pockets in these row homes ...

HELTMAN: Which is where you ... 

BREEDING: The joists, yeah a lot of times you're just — I mean these houses are 100 years old, there's so much brick work. I'd rather frame from the basement or straight up get the weight off the brick and then tie it in with clamps.

HELTMAN: When I was visiting Kansas, Randall Hrabe said something that stuck with me. 

HRABE: If we could build a house for $100,000 we could probably sell it all day long. You don't sell as many as we can build. But you can't build a house for that.

HELTMAN: And part of the reason that stuck with me is because it sounded a lot like something that a contractor said during that City Council meeting back in October 2017.

RESIDENT 2: A dollar house program would give people the opportunity to own the house that they’ve been renting for years. It would give someone who don’t even imagine owning a house the opportunity to own a house. And for $100,000, we can do it, easy. The whole house. It can be torn up. Me and my partner, we do it every day.

HELTMAN: That number, $100,000, seems to be kind of a magic number. If you can sell someone a house for $100,000, a 30-year fixed-rate mortgage on that principal — even at prevailing interest rates — is more affordable than rent in a lot of markets, even the less expensive ones. And as long as the homeowner keeps up their end of the bargain, they would have an asset, even equity. So why aren’t there more $100,000 houses out there?

DIETZ: My name is Robert Dietz, and I'm the chief economist at the National Association of Home Builders. 

HELTMAN: I've had somebody tell me that if they could build a $100,000 house, they would just never stop selling them. 

DIETZ: Oh yeah. 

HELTMAN: Why can't you build a $100,000 house? 

DIETZ: It's ... frankly it's impossible.

HELTMAN: There are a couple of reasons why it’s impossible, he said. 

DIETZ: In fact in talks to groups often call these the four or five L's.

HELTMAN: Those L’s stand for, in no particular order: Lumber, Land, Lending, and Labor. 

DIETZ: It's been a challenge in the post-recession era to find enough workers, to get the land that's developed and ready to build, building material costs have been rising, and it's been tough in some cases for land developers and builders to get financing. And so it's almost a death by a thousand cuts exercise, where if you look at any one supply-side issue in isolation, it says, "OK, well you know you can manage that you can pass those costs along to the eventual homebuyer." But when you stack all the factors that are building up on the supply side, it's become the case that in most areas builders have shifted away from entry-level housing up into luxury housing.

HELTMAN: The cost of building materials has always fluctuated, but for most of the period after the great recession the cost of lumber in particular has risen at a stable rate. That began to change around 2017, in part because of increased transportation costs, invasive species, wildfires, and some other things. But most importantly, the cost of lumber has gone up because of the imposition of trade tariffs on imported lumber from Canada. 

DIETZ: The particular challenges that the industry faces right now is lumber. About a third of lumber consumed in the United States — and most of it is consumed in residential construction — a third of it comes from Canada. And at the end of 2017 the current administration imposed, effectively, 20% tariffs on Canadian softwood lumber. So a third of it's got this 20 percent tax. All these factors have resulted in a 60% increase in softwood lumber cost in the last 18 months. Now you can say OK, it's one component of the house, but framing lumber is a pretty major component. And when you look at that 60% rise it's adding about $9,000 to the price of a typical newly built home.

HELTMAN: But wait, there’s more. The costs associated with acquiring land on which to build have also gone up since the recession as well. Some of that is an increase in land values, but more of it is attributable to an increase in the costs associated with developing land — regulations, in other words.

DIETZ: We found about a quarter of a typical newly-built home's cost sale price is due to regulatory burdens summed up. About two-thirds of those are at the land and lot development stage. The other third are due to building code requirements, aesthetic requirements, worker and safety issues during the construction phase. It's that two-thirds that I think it really deserves focus.

HELTMAN: The regulations that he said are most superfluous are related to zoning — rules such as minimum lot requirements, setback requirements, that sort of thing. Those typically arise at the local government level, he said, and are in many ways exclusionary in effect — the idea is to make it harder to increase population density because the people who already live there want things to stay the way they are. And those additional costs make it harder to provide entry-level single-family housing.

DIETZ:  Not only does it make up a quarter of the final home sales price but between 2011 and 2016 those regulatory burdens some together had grown almost 30 percent. So you had that in again with building material costs in all of these factors, when they get embedded into the home price meant that builders were shifting to the larger higher priced homes. Just basic supply and demand it is easier to pass along this costs.

HELTMAN: Lending for single-family construction has also contracted in the last decade. 

DIETZ: Lenders had moved away from residential lending for obvious reasons -- the housing crisis and the Great Recession.

DIETZ: About 75% of new construction the single family side is built by smaller builders, and they typically go into a community bank to get lending to purchase land to develop it maybe as a standalone land developer, and then additional lending to construct the home before they get the final cash revenue that comes from … from selling the house.

HELTMAN: That means there are fewer options when a builder’s preferred community bank passes on extending credit, simply because there are fewer community banks out there to make the loan than there used to be. In 1984, there were more than 12,000 banks with less than $100 million in assets; today, it’s more like 1,200. And those banks that remain may be less interested in taking on risk. 

DIETZ: You look at FDIC data in recent quarterly data, lending for single family purposes has been growing right around 7%. Now that is right where the single family growth rate is occurring. So it kind of matches both in terms of output in terms of a forward looking indicator of what we're going to build. 

HELTMAN: So the single ... the rate at which single family homes can be constructed this is no greater ...

DIETZ: That's right. 

HELTMAN: ... than the rate at which banks are able to lend. 

DIETZ: Now you can say that's an outcome variable and that makes sense. It should be kind of pursuing right along. But, again, let's keep in mind we're under building.

HELTMAN: But probably the biggest obstacle to increasing the housing supply — and the most significant single contributor to cost — is the cost of labor. There aren’t as many construction workers out there to build the houses as there used to be.

DIETZ: The issue here is a long-term labor shortage. So the shorthand that builders and developers talk about is the cost of workers. It's really a cost and availability issue. So the challenge has been, how do you rebuild the workforce after the Great Recession when the residential construction industry, which includes remodelers, builders, developers, multi-family builders, single family ... they lost a million and a half workers. And up until now — we gained about 800,000 of them back but the result is we've had a persistent shortage of workers available to build housing.

HELTMAN: So based on those figures, there are about 700,000 fewer workers out there to build single-family homes than there were before the housing crash. And it’s a specific kind of construction worker that has gone missing, he said — the younger, less-skilled entry-level construction worker. 

DIETZ: A lot of those workers had gone off into work into energy, transportation or simply said, "Construction is too seasonal, it's too cyclical, too much risk, I'm done, I'm moving into retail." So the average age of a construction worker in the States is now above age 40, which to some people may not sound like a particularly high age, but for physical labor like framing a house, that's a real challenge.

So the cost of labor has gone up in recent years, it's been increasing about twice the rate of inflation. Some of those costs then embed themselves into the final price of a home and can be passed on to consumers. But the real challenge is just simply the amount of labor that's available to build homes. And so the result is, in a market that probably we should be seeing 1.2 million single family homes being built a year, in 2018 we're going to build about 900,000.

HELTMAN: But wait. I know where you can find a young, underutilized pool of labor.

HELTMAN: One of the things that comes up in the ... context of a lot of the ... in Baltimore, and I imagine it is probably similar in a lot of other urban environments is that, you have a sort of a higher-than-average unemployment rate among young, especially African-American males, for whom job opportunities may be lacking. Wouldn't that be conceivably a pool from which to draw and train new workers?

DIETZ: Absolutely, and it's a mismatch that is both frustrating from an industry-business-profit perspective as well from a social perspective. So you know we do have lower unemployment rates across the board. That is creating a challenge. And we tried to figure out, “Why is the construction industry having a harder time recruiting from available pools of labor that we should be going out -- because it's good business and good for communities?” 

HELTMAN: And it's where the supply is. 

DIETZ: Right. And what you find is, if you survey 18- to 25-year-olds and ask them what they want to do, those who are in the labor force, more of them have gone to four-year colleges, they want to work behind screens. They don't want to be swinging hammers. And so it's a real challenge for the construction industry to kind of recruit that next generation of workers. The other thing -- and this is sort of the challenge is some people say well if you've got a labor shortage from an economics point if you just pay more in wages and then you'll recruit more people you won't have to compete with transportation, energy. Well there are limits, if you think about this an economic concept, you can only pay a wage that's equivalent the economist jargon of the value of marginal product. Basically, you can't grow wages faster than productivity of the underlying industry.

