Hypocrisy at the Home Show

The hidden turmoil of housing in rhode island

by by Malcolm Burnley

From March 31 to April 3, thousands of Southern New Englanders flocked to the annual Home Show sponsored by the Rhode Island Builders Association, a gathering of various segments of the housing industry—from lenders to lawn-care specialists, geothermal installers to septic designers—who set up shop in the massive second-floor hall of the Rhode Island Convention Center. The $10 admission gave convention-goers access to a maze of over 400 exhibitions pitching home products that ranged from mortgage loans to steam-powered mops, all part of a carnivalesque atmosphere.

If the Home Show is indicative of the health of Rhode Island’s housing industry, the spring of 2011 will be a cheery time for homeowners. Positivity emanated from exhibitors, who handed out free candy and showed renewed optimism in a resurgent housing market. Around every corner were deals and sweepstakes on anything remotely related to a home: low-priced window installations, roulette wheels with home insurance policies, jars of jelly-beans promising100 gallons of free oil for a correct guess. Most significantly, lenders, bankers, and realtors were enthusiastically catering to customers, with hope unfelt since the housing boom ended in 2005.

“It’s a buyer’s market,” Bruce Lane, the Head of Finance for William and Stuart Real Estate in Cranston, says, voicing the consensus opinion in the housing industry right now. “There is an unnatural combination of low interest rates and low prices,” which makes for opportune conditions for first-time buyers and investors alike. “The damage of the bust has been done. From here on in, all the opportunities are for buyers, because reality has set in for sellers.”

Over the past year, he says that properties have been selling at 75 to 80 percent of their peak 2005 levels, and up to 40 percent down in some instances—that means buying a $270,000 property for only $180,000. But Lane’s assessment oversimplifies the current housing market in Rhode Island, where opportunities are not evenly distributed across income brackets. Lane acknowledges that the current market favors home buyers with income over $100,000, who can capitalize on depressed property values; meanwhile, multi-family housing units continue to be foreclosed upon in urban communities, especially Providence.

The Home Show is primarily a commercial housing extravaganza, but its superficial positivity glosses over the troubling state of affordable housing in Rhode Island. Underneath the event’s brightly-colored balloon animals and promotional glass boxes filled with billowing money is the stark reality: a dreary present and volatile future for low-income housing statewide.

Ocean State Housing Woes
Cranston’s William and Stuart Real Estate saw a 15 percent rise in sales from 2009 to 2010, part of a slew of encouraging figures recently released that cite an uptick in first-home buyers across the state. According to the Rhode Island Builders Association, building permits for single-family homes rose in 2010, up 6 percent from 2009—but still down 50 percent from 2005 levels. Yet even those slim signs of progress in the housing market have largely passed over low-income districts, where multi-family units have been hit hardest in the housing crisis.

Of the 1,213 foreclosures in Providence from January 2009 to December 2010, 816 were multi-family homes; statewide, they accounted for 58 percent of all foreclosures. In multi-family units, tenants can be paying continuous rent and then suddenly find themselves evicted because another tenant balked on monthly payments or an owner failed to pay the bank. Much of the state’s $5.6 billion lost to foreclosures, has been incurred by low-income residents living in multi-family units. Furthermore, when multi-family homes are boarded up, they become noticeable blights on neighborhoods—since they’re visibly larger than single-family homes—and negatively impact surrounding property values.

Census figures from 2000 to 2010 indicate the persistence of high foreclosure rates in low-income communities throughout the state, particularly in Central Falls, Providence, Pawtucket, and Woonsocket. In part of the Smith Hill neighborhood in Providence, about 20 percent of all homes are vacant. At the Home Show, this sobering reality is barely accounted for, except for the few booths manned by non-profits, such as Rhode Island Housing. Rhode Island Housing is a 30 year-old organization that has become a leading provider of loans, grants, and counseling for Rhode Islanders distressed over mortgage payments, about to enter foreclosure, or currently involved in one. “There are a lot of hurting people,” Mike Elias, a Homeownership Assistance Specialist for the organization, says, without the unequivocal optimism of fellow exhibitors.

