Homeownership Zones: Transforming Blighted Neighborhoods

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Eleven demonstration cities in the United States are testing the idea that a well-designed, large-scale, mixed-income housing development can transform a blighted neighborhood into a safe and healthy family-oriented community. This Homeownership Zone (HOZ) demonstration program is part of a national strategy to expand homeownership.

Homeownership zones have transformed neighborhoods and provided homeownership opportunities for low- and moderate-income families.

In 1996, HUD made $30 million in Economic Development Initiative grant funds available, together with companion Section 108 loan guarantees, to six cities wishing to participate in the demonstration program. The following year, HUD made $20 million in recaptured Nehemiah grant funds available to another round of applicants. The 11 HOZ demonstration cities are Baltimore, Maryland; Buffalo, New York; Cleveland, Ohio; Louisville, Kentucky; Philadelphia, Pennsylvania; Sacramento, California; Flint, Michigan; Indianapolis, Indiana; New York City, New York; San Juan, Puerto Rico; and Trenton, New Jersey.

Based on the layout of the target areas and the availability of vacant land, each demonstration city is taking one of three general approaches to creating homeownership zones:

• Rebuilding or rehabilitating an entire target area;

• Developing entire blocks or multiple blocks interspersed with blocks of older units; or

• Building or rehabilitating single or several units between preexisting units within a target area.

Every project is guided by a master plan that includes developing approximately 300 new homeownership units and other improvements, creating local public-private partnerships, and leveraging other investments. All 11 cities proposed new construction; 6 cities decided to also rehabilitate some existing houses. Several undertook public housing modernization or HOPE VI projects as part of their strategy to transform neighborhoods. Each city agreed to sell at least 51 percent of the new homes to low- and moderate-income families.

Interim Status of HOZ Demonstrations

Most of the HOZ sites are still several years from completion. However, an interim evaluation reviewed the progress of the demonstration programs, examined the data that have accrued, and identified emerging best practices that should prove useful to other localities. This evaluation consisted of a review of program documents; site visits to eight demonstration projects; and synthesis of the available social, economic, and geographic data.

The HOZ approach has already brought substantive, positive changes to the target areas. The HOZ cities are in various stages of developing mixed-income neighborhoods. A total of 1,301 new and 145 rehabilitated houses were completed by December 2004. Of the 3,245 units planned, 44 percent have already been sold. For most, the percentage of home sales to low-income homebuyers ranged from 51 percent (the minimum requirement) to a very impressive 86 percent. Although the income of the other homebuyers generally fell between 80 and 120 percent of the area median income, some cities have departed from this pattern. Louisville successfully used purchase incentives to attract higher-income homeowners, and in the process, achieved the most economically mixed neighborhood. Two cities, Baltimore and San Juan, sold all of their homes to low-income families. Baltimore used federal HOME program funds, which require all assisted units to be purchased by low-income families.

Interim evaluators found that cities have made progress in demolishing or rehabilitating deteriorated buildings, renovating dilapidated open spaces, and removing debris. Most have created green spaces and are finding ways to maintain these open areas. All HOZ developments are close to public transportation, and many are within walking distance of convenience stores, schools, and churches. Residents report feeling safe and perceive a decline in crime in their neighborhoods.

Lessons from HOZ Cities

One significant lesson learned from the experience of HOZ cities thus far is that transforming a severely distressed neighborhood into a successful homeownership community takes time. HUD’s expectation that projects could begin within 60 days after approving the plans proved to be extremely optimistic — given that the projects averaged 300 new units and were located in abandoned and deteriorated target areas. Immediate priorities included financing, land acquisition, restoration of infrastructure, and construction preparations. On average, it took nearly four years to begin construction and six years to reach the 50-house mark. Another three to six years will pass before all new homebuyer units can be completed and sold. Throughout the process, public perceptions of the neighborhood had to be revised, units marketed, and low-income, first-time homebuyers counseled and qualified.

In their report, the evaluators also share lessons that HOZ cities have learned about successful site selection, land acquisition, leadership, administration, partnerships, community participation, financing, resident relocation, design and construction, energy efficiency, marketing, and commercial development. Communities thinking of revitalizing deteriorated areas with concentrated, mixed-income homeownership developments will surely benefit from the experience of HOZ cities as described in this report. Interim Evaluation of HUD’s Homeownership Zone Initiative can be downloaded at no cost by visiting www.huduser.org/publications/homeown/InterimEval.html or ordered for a nominal fee from HUD USER by calling 800.245.2691 and selecting option 1.