HELTMAN: In other words, the construction industry can’t pay a wage that is attractive enough to lure away young workers who might just as easily want to work a steady job with air conditioning. That may be true for 18- to 25-year-olds in the labor force, but what about those not currently in the labor force? And more to the point, construction labor is something that, not that long ago, people would do for themselves. 

THORNTON: My name is Rosemary Thornton, I'm the author of The Houses that Sears Built and Finding the Houses that Sears Built. Sears started selling kit homes in 1908, specifically as a way to sell more of the stuff in their 100,000-item 1,400-page catalog. It really was a brilliant marketing move designed specifically just to sell more stuff. So that was really what drove them. 

HELTMAN: Sears Roebuck & Co was basically the Amazon of its era — virtually everything there was to buy, you could buy from them through their mail-order catalog. Starting in 1908, that included houses — an array of styles from the humble shed to elaborate multi-story mansions. Sears wasn’t the first company to offer so-called kit houses — the Aladdin Company started selling them in 1896, and there were about six companies that offered them in the first half of the 20th century. And they were popular.

THORNTON: Sears sold approximately 70,000 houses. Maybe … maybe a little bit less. About 250,000 kit homes were sold by Sears and the six companies on a national level there were six companies selling kit homes national and sales one of them. But based on what I've been able to find there were about a quarter million kid homes sold total.

HELTMAN: The houses would show up on a railroad car in pieces, like a gigantic IKEA project, and they claimed that a single person of average abilities could build the entire house in 90 days. And while some of the Sears houses were built by contractors, the majority of them were built by the people who ultimately lived in them.

THORNTON: The average person this get home typically created about a 30%, even 40% percent equity position. So if they have a house that, when it's done, that was worth $10,000, it's a good investment if house would be $6,000-$7,000. That's very remarkable. You were talking about today's dollars that would be a significant equity position, and that's why people went to the hassle of figuring out how to put together 12,000 pieces of house. They’re doing this to save money, to get a quality home, and to build a house that would endure through the generations.

HELTMAN: And for the most part, they have endured. Thornton estimates that about 90% of the homes that were built are still standing. And kit homes offered a particular appeal to certain buyers.

THORNTON: Sears kit homes were actually bought by a range of people, typically immigrants, men and women of color, people who were otherwise not have an opportunity to get into a house. So the Sears kit homes were unique in that regard and they gave people an opportunity to buy a house that might not otherwise have had an opportunity.

HELTMAN: So if there was an opportunity like that available today — a way for people to build their own housing if they can’t acquire it through other means — would people be able to seize it? 

GRANDPRE: What can we do in terms of a sweat equity solution — where individuals who are ready, willing, and able to invest sweat equity to potentially get access to homeownership kind of the habitat for humanity model? 

HELTMAN: This is Lawrence Grandpre of the Leaders of a Beautiful Struggle in Baltimore.

GRANDPRE: Something like that I think will be interesting because you know there are a lot of community institutions that can mobilize manpower and woman power to do that type of work to we have a house. There are also people coming back to Baltimore who have connections to the criminal justice system who need a trade in need something to do. So how about you create a framework whereby, if you've got to demolish a home, maybe I don't want to have somebody coming in from West Virginia doing the demolition. Why don't we have people who have connections with the criminal justice system do the type of demolitions that need to happen. 

HELTMAN: And maybe it doesn’t have to stop with housing, either, he said. Maybe some of the vacant buildings in the land bank could house community development organizations and nonprofits, or perhaps local architecture schools could find effective ways to redesign existing homes and lots to better meet community needs. In a lot of ways, what it takes is policy built around accentuating these places rather than finding new ways to tear it down.

GRANDPRE: It's amazing to me that we approach this from the lens of, really, internalized hatred of the city. We see it as a scarlet letter. We're just at a canvas — not a blank canvas, not a blank canvas — but this is a canvas that has beautiful pieces already in place. What can we do to accentuate what's already there and create the environment where we have a strategy for reviving specific neighborhoods based upon what there. You've got to have a comprehensive solution. And I just think again there are incredible opportunities when you have a vision of policy that centers on seeing the community as a solution to its own problems. As opposed to the community that's there right now being the problem.

HELTMAN: The point I’m trying to make here is that the idea that we started out with — the idea that rehabilitating vacant housing could be a way for blighted neighborhoods to strengthen themselves — actually makes economic sense. But in order for it to make sense, you might need to train homeowners to do some of the work themselves, and the properties would have to be conveyed for little or no cost. But if you look at some of the hotter competing ideas out there for creating affordable housing — tiny houses, for example, or manufactured housing or turning shipping containers into houses — they all have the same shortcoming, which is that while they may serve as housing, they aren’t necessarily cheaper and they don’t retain value the same way. And at any rate, the demand for entry-level housing is going to grow so fast that policymakers can’t really afford to take any of these options off the table. 

DIETZ: So if you look at the price data for existing markets existing resale homes it's the lower price tiers they have the fastest growth rates and that's because the millennials whose peak age is right around age 28 and the median age of a first time homebuyer United States right around age 31. Over the next few years the growth rate of housing demand for those … those kind of millennials right in the middle there generational group is going to grow and grow and grow. So the demand for single family housing at the entry levels is going to grow. That inventory's not there. And so, some of it can be remodeling and maybe fixing up older housing some of it can be townhouse construction. But I really think that we're going to continue to face a persistent housing shortage going forward because the cost of land and regulatory requirements basically made it more expensive to build.

HELTMAN: That may be so for building new construction housing, but if you’re rehabbing a vacant home and doing some of the work yourself, the numbers can actually add up. And there are some programs in Baltimore that are already training young people for construction jobs, and they’ve had some success. But they take money — all of these changes take money, take investment. So where is that investment going to come from? The government? Nonprofits? Private equity? Banks? Maybe some combination of all or some of those? That’s coming up next time, on Nobody’s Home.  


Marshall Plan: How to Fix Vacant Housing 

JACK YOUNG: Good Morning. The December 13 meeting of the Board of Estimates is now called to order. In the interest of the promoting the orderly [inaudible] of these hearings, persons who are disruptive to the hearing will be asked to leave the hearing room immediately …

HELTMAN: It’s December, and I’m in Baltimore’s City Hall for a hearing of the Board of Estimates — the executive council that sets the city’s fiscal policy. Most cities have some kind of committee like this in one form or another, but one of the main things that Baltimore’s Board of Estimates does is approve the city’s annual budget, and that’s precisely what the board is meeting here to discuss. Baltimore’s board of estimates is a little different in that its proceedings are public, and members of the public can lodge a protest to sections of a proposed budget and voice that protest to the board in person. 

YOUNG: Good Morning.

PROTESTER: Good morning, thank you for the opportunity to speak. I’m here to ask that the demands for 20/20 vision and investment in Baltimore’s communities be met. Our city’s in crisis. We have people sleeping in the streets, including on nights like last night when the temperatures were in the 20’s. We have children who don’t have a safe place to lay their heads at night. We have decrepit housing — just a few months ago a house fell apart onto the sidewalk a block from my house. These are all things that put people in real danger and are causing Baltimoreans their lives. The budget is a reflection of our values, it speaks to the things that we prioritize, it speaks to the things that we as a collective city are willing to put our collective investment of our tax dollars in. And Baltimoreans are speaking loud and clear that we need to see a budget that reflects the values that we have — ensuring human rights, ensuring human dignity, and accommodating affordable housing for all Baltimoreans.

HELTMAN: There were other protesters as well, but they were all supporting the same thing: something called the 20/20 campaign, which calls on the city to invest $20 million per year to demolish blighted homes and create green space, and another $20 million for permanently affordable housing. To put those figures in context, Baltimore’s annual operating budget is just under $3 billion. The Department of Public works allocates about $9.3 million to cleaning up and boarding vacant property, while the Housing Department spends about $15 million on code enforcement, $7.5 million on weatherization, and under $4 million on housing rehabilitation.

The Board of Estimates passed the city’s budget, and Mayor Catherine Pugh held a press conference afterwards where she was asked about the 20/20 campaign and why she didn’t put more of the city’s money into housing. And what she said was that there’s more happening to spur the creation of affordable housing than just what you see in the city’s budget.

PUGH: There are so many things that are going on in the council and in the city. When you think about Park Heights, what we’re doing there, dedicating funding for people to live in Park Heights and work in Park Heights. That’s almost $3-4 million there. That’s all affordable housing, incentivize people to live there and incentivize people to build there. The same thing with the EBDI, with that project. Johns Hopkins invested in people in those neighborhoods to live where they work. So we’re doing a lot of things around affordable housing. This is like the school system, you all. You know, there are some things we do within our budget and there are some things that we do outside of our budget.

