Blight Fight: Minneapolis, St. Paul receive housing bucks, but who benefits?

As the number of abandoned properties rises, the Twin Cities are scrambling for solutions. But not everyone agrees the current plans to battle the blight are beneficial for neighborhoods and their current residents. Some residents say the plan for razing numerous homes will benefit builders and investors at the expense of neighborhoods and the community.

The mayors of Minneapolis and St. Paul recently announced that, as part of the Economic Recovery Act of 2008, the Twin Cities will work together to purchase vacant homes that litter both cities. Through the Neighborhood Stabilization Program (NSP), a project of the U.S. Department of Housing and Urban Development (HUD), Minneapolis will receive $5.6 million and St. Paul $4.3 million to purchase and rehab foreclosed homes.

According to a press release from the city of Minneapolis, the intent of the funds is to “purchase, re-develop, and rehabilitate foreclosed properties.” However, as much as $1.7 million of the $5.6 million earmarked for Minneapolis will go toward tearing down abandoned homes. What’s more, another $1.5 million will be used to tear down properties that are not candidates for demolition, and the land will be held as vacant parcels until the market is ready for new housing.

While Minneapolis Mayor R.T. Rybak touts affordable housing and preservation, some residents on places like the online Minneapolis Issues Forum are raising questions about the teardowns and whether the money will benefit the neighborhood or line the pockets of developers. And housing preservationists are calling the city’s quick-fix solution to bring in the Bobcats both costly and destructive.

Housing preservationist Constance Nompelis, who also works as a real estate agent and is a member of NoMi, a North Minneapolis neighborhood organization promoting North side arts and living, says she’s discouraged by the city’s plan, which was at first presented to her as a housing rehabilitation program, not a program for razing century-old homes.

“I think it’s horrifying that all that money is going to demolition, for a number of reasons,” Nompelis tells the Daily Planet. “The first is that I don’t believe all of these homes should be demolished. It’s much cheaper and greener to renovate. And one of the things that could be used as an attraction to North Minneapolis is the low prices of these homes. By mowing these houses down we are removing opportunity.”

Determining what neighborhoods are eligible for the funds

When Nompelis first heard about the program in August, as an active member of the NoMi, she was excited. She believed the bulk of the funds would go to buying up foreclosed properties from participating banks so they could be sold to owner-occupants. She saw it not only as a great opportunity for the struggling North side, but an opportunity for homeowners seeking affordable housing.

“Personally, as a realtor working in that area and a person with investment properties in that area, I want to see more owner occupancy in that area,” she says. “And I thought that was the plan, to use the funds for rehabilitation and increase owner-occupancy.”

While the North side has been especially traumatized by foreclosures, vacant homes are popping up like dandelions all over Minneapolis. In fact, it’s become such a prevalent issue that at least 50 neighborhoods, the majority in North, Northeast, Central, and South, are eligible for the NSP program.

Here’s how it breaks down: HUD requires funds from the NSP to be used in areas where at least 51 percent of low-, moderate-, and middle-income residents are at or below 120% of area median income (LMMA); and it must be used to benefit low-, moderate-, and middle-income residents. To put it in simpler terms, in order to be eligible for NSP funds, a majority of the four-person households in a neighborhood would need to have an annual income between $40,450 and $97,100.

The crisis in the hardest hit metro neighborhoods doesn’t end with vacant homes. HUD estimates that, in the next 18 months, the foreclosure rate in each eligible neighborhood will greatly exceed the national average, which currently rests at a little more than one percent. Hawthorne, on the North side, for example, is expected to see a 13 percent foreclosure rate in the coming months. Midtown-Phillips will likely see a roughly 10 percent rate of foreclosures. And if the past two years is any indication, as the cycle continues, property values will plummet and more homes will go vacant.

Defining what’s “affordable”

While it’s easy to determine what neighborhoods are eligible for the original funds, it’s not quite so clear if the homes built using NSP funds will remain affordable. Neither city has revealed its specific plans for the homes—including estimated prices for new, in-fill homes and who will be awarded the contracts for rehabilitation work, if there is any. Minneapolis Mayor R.T. Rybak says the goal is stability and affordability. Yet the plans fail to outline proposals for new-home affordability and for maintaining neighborhood stability as new investors take over rental properties.

As part of the NSP program, along with approving the majority of the funds for teardowns, the Minneapolis City Council earmarked another large chunk, $1.4 million, to go to a consortium of nonprofit housing and community development organizations to buy up properties from participating lenders—Wells Fargo, Fannie Mae, Citigroup, and JP Morgan Chase.

In Minneapolis, that means that on the North side and in South side, each of which has seen hundreds of foreclosures this year, an organization called the Greater Minneapolis Metropolitan Housing Corporation will buy and maintain homes for Minneapolis, according to a recent article in Finance and Commerce. GMHC’s board of directors includes major players from local businesses like TCF, Wells Fargo, Target, U.S. Bank, Xcel Energy, and more. Dayton’s Bluff Neighborhood Housing Services, which was started in 1980 by neighborhood residents, plans to buy up vacant and abandoned homes in St. Paul.

“A core component of our aggressive and innovative fight against foreclosures has been to regain control of and revitalize foreclosed properties to get them back into the hands of strong, stable home-owners,” Rybak said in a press release this week. “This pilot project will help us hugely to accomplish that goal, and we intend to make it as successful as we can.”

Still, the details outlined in the Minneapolis city plans submitted to HUD on December 1 don’t exactly spell out “affordable.” For one thing, anyone with an income of 20 percent above of the metro median income or less is eligible to buy a home originally purchased with NSP funds. The eligibility income limit for a two-person household, for example, is $77,650. Meanwhile, all of the multi-family units created using NSP funds must be rented to households at or below 50 percent of the median income.

Stopping an endless cycle

So what does this mean for the neighborhood and its residents? On the face of it, it looks like the majority of single-family homes don’t have to be “affordable,” since anyone with an income up to 20 percent above metro median income is eligible to purchase them. It also means that in areas where homeownership is important for neighborhood vitality, the grants will keep the majority of low- to moderate-income families in rental units.

To put it in to dollar terms, a family of four with an income of $40,450 or less is eligible to rent a unit in an NSP-funded property, while a family of four making up to $97,100 is eligible to purchase an NSP-funded home. As an added kink, GMHC and Dayton’s Bluff Neighborhood can sell the properties at 95 percent of market value, leaving room for quite a profit when some vacant homes are being snatched up for as little as $15,000.

Additionally, given the fact that the number of vacant properties in Minneapolis has surpassed 900, critics of Minneapolis’ plans charge that funneling $5.7 million into the growing foreclosure problem is barely getting off the starting block. And the foreclosure trend doesn’t show signs of slowing down any time soon: Last year the Twin Cities saw nearly 13,000 foreclosure filings, according to a recent report by Housing Link. The organization predicts the Twin Cities will be hit with nearly 20,000 foreclosures this year. That’s a roughly 400 percent increase in foreclosures since the crisis began unfolding in 2005.

But perhaps more troubling for neighborhood residents is a lack of a real concrete plan, such as one that details more rules for landlords, and sets out criteria that developers must follow in creating new, infill homes. As Madeline Douglass noted on the Minneapolis Issues Forum, “Both First Look and the $5.6 million federal grant program seem to have very positive potential...but what will be the reality? Who will really benefit when the buildings are ready for sale?”

Molly Priesmeyer is a South Minneapolis freelance writer.