In the past three months, Elias has seen just about every type of person come in for counseling: professors, waitresses, top-level executives, and factory workers. But most often, he sees couples and individuals suffering through unemployment or underemployment, falling deeper in the hole each month. Until Rhode Island’s stubborn unemployment rate—still hovering around 11 percent (compared to 8.8 percent nationally)—sees sustained improvement, Elias expects the demand for low-income residency and affordable housing services to rise.

“We go to bat for them, because we know how to speak the language,” Elias says of his job. During face-to-face meetings, he provides budget analysis and risk assessment, then puts together a re-modification package to send to mortgage companies, a blueprint to keep families in their homes. While the package may take just weeks to make, mortgage companies rarely respond for months, if at all, often allowing foreclosures to proceed. Without refinancing a mortgage, there are few options left for Rhode Islanders who face eviction. Even the state’s emergency loan services are also beginning to dwindle in number and lose funding.

Budget Casualties
When a family spends in excess of 30 percent of income on housing costs, they become eligible for state money in affordable housing services. A staggering 46 percent of Rhode Island currently qualifies, making for an overburdened system. Building Homes Rhode Island, a $50 million state program that has constructed 1,000 affordable homes since 2006, will have exhausted its entire budget by July 2011. In order to keep pace with affordable housing needs, it will need another infusion of funds, but no stimulus has been announced.

The state’s affordable housing crisis will be exacerbated in the coming months, as relief programs are threatened by state and federal budget cuts. Rhode Island has the worst foreclosure crisis in New England and one of the ten most depressed markets in the nation. Nonetheless, Governor Chafee is prepared to eliminate $1.5 million in state funding to the Neighborhood Opportunities Program, a state-run low-income housing initiative created in 2001. Rather than scrap the program, which has built 1,200 low-income housing units in 27 communities over ten years, Chafee has proposed transferring its budget to Rhode Island Housing.

If the General Assembly approves Chafee’s budget, Rhode Island Housing will have to cut $1.5 million from its own services to accommodate taking on Neighborhood Opportunities. Richard Godfrey, the executive director of Rhode Island Housing, spoke over the phone about the impact of losing $1.5 million for affordable housing: “Generally, we provide funding at about $40,000 per home,” he says, “which translates to 35-40 affordable homes that will not be built.”

At the federal level, House Republicans and Senate Democrats remain in deadlock over a budget compromise, but both parties seem to agree on drastic reductions to affordable housing. Republicans stand to cut $4.8 billion from the Low Income Home Energy Assistance Program (LIHEAP), and Senate Democrats essentially agree, proposing $4.7 billion in cuts. 34,000 Rhode Islanders failed to pay heat and electric bills last year; slashing federal aide for heating, Godfrey believes, will force cash-strapped families to rely on illegal space heaters, “which will create all kinds of fire hazards and violate health conditions.” The contested federal budget will also include significant cuts to Community Development Block Grants and the Neighborhood Stabilization Program, which Godfrey calls, “our primary tool” for renovation, used recently by Rhode Island Housing to revitalize neighborhoods in Olneyville.

About one in ten mortgaged homeowners in Rhode Island faces foreclosure or serious delinquency, a number that will inevitably climb once the budget battles are settled. Godfrey estimates that in two years there will be a 60 percent reduction in the number of affordable homes being constructed in Rhode Island, with major drop-offs in 2012 and 2013 as a result of state and federal budget cuts.
Rhode Island’s troubled housing market reflects the nationwide picture. Even as steady job growth and the rising stock market signal that we might finally be recovering from the recession, foreclosure rates are steady, and even increasing in some states. To help assist low-income residents struggling with their mortgages, mass refinancing events have been held in convention centers from Orlando to L.A. The Rhode Island Convention Center was bustling last week at the Home Show, but there were few low-income homeowners in attendance. Even for those who did pay admission, there was little sweetness beyond the free candy, because the affordable housing crisis continues to swell in Rhode Island.

MALCOLM BURNLEY B’12 is thankful he’s got a roof over his head.