HELTMAN: Baltimore’s challenges with vacant housing aren’t unique, and in many ways they boil down to money: the cost to fix or tear down blighted properties is greater than the funds at the city’s disposal. So cities can either make do with what they have, or they can get creative — look outside the normal budgetary process and see if there is some investment that can come from somewhere else besides the taxpayer. But are there any new ideas out there to bring new resources to this housing crisis? From American Banker, I’m John Heltman, and this is Nobody’s Home, a podcast about vacant housing and how it affects our communities, and the financial system.

HENRY: Testing, one, two three.

HELTMAN: Oh, good. I’ve actually got to turn it down. 

HENRY: OK. My Name is Bill Henry. I'm a city council member here in Baltimore. I've been on the council for over ten years and I am a former chair of the Housing and Community Development Committee for that council.

HELTMAN: Bill Henry, as you just heard, is a member of Baltimore’s City Council, and he represents a district in the north-central section of the city that includes neighborhoods both with and without vacant housing issues.  

HENRY: My district is kind of a microcosm of the city, with the possible exception of relatively few waterfront properties, but otherwise, it's its racial composition mirrors the city and its overall demographics especially in terms of poverty and educational outcomes roughly mirror the city average. So I have some neighborhoods that are very wealthy. I have some neighborhoods that are very challenged, and, being Baltimore, in some cases those neighborhoods are across the street from each other. 

HELTMAN: He’s been around long enough to know why it can be so hard for cities like Baltimore to allocate the necessary resources to address housing blight.

HENRY: I would say, you know, easily 80 or more percent of the city's efforts are not about this, and the people who are not ... for the people who work for the city but for whom this is not their immediate responsibility and their immediate job, are competing with this for the city's resources in the pursuit of their governmental objectives. I mean, if you're the Police Department, you're not looking at the city budget and thinking, "Man, we need to be spending another $100,000,000 on housing so that we can get rid of some of these vacant houses in these neighborhoods so that we won't have to patrol them." What you're thinking is, "We need another $100,000,000 so that we can hire enough cops to patrol all these vacant houses." And that is what housing is up against. I had ... there was a point where I tried to negotiate between public works and housing the idea of raising additional demolition funds for housing to use to knock down vacants, particularly badly blighted vacant houses that just were not going to be cost effective to rehab. The thought was, we could raise demolition money by creating a credit system for developments that needed to do stormwater management. So let's say you're building a development here, but where you're building it, there isn't room to put, you know, a lot of additional green space to do the necessary stormwater management. What I wanted was for the city to say, "Here, you can just pay us a cash amount," and then give that cash to housing and community development so that they could go knock down some vacant blighted houses and make green space where those houses were, and that green space would be doing the offsetting stormwater management. 

HELTMAN: I think it's called in lieu fees

HENRY: In lieu fees. And DPW's objection was not to creating in lieu fees. DPW, however, was highly resistant to the idea that those in lieu fees would go to housing. They wanted to keep the in lieu fees and create the offsetting green space where they — where it worked for them. And because their ... You know, their issue is not the vacant houses. Their issue is stormwater management, water and wastewater, sanitation, solid waste. They have their purview. So that's one I ... it would be nice if the city was the ... if the city was really a unified entity all with the, ah, the main goal and the focused political will of trying to reduce our vacant housing problem. But we're not even starting there.

BURNETT: I'm Councilman Kristerfer Burnett and I represent District 8 in West Baltimore. 

HELTMAN: And how long have you been a councilman? 

BURNETT: A year and a month — or two months.

HELTMAN: That interview was recorded in March, so he’s been a councilman for longer than that at this point. But he was one of a crop of new council members to run and win in 2016. He said a big part of the problem is that the city has to make up for dollars that used to come from the state and federal government.

BURNETT: The biggest challenge that we have, when I've talked to the housing commissioner and folks that work in housing, is a couple things. One just a lack of capital. If we ... we got $75 million to demo from the state last year on top of what we invest from the city and it's still not really enough to ever get ahead of it. So of course trying to figure out whether the federal government really we need more … more funds and really we haven't seen that in a number of years where it's not just this administration but even previous administrations not really investing in large sums for urban renewal, like we saw in like the 70s in the 60s where that was a big thing. It's just not ... those dollars have dried up. And so now when municipalities are having to make that investment — and using some of the money we get from the state to do it, to support it — but at that level of dense blight, you just, you have a hard time, right? We need more ... we need more money. It's a money problem.

HELTMAN: Historically, different public goods have been funded by varying portions of local, state and federal dollars. Police and fire departments, for example, have been largely funded via local tax dollars, whereas bigger-ticket infrastructure projects like drinking water and wastewater infrastructure, transportation, housing and other things get a much greater share of their funding from state and federal sources. But those federal and state commitments have changed over time, while the needs have remained enormous, and housing is no exception.

HENRY: I remember from working in community development was, we did estimates of what it would cost to renovate every vacant house in Baltimore City. And at that point, over a decade ago, before the recession, our best estimate was close to $2 billion. And there will never be that much money available locally to do that. I mean, even if we -- even if we could raise the ... the Baltimore Housing Roundtable is pushing $20 million a year for affordable housing and $20 million a year for demolition, and ... 

HELTMAN: The 20/20 campaign. 

HENRY: The 20/20 campaign. And even if we could do that, it would still take decades to address the entire problem. And, in all fairness, that 20/20 goal is very aspirational.

HELTMAN: Cities don’t just raise money for projects through collecting taxes. They also raise money through the municipal and state bond markets, and the federal government provides assistance for low-income housing both through the operation of public housing and section 8 rental assistance vouchers. And as we’ve heard, the federal government incentivizes the creation of affordable housing thorough tax incentives as well — most notably with the low-income housing tax credit.

But as we’ve also heard, housing markets don’t really work like other markets. When values go down, it creates a self-sustaining cycle. When values are going up, it does the same thing in reverse. So Baltimore wouldn’t really have to come up with $2 billion in order to fix its vacant houses, just enough to reverse the trend in places with vacancy problems. And it is possible to know just how many of those houses you would need to repair.

ROBERTS: I'm Buzz Roberts. I'm president and CEO of the National Association of Affordable Housing Lenders. 

HELTMAN: His members are mostly banks, he said, but also community development financial institutions, or CDFIs, and affordable housing nonprofits. There has always been a need for some level of subsidy to re-energize a housing market, he said, but what is sometimes underappreciated is that there’s a tangible economic benefit to creating quality affordable housing in blighted neighborhoods.   

HELTMAN: Say in the neighborhood that were in question, you have 100 homes, and 50 of them are vacant. Is there any kind of data about how many you would have to maybe start turning around before you see that pick up? 

ROBERTS: So I think you'd probably have to do a 10 to 20 before you'd start to see a real turn in the market. 

HELTMAN: And when you build that affordable housing, it sparks other kinds of investment, too. 

ROBERTS: There's a recent research paper out of Stanford that looked at the effect of affordable rental housing redevelopment in low income neighborhoods and it found that the typical development generated $160 million in secondary spin off effects in the neighborhood benefits in the neighborhood. It raised property values around the development, particularly within a tenth of a mile, but then radiating out more broadly. And that raised the value of owner-occupied homes and wound up reducing crime, reducing racial isolation, and reducing economic isolation, even though the housing was targeted to serve low income people. It is the signal it sent to everyone in the neighborhood was that the neighborhood was stabilizing and revitalizing.

HELTMAN: So in other words, the subsidy required to bring the vacancy rate from 50% to 40% or 30% not only puts the neighborhood in a better position to encourage private investment — thus reducing the need for future subsidy — but also generates secondary economic activity. More new businesses open and stay open, more people get hired, more people go shopping, and more people are attracted to the neighborhood, and home values rise. 

But, hold on, isn’t that just gentrification? If the value is in creating affordable housing, how do you create it in a way that doesn’t just end up creating more unaffordable housing? 

HERNANDEZ: Tony Hernandez. 

HELTMAN: Hi, Mr. Hernandez, how are you? 

HERNANDEZ: Not bad, brother. Sorry I missed your call. 

HELTMAN: No, no problem. Is this is a good time? 

HERNANDEZ: Yeah, yeah. It's fine.

HELTMAN: This is Tony Hernandez, and he’s the director of operations and stewardship for Dudley Street Incorporated, a community land trust based in the Roxbury and North Dorchester neighborhoods in Boston. Community land trusts are one of the newer ideas in affordable housing, but the Dudley Street Neighborhood Initiative — the parent organization of Dudley Street Incorporated — goes back to 1984.

HERNANDEZ: It was like driving through a war zone. There were empty lots. There were illegal transfer stations. You know, apparently there was a lot of fire, or arson. Folks were, you know, supposedly burning their own homes down to collect insurance money and take off in the neighborhood. So there wasn't really disinterest in wanting to even be in the neighborhood. So the residents got together and started a visioning process that would entail how they could possibly have control over what happened in the community. And so that resulted in them going to the mayor's office at the time, Mayor Flynn was in office at the time, and as a result of that meeting, you know, they demanded a session to request not only help from the city on helping this under-invested neighborhood but to have a way of having community control over the process. And at the time Mayor Flynn granted this organization eminent domain over a number of empty parcels — there were about 1,300 to 1,500 parcels throughout the neighborhood. Over what spans over about a 60-acre site in our immediate neighborhood. That was a victory at the time, and the residents were really excited about it.

HELTMAN: The group used the city’s power of eminent domain to compel owners of vacant or derelict buildings and lots to clean up their properties or else face forfeiture. But that still left them with more than 1,500 vacant lots and no real expertise in how to build housing or other community infrastructure.

HERNANDEZ: They created Dudley Neighbors Incorporated in 1989, five years later, and started bringing on staff that had skill sets and understanding how to read floorplans, understanding how to talk to engineers architects work with developers, understanding how to organize a community meeting so that we can create design standards for these homes. And so that began you know a number of projects on all of these empty parcels that the land trust had inherited through the eminent domain process, and fast forwarding 28 years later, we have 226 units of affordable living on the land trust. Ninety-six of those are homes owned by actual homeowners. The rest are made up of affordable rental units. We have a 10,000 square foot greenhouse on the land trust. We have a 1.5 acre farm on the land trust. We have another three to four farms on the land trust. We have playgrounds, community gardens, and we have over the past two years we ventured into commercial properties.

HELTMAN: The Dudley Street Neighborhood Initiative, or DSNI, is one of the first — if not the first — example of a community organization establishing a land trust in the U.S. The way it works is this: the land trust owns these 1,500-odd parcels of land, on which are located 226 units of affordable housing. Some of those units are owned and operated by the land trust, but others are privately owned — someone bought them and took out a private mortgage for them. But because the land upon which the home sits is owned by the land trust, there is a covenant in the title that stipulates that if and when the home is ever sold, the home can’t be sold for more than a certain percentage above the original purchase price, depending on how long the owners have lived there.

HERNANDEZ: The appraisal value equity ... equity formula that we use caps the appraisal value of the home at a 0.5% ... 0.5% of the purchase price of the home per year, up to 10 years. After the tenth year, the appraisal cap goes up to 5% every year. And the reason we created the slow drip with the first 10 years because the intent behind the visioning process with us, for us to build a community, for us to kind of build a village when folks, more than … we wanted to give folks incentive to just stay and become part of the fabric of the community. And it's worked in that sense. Up until now, I can probably think of maybe less than five folks that have left our land trust since we started back in '84. Many folks came out with intentions, you know, that — they come into the land trust with the intent to use it as a stepping stone into, you know, a lot bigger and better things in life, but a lot of folks ended up saying, "You know what? I'm ... I'm happy I'm just going to stay." Nonetheless, the model does offer opportunity to you to grow if you issue if you choose to do that, but a lot of folks have ended up becoming a part of this fabric and you know I have chosen to stay.

HELTMAN: Housing in America has two jobs; it performs two functions simultaneously. The first job is that it’s a place to keep your stuff, a place to live and spend your private time. The second job is that it is an investment — either an investment for the person who lives there, or for whoever owns the property. And the way our housing system works now is that, in effect, unless a home is performing both of those jobs, it can’t exist. What a community land trust could potentially offer neighborhoods is a way to encourage long-term investment for owner-occupants while limiting the potential for speculation — at least within the land trust. And that’s an important distinction to make — the Dudley Street land trust does not own every parcel in its neighborhood. There are land trust homes and market-rate homes standing side-by-side.

HERNANDEZ: We've got a lot of our land trust properties sprinkled amongst market rate homes. I'm sure the neighbors speak to each other. A lot of the market-rate homes understand that you know their next door neighbor ... their next door neighbor's home is part of a community land trust. Their mortgage is, you know, a lot a lot lower than the market rate mortgage that the neighbor is paying, so I'm sure there are moments of jealousy about the model. But there are tradeoffs, in the sense that in ... a land trust homeowner understands that they can't sell their property at market rate.

HELTMAN: The idea of using community land trusts to act as a kind of breaker for housing speculation is catching on, but it’s important to remember that it isn’t magic. The premise of a land trust is to keep some stock of a neighborhood’s housing affordable amidst costs — but if the restrictions are too tight, say, or the neighborhood isn’t otherwise attractive to investment, the land trust doesn’t help you. Rural areas that are losing population, for example, probably wouldn’t have much use for a community land trust. And the flipside of empowering communities — rather than local governments or private homeowners — is that those organizations are only as effective as their members. A community land trust is sort of like a supercharged homeowners association or neighborhood association, and anyone who has been involved in those kinds of groups knows their limitations. 

Vicki Been, the former New York housing commissioner I spoke to in an earlier episode, said there can be internecine conflicts in these groups — the community garden faction pitted against the affordable housing faction, say. And it isn’t clear that the solutions those groups come to are any better than the ones that a local government might implement. They could actually be worse. 

BEEN: You know that too is a work in progress and we'll see how democratic and representative those communities are. How they'd get over the concentrated interests of the gardeners and the people who live right around them versus the people who need affordable housing, right? It's just it's moving that question away from the government into a smaller neighborhood or community group. It's not clear that they'll be able to solve it any better, but that's, you know, that's an ongoing experiment. 

HELTMAN: At least there will be some local self-determination ... 

BEEN: Right. 

HELTMAN: ... rather than city hall or the state or whoever kind of making these kinds of decisions.

HELTMAN: Right, which can be a good thing or can be a bad thing, right? If the city has a terrible need for affordable housing and one neighborhood says, “Yeah but not in my neighborhood.” Then we end up with the crisis that we have, right?

GRANDPRE: The land trust is not a panacea.

HELTMAN: Lawrence Grandpre from the Leaders of a Beautiful Struggle in Baltimore.

GRANDPRE: There are iterations of the land trust that don't really focus on people giving shared equity. And I think that many folks obviously who are historically denied the wealth-generation opportunities want those wealth-generation opportunities. And also the question is who owns and governs the land trust? Because just because it's a land trust doesn't mean it's immune to psychology and culture of a place like Baltimore, which is … the home owners tend to be more conservative, whether black or white. And when you have power — you have battles for power within the land trust as to who do we want to move into my community. So people may have different perceptions of what they want their community to look like. So in every level we're having a battle as to culturally, psychologically and economically where do we want to put our resources? What's our vision for the future of Baltimore?

HELTMAN: And, to bring this thought back to where we started, a community land trust doesn’t bring with it any new money. In the Dudley Street case, they inherited mostly vacant lots, and they had to generate their own investment to build housing — which, incidentally, only occupies a fraction of the total number of parcels under their control. Cities could help, either with direct investments or perhaps with dedicated bond issues. But what about banks?

CONFERENCE CALL: Welcome to the Wells Fargo conference center. Enter your company code, followed by the pound or hash sign.

HELTMAN: The ten largest banks in the U.S. have almost $12 trillion in assets, which is roughly equivalent to the gross domestic product of China. While that sounds astounding, keep in mind this doesn’t mean banks are swimming in cash — those are assets that they control, but they don’t necessarily belong to them, and they include loans and all other kinds of products that carry a risk of default. Still, if we’re talking about where capital investment in revitalizing disinvested neighborhoods might come from if local governments are stretched too thin, banks are a sensible place to start. And I started with Wells Fargo, one of the biggest mortgage lenders in the country.

RIZER: My name is Mike Rizer, and my last name is spelled R-I-Z as in Zebra E-R. And my title is head of community relations. I've got a team of a couple hundred people and our folks in virtually every big city across the country who … who work on strategies to respond to the philanthropic needs and in the particular community where we have a presence. I also have a team within that 200, a team of community development folks — and I'm going to circle back to this when we talk about the work that we do around low income communities. These community development folks are focused on low- and moderate-income communities. So people who generally are, you know, those folks who are making less than 80% of the area median income. That's different, obviously, from one community to another, but there’s a large team that work on those things. And then have got an operations group that does the processing and getting our checks out from what will be $400 million dollars that we will give away this year.

BOWDLER: I'm Janis Bowdler, head of community development initiatives at JPMorgan Chase & Co. We certainly have a role to play, and we're thinking a lot about how we help those disinvested neighborhoods really benefit from the broader economic prosperity that's happening around them. We don't believe in a one-size-fits-all silver bullet, but when we go in with our philanthropy and the intellectual capital of the firm with the Service Corps, we really try to listen to the leadership on the ground, understand what are the core barriers to economic mobility and then set up a set of interventions to help those leaders achieve their … their goals for their community.

HELTMAN: JPMorgan and Wells Fargo aren’t the only big banks that get involved in community development work, they’re just the two who were willing to talk to me for this podcast. And these interventions aren’t meaningless window dressing, either. 

BOWDLER: Probably the most visible place where we've been at work at this is in the city of Detroit. And so when we started working in Detroit three years ago approximately a quarter of the city was considered vacant and abandoned. And they had a Land Bank, but the Land Bank was not really up and running. And then Mayor Duggan won his election, and I don't know how many mayors run on a land use plan, but Mayor Duggan did. And part of his mantra was "a plan for every neighborhood" and the Land Bank was essential to that. So one of our first stops was to provide a $5 million dollar grant to support the operating functions of the Land Bank over the next five years. They quickly went from, I don't know, a few hundred properties to owning nearly 100,000 properties.

HELTMAN: A land bank is basically a clearinghouse for vacant and abandoned properties — essentially what Baltimore’s Vacants to Values program does. Lots of cities with vacant housing surpluses have them, and they’re certainly useful for connecting buyers with city-owned property. But the bank’s help goes beyond that. 

BOWDLER: So Loveland Technologies powered the Motor City Mapping Project. So 100,000 vacant and abandoned parcels across the city, but there was not a map of who owned all these properties, where they all were. I mean you could see it but you couldn't really aggregate and visualize that data in a way that allowed you to make smart planning decisions, right? Well, with Motor City mapping, they used a Citizens Brigade to go out and actually take photos of every single parcel in the city and do a simple survey to understand, does it have a structure or no structure, vacant or abandoned, fire damage. And essentially what that did was create a heat map for the Land Bank and the city so they could they could then quantify high concentration of blight, they can layer on property ownership and understand, "Okay we've got a high amount of blight in this neighborhood but it's largely homeowners. So how do we help them? You know, maybe they're older, maybe they've fallen into tax delinquency. How do we help them fix up their homes and make good on their taxes? Over here we've got a bunch of vacant absentee landlords. OK, that's a different challenge.”

HELTMAN: And there’s other stuff, too. They gave $5 million to facilitate the creation of a new park in Anacostia, on the eastern side of Washington, D.C. They partnered with a local bank to provide loan loss reserves that allowed longtime renters to buy their homes from Detroit’s land bank. And it doesn’t stop with housing, either.

BOWDLER: We've been talking mostly about housing and community development, but we also look at financial health, small business and workforce. When those things come together in place we can really not only lift up communities but we can lift up the people as well. So people are getting trained to have a solid middle-skill jobs that are going to be a pathway to get that income that they need. If we can get them financial health support, then they're saving — hopefully, they're now contributing to their retirement, which is another long term asset building strategy. And we're taking a harder look at small business and the way that entrepreneurship can transform our community and create a wealth-building opportunity for small business owners.

HELTMAN: And just this September, JPMorgan announced that it was expanding the initiatives it started in Detroit nationwide, offering some $500 million in finding for job training, housing and other programs in as many as 30 cities. 

And Rizer said that Wells views its philanthropic funds as kind of a partner with its regular banking business, making ends meet in distressed neighborhoods and for potential homeowners who might need some technical or financial assistance. And many of those first-time borrowers are low- and moderate-income borrowers and people of color. But at lot of times the bank has to get creative.

RIZER: I do think we're entering a new phase in the country around philanthropy, in which people are getting much more creative and much more results-oriented and impact-oriented. And so I think ... I think we will see more of that kind of thing where people are going to say "If we put money here, is it scalable and what will we get out of it?" I think that Detroit is probably, you know, took us to an extreme in a sense, because it was such a decimated place. And those moneys there are really a stabilizer, if you will, as opposed to sort of an ongoing subsidy. The thing I would say about low income housing tax credits — and thank you for opening the door — because I do want to mention rental housing, which is also extremely important. And we are of the … we are one of the top, if not the largest equity provider — so that the way that low income housing tax credits work, as you may know, is the government gives provides a subsidy and so an investor can buy the tax credit and pay less in taxes so they invest the money for a 15 year period. The limitations there, and the reason it's hard to scale is that the federal government awards the tax credits, and there is a ceiling on them by population. So they award them out to a state. So for example just give you something that I'm more familiar with, I sit in ... in Charlotte North Carolina, our state capital is Raleigh, they get enough for, you know, a dozen projects a year, and typically Charlotte gets two of those. So you might get, to your point, a couple hundred units a year, maybe 300 in a city like Charlotte where we have 60 new ... 60 people moving into the city every day. So it's very difficult. I mean I will tell you there is really no … that's the only federal housing production program for low income people. So given that wages haven't kept up it's been a very, very tough issue. And, again, the only way to go out it is to cobble together a capital stack that includes, frankly, a lot of philanthropy money to help bring down the cost.

HELTMAN:  But banks don’t just make loans to low- and moderate-income borrowers out of the goodness of their hearts. They also have to. In 1977 Congress passed a law called the Community Reinvestment Act, or CRA for short. 

There is an economic truth about banking that is well-known within the industry, but not widely understood outside of it. That is that the basic banking services that people probably use the most — an ATM, a check card, just maintaining a checking account — don’t actually make banks very much money. The main sources of revenue for a bank’s checking account is through overdraft fees and using the deposits to make more profitable loans. Maintaining a checking account costs the same amount, from a bank’s point of view, if you have $5 or $5,000, but of course a bank can’t make as much of a profit by lending out $5 as it can $5,000. So banks naturally prefer not to have a lot of customers with $5 in their checking accounts.

The Community Reinvestment Act gave banks an affirmative mandate to offer banking services to precisely those kinds of customers as a condition of having deposit insurance. If you, the bank, rely on the government to underwrite your deposits — and thus minimize the risk of runs on your bank — you have to offer the same services to low- and moderate-income members of the communities that you serve as you would wealthier members. If a bank doesn’t then regulators can block mergers from being completed. Congress had outlawed redlining — that is, discrimination against applicants for financial services based on race, nationality or gender — with the passage of the Equal Credit Opportunity Act. But the CRA was intended in part to stop a back-door means of that kind of discrimination. 

But there is ample evidence to support the conclusion that discrimination in lending is still happening, and the most visceral evidence is the continued existence of the kinds of blighted neighborhoods more than 40 years after the Community Reinvestment Act was passed. Part of the explanation of how that has been able to happen can be found in the way the law has been implemented over time. Banks have to serve lower-income clients in the communities in which they operate — so-called assessment areas — but those areas are defined as metropolitan statistical areas, cities or counties in which a bank has a physical branch. So, using Baltimore as an example, any bank with a branch in the Baltimore-Columbia-Towson metropolitan statistical area has a CRA obligation to that community, but can comply with the CRA requirements by extending credit and services to lower-income residents in more affluent areas, perpetuating so-called banking deserts — places with no access to financial services at all. And as more and more banks receive their deposits digitally, they need fewer and fewer branches open, and as of now, banks have no CRA obligation to communities from which they receive online deposits. 

But that could change.

CRAPO: Comptroller Otting.

OTTING: Great. Thank you chairman Crapo, member ranking Brown, and members of the committee 

HELTMAN: This is Joseph Otting, and he’s the Comptroller of the Currency. The Office of the Comptroller of the Currency is the oldest bank regulator, dating back to 1863, and it supervises nationally-chartered banks. Along with the Federal Reserve and the Federal Deposit Insurance Corporation, it implements the CRA law and conducts the CRA assessments on banks. And he says he wants to change the way they do things.

OTTING: These priorities include modernizing the Community Reinvestment Act to increase lending, investments, and financial education where it is needed most and encourage banks to meet short-term dollar credit needs to provide consumers with additional safe, affordable credit choices. 

HELTMAN: Otting isn’t alone in this — the Treasury issued a memo in April calling for an overhaul of the CRA, including updating the way regulators determine assessment areas, creating some clarity in how the assessments are conducted and finding ways to incentivize banks to perform better. So will these proposals work? Nobody knows, because there is no concrete proposal as of right now, and there probably isn’t going to be one until early 2019. There’s enthusiasm by all sides — banks, community groups, and regulators — to take a new look at how to better implement CRA. But some, like Jesse Van Tol of the National Community Reinvestment Coalition, are also skeptical the result will really be an improvement. 

VAN TOL: I think everybody agrees that the banking world we have today is not at all similar to the one we had in the 1970s in that you know banks do business beyond their branches. We have advocated for and supported an approach to establishing assessment areas that doesn't just rely on deposits, but that looks at where a bank is doing a significant volume of business and draws the assessment areas on that basis. I think that could get consensus. But you know I've heard suggestions of an approach that's more like doing away with assessment areas altogether and establishing a national assessment area or establishing a bank sort of footprint-wide wherever it does business it can invest and get credit for it and that would be problematic. That would be a non-starter.

HELTMAN: There are a lot of ideas out there about how to make the CRA more effective, and I’m not going to try your patience by talking about all of them. But the CRA could be the key to turning around some of these blighted neighborhoods, because it is one of the main points of leverage that could bring banks, and the considerable investment capital they possess, to the table. And private investment is a lot more maneuverable than public investment — finding a way to get banks to invest in affordable mortgages wouldn’t take anything away from roads or schools. I don’t know how you do that — this is a podcast, not a doctoral thesis. But it’s not impossible. And it is imperative that we find a way.

BRYANT: It's still has to be hard as hell, and it's going to take -- once we even focus on it, right —  it's going to take a decade. But what's the choice? Not do it?

HELTMAN: John Hope Bryant. 

HELTMAN: Well that is, actually, that's my next question: what happens if we don't? 

BRYANT: The American GDP will begin to falter, the debt will increase. You'll have a majority of minorities in this country in 30 years who are financially illiterate, who never got the memo on money, who are not creating tax income. You’re going to be South Africa. South Africa had 55 million people and 5 million taxpayers. And their problems are not race, it's class. It's math. Demographics are destiny. You have a majority of people in this country who are broke as hell, depressed, distressed, walking with PTSD, with ... who are financially illiterate, who don't know how to create economic opportunity for themselves, and who are living off of some level of subsistence, how can the math work? So yeah. This is like. You need a Marshall Plan for America's Future. This time — well it paid off that time too — but this one you can actually measure ... you can actually measure it may take. You may have. You may have to run the pro forma out 30 years. I acknowledge that -- you're going to get a return in five years. You run this pro forma out for 30 years. You can invest ... let's pick a number. You invest $5 [billion] or $10 billion in this, in, in C- ... in smart, well, smart public policy bonds, and then maybe there's another $100 billion in CRA-inspired real money — not just loans and mortgages, I'm talking about stuff that actually builds community. So. You can you can amortize that out 30 years, I think your economists would tell you GDP will go up 1% per year, every year. Is that worth it? It's a great return on investment.

HELTMAN: There are a lot of ideas out there about how to bridge this gap, to get investment in these places that need it without turning the housing market radioactive. Not all of those ideas are good, and even the ones that are may not get implemented. And the reason for that is the same reason why a lot of these blighted communities got blighted in the first place — indifference. We’ll talk about that next time, in the series finale of Nobody’s Home. 


Starfish Solutions: What can we do if we try?

HELTMAN: When I started looking into vacant housing, before I even really pitched the idea to do a podcast to my boss, I sort of expected there to be a simple and good explanation for how blighted communities got the way they are. So there wouldn’t be any story, any podcast — it would just be, “Oh well everyone moved to the suburbs” or “the factory closed and everyone moved away,” or “well the drugs and gangs came in and now it’s just like that.” I thought that the explanations that are out there that have resolved other people’s curiosities about these disadvantaged places would end up satisfying my curiosity as well. And those explanations I just referenced aren’t even wrong, exactly, they’re just incomplete. And what is missing from those explanations is that what keeps a lot of these places blighted is a kind of collective shrug about why they are the way they are. I put that to Dana Johnson, the head of the Baltimore office of the Reinvestment Fund, back in November of 2017.  

HELTMAN: I wonder if this is an example of a kind of social phenomena that maybe nobody thinks is good. Like nobody is like, "Well good thing all those houses are vacant. Good thing that neighborhood is terrible for the people who have to live in it." I don't think anyone thinks that's a good thing. But, what we do have some kind of varying degrees of indifference, you know. And maybe we don't have indifference, no one person is empowered to kind of direct our collective emphasis — be it economic or political or whatever — towards actually trying to find a sustainable solution, to truly to making life better for people who don't have a lot of means. Be it for racial reasons or political or economic or whatever. I mean I guess... Is this an intractable thing, that just has ... it operates on too many different levels at once that no one thing can stop it.

JOHNSON: I mean I think I think you said the right word which is indifference and... You know, the average, sort of, you know, Baltimore County resident you know who may commute into the city every day and drive past you know the homeless person and you know the, you know, all the things that you know they observe as they come and go or whatever but they don't think of it as their problem. And. I think. That's a big part of how we got to this point. Oh you know it's the city's problem. Oh, you know, I go home to the suburbs and... if you look at the federal budget over the last decade or more you know the amount of money that is going into the kind of resources that help cities — CDBG, home, you know, all kinds of other public purpose — the domestic budget, you know, food stamps I mean all these things that have been proven to really benefit people, and you know the surrounding communities that they live in continued to get cut. And so you know we obviously are not in a place of caring for our fellow citizens. It's not a good — look at public housing. I mean, the public housing budget has if you looked you know this is why all of our public housing is falling apart. We, you know, there are like band-aiding huge problems because there's no budget and public housing authorities are been starved for capital dollars for decades, you know. And everyone since it's like it's not my problem. But then I'm upset when you know a crime happens on my street, you know? Just like people don't, you know — we need more police. Everybody has this reaction, you know, “Crime is out of control in our city,” as our mayor says we need to spend more on police, police, police. You know if you look at the police budget over the last 20 years relative to the rec and parks budget, I mean the one has taken a total nosedive and the other one has skyrocketed. Those things are not unrelated. You know, we're not investing on the front end in the schools, and in, you know, recreational activities, job training, all these kinds of things, you know then … you know, we can't police our way out of the problem. And. It's. I don't think people … I don't know whether people will actually get that, or they just — maybe they get it but they don't vote with their... with their conscience? I don't, you know, I don't know. 

HELTMAN: Well they vote with their feet, and they go to... 

JOHNSON: Right. They move out — which is why we have all this vacant housing!

HELTMAN: From American Banker, I’m John Heltman, and this is Nobody’s Home, a podcast about vacant housing and what it means for our communities and the financial system.

HELTMAN: When you ask the question, “How do you solve housing blight, or vacant housing” you have to start by unpacking the terms in the question. We know what housing blight is, we know what vacant housing is, we have a pretty good idea of what has caused it in the past and what contributes to it being created today. But what does it mean to solve vacant housing? It’s not a riddle or an equation. There is pretty clearly no single correct answer. But it isn’t a meaningless question either — is it possible to make the current state of affairs more satisfactory for all concerned? 

GOLDSTEIN: I'm not usually very optimistic about things, I tend to be tend towards pessimism.

HELTMAN: Ira Goldstein, the head of policy solutions at the Reinvestment Fund.

GOLDSTEIN: But, in sort of my optimistic state, I believe that ... For example I think that generations of people coming out of school now — high school college and the like — have very different views of the world than than … than we or our prior generations have. I think that they have very different views about city life. I think they have very different views about racial integration. I think they have very different views around mobility than than the previous generations had. And I believe that if you're able to create, in cities around the country, you know, places that, albeit different, have a decent quality of life in them, people will make those decisions about where they want to be. I want a suburban life. I want a city life. I want a … I want a, you know, whatever. Yeah. I mean all those choices, and then remove the restrictions that people have and make these places decent places that anybody would want to be in. I think that deals with the blight issue, I think that it deals with the … the issues around the, our segregated cities — racially, ethnically, economically segregated. I think that, you know, by sort of creating great places all over the country you sort of you put a pin in the balloon of the argument that, you know, you're trying to sort of social engineer what places look like. What you're really doing is allowing the market to work by saying, "We're going out a lot of great places all over the country and people will be able to pick where they want to go. And are only constraint maybe the dollars in their pocket." And but it does not mean that they ought to be constrained — that the geography of opportunity is constrained, so they can't have a decent school or a safe neighborhood or a playground to play in or a library or a museum or some arts and culture space or ability to get to a doctor or public transportation — the basic kinds of things that people need. So I actually, if you sort of look forward, if we can sort of deal with some of these issues, I think that, you know, as people sort of form their households with the contemporary views of the world that people now have — notwithstanding the rhetoric out of Washington, but what people do — right now, what they do, but what people do — I think you could see you could look back and I'd be happier than anything to come back and do this podcast with you in 2036 — although I'd be quite old and at that point — to do this and say like we solve this problem, right? Nothing better than solving problems, right?

HELTMAN: So the idea isn’t that there will be no more rich people, no more poor people, or everyone lives in a city or everyone lives in the suburbs. You can have lots of different kinds of places in America and you don’t have to be in a certain one — or a certain kinds of one — to enjoy a high quality of life. And one of the things I heard a lot is that one of the best places to start is by maintaining the programs that are already in place or imposing penalties for bad behavior.

BURNETT: The only folks that are doing the inspections and maintenance of properties are people who have subsidized tenants.

HELTMAN: Baltimore City Councilman Kristerfer Burnett.

BURNETT: So they have section 8, those houses are being inspected. There may rise to a high rise apartment buildings, those things are being inspected. But nobody's inspecting the one off rowhouse unit that has three units that's owned by a private property owner. No one's inspecting them at all. If they're not on subsidy or it’s not city-owned, no one's looking into it.

HELTMAN: The Baltimore city government this year passed a law that would close that loophole, requiring landlords who rent one- and two-unit buildings to submit their properties to the same kinds of habitability inspections that larger rental units have been required to submit to for years. The law would impose fines on landlords who don’t resolve housing code violations, and could prevent negligent landlords from profiting from their substandard housing.

BURNETT: That would get us in the house to see the conditions that people are living in and really hold property owners accountable for reinvesting in their homes. This is a big boost when we talk about improving the housing stock for middle income families in Baltimore. I think that will go a long way at addressing this vacancy issue because what you see is these properties decline, decline, so, so far that they actually do something since has hit a point where even the property owner can't rent it out anymore and they just let it deteriorate even further. So trying to get them you know further upstream before they get to that point and we're staying on top of it I think would do a lot to create more affordable housing in Baltimore City.

HELTMAN: Baltimore isn’t the first to pass this kind of ordinance, actually. Since the financial crisis, the number of local ordinances passed to curb the prevalence of vacant property has grown exponentially, largely in response to the foreclosure crisis. 

For cities on the other end of the housing value spectrum, simply enforcing the protections afforded to renters could go a long way toward preventing illegal evictions. Meghan Gordon, from the East Bay Community Law Center.

GORDON: The hard thing right now is just knowing that so many tenants have great cases and they won't get representation because there aren't enough attorneys out there to help. ... But, you know, saying … an attorney saying more attorneys is the answer is probably — doesn't seem credible. But from our perspective I think it really would make a big difference. So having … having the local municipalities actually be able to enforce and come down on landlords bad landlords would also make my job a lot a lot easier and would … not that I should say that that's the goal that would give tenants … 

HELTMAN: Well, it's the question I asked. 

GORDON: … the protection they need to be at the very end … 

HELTMAN: It's a fair answer. 

GORDON: Yeah I mean it's also it would just be better for tenants in general if the city had … Had the means to really put pressure on landlords to … to make repairs and to make units habitable.

HELTMAN: And there are ways the federal government could step in as well. Buzz Roberts, the head of the National Association of Affordable Housing Lenders, said that one of the ways to spark investment from financial institutions to rehabilitate concentrated vacant housing would be to create a federal tax incentive.   

ROBERTS: We've put together a proposal that would create a new federal investment tax credit similar to the Low Income Housing Tax Credit or the New Markets Tax Credit. But the low income housing credit is for rental housing, mostly multi-family rental affordable housing. And the New Markets Tax Credit is mostly for business investment. What we're talking about here are single family homes which are the predominant land use in most neighborhoods in cities and towns across the country. 

HELTMAN: Those tax credits essentially work by getting companies to effectively pay for a lower tax bill, but instead of paying the government, they pay organizations that create affordable housing. This would work in a similar way, except instead of creating low-income rental housing, it would create rehabilitated vacant housing and install owner-occupants.

ROBERTS: The idea is that investors would invest at the start of the construction or rehabilitation process, and when the homes are completed and inspected and owner-occupied, they would get a tax credit that's based on the cost of construction. That's enough to bridge the gap between what it costs to build or renovate the homes and what they can be sold for at market value. So yes we would expect banks to be active investors in this process. Banks understand real estate; they understand the neighborhoods; they understand the construction and marketing risks that are the primary risks here. They've been very active investors in affordable rental housing through the Low Income Housing Tax Credit and through the economic development of distressed communities through the New Markets Tax Credit. And I'm confident that they would be at the table if there is a viable opportunity for them to … to play a positive role.

HELTMAN: That could do a lot to boost homeownership in places with lots of vacant houses. But what about rural places that maybe don’t have as many vacant houses in absolute terms, but that maybe are facing a more existential crisis from the ones they do have? Detroit, Baltimore, Milwaukee — all these metropolitan areas have a lot of vacant houses, but none of them are going to completely disappear. That isn’t true of small towns — they disappear all the time, and always have. I put that question to Ira Goldstein.

HELTMAN: Is revival possible everywhere? Or are there some places where the answer just, this place needs to go away? And how do you make that decision?

GOLDSTEIN: I think, I think that's really the critical question. Are there places across the country that today or for the foreseeable future we can't really quite identify what the next stage of life is for those communities. And you know our work takes us all over the country be it you know some of the places in Alabama or places in Florida or what have you. You know in the Mon Valley in western Pennsylvania you see these tiny little towns that were something just phenomenal 30 years ago, and today it's hard to understand what they're going to be in their next iteration. I don't think that anybody's at a place where they're willing to say let's just write these places off. The question is, how do we sort of reinvent them or sort of recast them in a way so that they're providing a reasonable quality of life for the people that are there?

HELTMAN: What do you think people ought to know about Mankato’s experience that you don’t think they do know? 

RUSSELL:  I think people, some people write it off as, “Well the population has been decreased every year since 1900, I’m done.” 

HELTMAN: Jenny Russell, the community development director for Jewell County, Kansas — the county where Mankato is located. 

RUSSELL: And that’s not it at all. I don’t think that’s our reality of what we live, and it’s very vibrant and it’s a very good place to be. As the population everywhere becomes more urban, rural areas are going to have to do a much better job of telling our story, explaining what we do, making ourselves accessible — accessible for people who want to learn more — because they just haven’t lived it.

GOLDSTEIN: I do think that there's ways of dealing with blight. I think it takes patience. I think it takes resources. I think it takes vision and planning. And those are not always in the greatest supply. To be honest with you I look at the proposals around the federal budget will be doing in and around housing and community development investments and there's no there's no particular reason to be optimistic about that resource.

RHEA: I think just like infrastructure — we think about roads, water systems, wastewater systems — the United States is almost at crisis level, across the country, with aging infrastructure. 

HELTMAN: Chris Rhea, the city administrator for Mankato, Kansas.

RHEA: The same is true here. I think housing is part of that infrastructure. I see it that way. We’ve benefitted from massive programs, through community development block grants, administered through the Kansas Department of Commerce, and we hear things like, “Those things are on the cutting board now.” Like, when we need it most. Especially rural communities, and those things … that’s real. And where politics really comes home, is when things like that are getting cut, they’ve made a huge difference in our town.

HELTMAN: It’s also worth noting that there are so many other issues tied up in vacant housing that I haven’t even mentioned. Immigration is a really big deal, because immigrant communities tend to settle in places with the least-expensive housing, at least historically, and can counteract housing blight. Places with environmental contamination might be harder to rehabilitate because of health concerns, and pollution issues can keep housing prices low. When mortgages get foreclosed, some states have a judicial process and others have a non-judicial process, which raises questions of expediency versus due process. The use of limited liability corporations to shield the identity of the owners of properties can make it harder for cities to develop revitalization plans. There’s the appropriate use of eminent domain. And just politics obviously plays a huge role in this. And that’s not even a complete list of the things I’m not talking about, because this issue just goes everywhere. But maybe the biggest obstacle to changing our housing system for the better is a clear vision of what a solution would look like. 

GRANDPRE: I was just thinking about this today, example. 

HELTMAN: Lawrence Grandpre of Leaders of a Beautiful Struggle.

GRANDPRE: We don't have language to even express this in many ways, and the language that I'm working on is ... there is a discussion about equal outcome versus equal opportunity. Right? Do you have the opportunity to move or do you have the opportunity to move into a white neighborhood. Desegregation all that. Well maybe I don't want to. Maybe I have a vision of my culture that I want to center it in a community that affirms me, gives me space to develop myself. So that ... you have opportunity of outcome. Which is, do the black schools perform the same way on the SATs as the white schools and things like that. Laudable goal, but maybe I don't want to think that the SATs are the metric of whether my kids are learning well or not. Do we have equal opportunity of outcome when it comes to things like services? And I think that that language is very appealing but I mean I feel I need to question it, because even the way we view opportunity of outcome can be problematic. We want equality of experience. Which is different than those previous two. So when you live in a neighborhood. You have experience that if I want my kids to have drawing at school I can expect to get a bunch of parents together and I can make them do drawing at school. If you live in a middle-class neighborhood you have the experience of, when politicians come to me, I have the institutional capacity to make them respond. Even the best laid visions of integrated communities can impinge upon the experience of black folks of have having control of their communities. And it's important for us to have a space where black folks have the experience of being able to control the institutions. Because that really is what creates quality of life. It isn't just not having lead in your walls isn't just having streets that don't have potholes ... 

HELTMAN: Or vacant houses in your neighborhood. 

GRANDPRE: ... or vacant houses. The experience of how you add value to your community ... the sense of community to your life is about whether you have the ability to create the type of institutions and conditions in your community that you want. That's the end goal of a good housing policy.

HELTMAN: I'm going to ask you to get a little philosophical for a second.


HELTMAN: Janis Bowdler from JPMorgan Chase.

HELTMAN: Is blight a problem that has a solution? 

BOWDLER: Yes. Blight is the problem that has a solution. I think what you're asking is does the problem just move itself around. 

HELTMAN: Or does the problem give way to a solution that has, that brings with it still more problems.

BOWDLER: Yeah. You've solved blight here, and what you've really done is just push out low income people to go somewhere else in that neighborhood that becomes disinvested. 

HELTMAN: Or you bring people, and the place where they left from now becomes the new blighted community. Is this something that — is there actually a way of do this that has an overall positive impact for all concerned? 

BOWDLER: Yes and let me say that personally I don't think I would be doing this work if I didn't believe that there was real solutions to be had. I think life is messy and progress is not linear. So we are wide eyed about, "There are no silver bullets to any of these challenges." But let me go back to the city of Detroit. This is a city of 700,000 people down from a population of over a million. Right. Like they have to — they have to shrink. They have to get smarter about their infrastructure and how they become a city of 700,000 people. Those strategies are going to take time and I think we'll have to always be keeping an eye on the inequality and equity question to make sure that we're constantly reassessing about how are the most vulnerable residents faring in the transformation of the city? But I firmly believe that it's possible that the city can right-size, provide good homes, good neighborhoods, good educational opportunities for all of its residents. And again I think the best we can do is really bring down the barriers to economic mobility and make sure that everybody has real access to opportunity. When they do, that's going to be better for the city overall. In fact research really shows that cities with a smaller — or more narrow economic inequality, income inequality specifically — the better the region does as a whole. Those with wider income inequality actually tend to see their economic growth stagnant.

HELTMAN: Something that Janis said is almost the same thing that I heard dozens of people say over the course of the past year, which is that there are no silver bullets for addressing vacant housing, much less the other related disparities in housing that we have in America. It’s a cliché, but it’s also true. But what is also true is that vacant housing is not a problem that many people — particularly those with the most power to change it — care very much about solving. But why is that? Why don’t more people care? I asked Baltimore councilman Bill Henry that very question.

HELTMAN: I find ... covering this topic or doing something on this topic, it is sometimes hard to get people to understand why they should care, you know. And like, why it matters. Some people, it's not that hard, because it's something that's in their lives. 

HENRY: Right.

HELTMAN: But, you know, a lot of people feel like, "Well, I don't live in Baltimore. I don't live in a place ..." 

HENRY: Oh yeah. I mean I would ... I would despair at the thought of how do I get people who aren't even in the city to focus on the potential negative ramifications. I mean I could give in to misanthropy and say, "Well, most people are selfish so you can't if you can't make that direct connection with their lives it's hard to get them focused." Or I could be more tolerant and say that everybody is living their life with their own difficulties, their own challenges, their own needs for sacrifice, and, you know, getting past what's directly in front of them — or maybe a more accurate way of doing it is, dragging people's heads up out of their day to day lives so that they can look around and see what isn't just directly in front of them. That's a challenge. And I mean, even … even here in the city, in the … in the nicer neighborhoods, if you're not on a block that has vacant, then all you're seeing is wonderfulness. When you get up in the morning, when you leave the home to go off to your good job, when you come back. If ... if all ... if ... if you're ... If you're taking the right route from your home to your wonderful job and then back and diverting only to you know to go to a nice church that's also in a nice neighborhood and nice shops that are also in nice commercial shopping areas, then all you're seeing it's nice.

HELTMAN: There aren’t any silver bullets, but then again silver bullets only work against mythical creatures. If there were a simple and straightforward answer that everyone could agree on, someone would have figured it out decades ago. And it’s the end of this series, so it’s not a spoiler to say that I haven’t figured it out either. But there are lots of interlocking parts that could fit into a solution. Maybe local governments could give away blighted homes to prospective owner-occupants like they did during the dollar homes days, but instead of just giving them to individuals, they gave them away in groups of 20, 30 or 50 in the same neighborhood. Those groups could be their own community land trust, and maybe a bank that agreed to finance the reconstruction of those homes could get Community Reinvestment Act credit for holding those mortgages on their books. Or maybe those kinds of redevelopment community land trust mortgages could be bundled together as a security — after all, none of the loans associated with the dollar homes program defaulted back in the day. Maybe Congress could pass a tax incentive to redevelop blighted properties. Maybe someone can figure out a way to prefect a modern kit house that could make it possible for people in rural communities to build their own homes, or at least give them some options to stay if they want to. 

Whatever policy levers you pull, they seem to have an effect somewhere else. Or, if a policy works in one place, it doesn’t necessarily work in another place. Or even if it works everywhere, maybe it doesn’t address the scale of the problem. But that doesn’t mean we can’t make things better, even if it’s just a little bit at a time.

HENRY: I tell people now that for problems like … like housing, you've got scale solutions and you've got starfish solutions. You know the starfish story? Like, this is one of my favorite parables. If, you know, an old man and a little boy are walking on the beach. The tide has gone out, the beach is littered with starfish drying out and dying in the sun, and the little boy as he walks, he's bending over and he's picking up starfish he's throwing them back in the ocean. And the old man is watching the little boy, and he sees the beach is covered with literally, like, hundreds, thousands of starfish. And he says to the little boy, he says, "You know just picking up a couple and throwing them back in, it isn't going to make a difference." And the little boy says, "It makes a difference to this starfish." And throws it back into the ocean. And so I, a lot of times, see my job as balancing scale solutions and starfish solutions. Because sometimes you don't have a scale solution. And when you don't have a scale solution, not doing anything isn't better than a starfish solution.

HELTMAN: I wanted to end this series where it began, with that public hearing before the Baltimore City Council in October 2017. There was one speaker who I think summed this up perfectly, and I’ll let her speak for herself.

RESIDENT: When you boil all this down, what everyone has discussed tonight, it seems to me like, we’re asking for the council and the mayor and the city of Baltimore to grant us the opportunity to be a community. We shouldn’t have to stand here and ask for that. That just seems like something that should be a given, especially if you want it. Now, I could see if you were among a whole city of people, it may just seem like a whole city of people who just didn’t give a damn. But you have a whole, you have a large group of people who came here tonight just to express the fact that they want to be a part of a community. Some people didn’t even get up and speak about dilapidated housing and how they want to buy a whole block — some people just talked about how they want to be a part of this. Just because they knew they have something to offer and they know that the resources that can come from this can change the avenue that the city is going down. I’m asking anybody who heard anything that anybody said tonight to remember one thing: community. And if you don’t have that, you have absolutely nothing in this city. Thank you, goodnight. 

HELTMAN: Nobody’s Home was written, produced and mixed by me, John Heltman. Executive Producer is Rob Blackwell. Theme song by DJ Cam One and Mystery Sound recordings. You can find transcripts to each of the program’s episodes, as well as show notes, photos and more at Thanks for listening.