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The Effects on Low Income Residents as a Result of the Decisions Cities make

Regarding Housing

PSC 520 Urban Political Systems

Ariel Everett

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Politicians, mayors, and city council members make decisions every day that have

lasting impact on our lives. Whether it is choosing to make a bid for a company to move

to your area, or choosing an alternative water source for the city to cut costs, the

decisions they make can impact your health, job opportunities, and even your ability to

own home. Owning a home is an essential part of the American dream and for most

Americans, their home is their largest asset. However, for many low and moderate

income Americans, this dream of homeownership is nearly unattainable. For policy

makers and enforcers, providing supports to economically disadvantaged persons is a

priority evidenced through programs such as Medicaid, SNAP, and housing is no

different. Although history shows a more heavy-handed approach to benefits and

subsidies, overtime cities have been afforded more choices that can either increase or

decrease the likelihood of homeownership for over 30 percent of those low and

moderate-income Americans (Census 2017). The question at the center of this research is

how often do cities choose homeownership when presented with options on how to

address low-income housing and what affects do those choices have.

With the use of a thorough review of housing policy in the United States and a

comparative analysis of two major American cities, this paper will argue that cities more

often choose rental opportunities for low-income households and that in doing so, are

missing opportunities for the positive effects associated with low and moderate-income

homeownership. Following this introduction, the paper will highlight key themes in the

literature and overview major happenings in the cities of Chicago and Los Angeles. This

will then lead into an analysis of the choices in those cities through the lens of the

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literature comparing and contrasting the choices made therein. Ultimately this will lead to

a final assessment of the choices made concerning housing and their impacts and a

review of all information covered.

Literature Review

Throughout this course we have addressed the various ways in which urban

politics plays a role in our lives. Our elected and appointed officials regularly make

decisions that impact the roads we travel on, the safety of our food, and they even

influence where we live. As was highlighted following the return of soldiers after the

Second World War, those in power saw it fit to make homeownership an achievable

dream to many American veterans. Considering today’s changing landscape, this

literature review aims to determine if promoting low-income homeownership policies

will create positive change in disadvantaged areas and political involvement and

community engagement. The identified themes that will be addressed are the power given

to city and state government, how the choices those entities make affect citizens, and

community based organizations and the role that they play.

The Power that Lies with the Cities and States

The housing boom that occurred following World War II was largely directed by

the federal government and was not made available to minorities. Overtime housing has

changed, as with many other political decisions that were made at the federal level, as

now cities and states hold the decision making power. Block grants are federal grants that

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local and state governments can direct the funds where they best see fit so long as certain

parameters are met.

Community Development Block Grants is one example of a block grant that is

directed at housing and neighborhood revitalization and development. These funds are to

be directed at “acquisition, disposition, or retention of real property, rehabilitation of

residential and non-residential buildings; social services; and economic development’”

70% of which must benefit low to moderate-income households (Schwartz 2010, p. 212).

This openness allows for nearly all of the decisions to be made at the local government or

state level, and about 70% of these grants go to cities (Schwartz, 2010). Cities decide,

with required community participation, what neighborhoods that funding goes to, and

how it is to be spent, whether through restoring currently occupied single-family homes,

homebuyer programs, or affordable rental units.

HOME Investment Partnership Program is similar to CDBGs in that it is a block

grant, however the parameters differ in that this funding can only be used for housing,

15% must go to Community Housing Development Organizations, and 25%-35% of the

funding must be matched (Schwartz 2010, p. 216). This matching requirement usually

limits the development projects created with these funds, yet 52% of the projects were

rental housing developments (Schwartz 2010, p. 216). The remainder of the funding were

homebuyer activities (26%), owner occupied rehabilitation (17%), and tenant based rental

assistance (3.4%) (Schwartz 2010, p. 216).

Housing Trust Funds are another means of “addressing local housing need” and is

one of the most flexible tools available (Schwartz 2010, p. 221). Although the majority

of these trust funds are at the state level, 80%, major cities in the United States like

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Chicago, Los Angeles, and New York City collect more than 10 million annually

(Schwartz, 2010). Similar to the previous examples, the majority of these funds go

towards low and moderate income households but do not offer as much support than

federal programming such as Section 8 or housing vouchers (Schwartz, 2010).

How Those Choices Affect Neighborhoods and People


Allowing cities and states to have more autonomy regarding their decisions

allows for a deeper look that how those decisions play out on a local scale. Alex

Schwartz describes how some of these decisions affect community residents in Housing

Policy in the United States (2010). One major point of contention with some Block

Grants and Trust Funds is that the poorest people in the community do not always see the

benefits of the funding. Moderate income is defined for these grants as having up to 80%

of the median income. With no restrictions on what percentage should go to low income

or moderate-income households, CDBG funding tends to favor those with moderate

income, not including the other 30% that can benefit households of any income

(Schwartz, 2010). Additionally with CDBGs, the extent of community participation in

planning varies widely from city to city and can leave some people out of the process

(Schwartz, 2010).

There were trends in the information on HOME Investment Partnership Programs

about what households are participating in what types of programs. By observing the

chart below, you can see that the majority of the participants in the homebuyer activities

were in the highest category of income while those who received tenant based rental

assistance were in the lowest income category. While not much can be inferred from this

information, it does show what populations are utilizing what opportunities.

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There have been policies targeting low-income renters looking to buy and

programs to sell public housing units to their low-income residents. William Rohe and

Michael Stegman take a look at the outcomes of a public housing ownership program in

"Public Housing Homeownership: Will It Work and for Whom?" (1992). The authors

focus on the cost effectiveness of the program, those most likely to benefit as a result, and

other elements that may improve effectiveness. Similar to this article, much of the

research that focused on the outcomes of policies noted how the programs could be more

effective (Drew 2013, Rohe 1992, Riley 2012). This example provides for a deeper

assessment of the outcomes of housing policies.

Rohe and Stegman (1992) found evidence suggesting that the program did

increase the wealth of the participants in the form of equity although this was dependent

on the conditions of the sale and how far below market value the homes were sold (p.

153). The other positive benefit of the program was that the quality of life for the

participants was seen to have improved (p. 154). Drew (2013) provides commentary on

how these policies are created without insuring the protection of low-income potential

homebuyers, thus placing them at further disadvantage (p. 629).

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There is some research showing both the positive or negligible effects of

homeownership on its buyers and specifically what effects homeownership can have on

low-income families. I found multiple mentions of the more personal benefits such as

increased stability and mental well being for low-income homebuyers (Shlay 2005,

Scanion 1998). These articles also noted that although the original focus was on

increasing assets for the family or the improvement of the community, these benefits

appeared to be the most impactful (Shlay 2005, Scanion 1998). Shlay (2005) argues that

these impacts on low-income residents are not only available via homeownership and

how without the degradation of current low-income policies like housing vouchers, these

people could feel secure without homeownership programming. Scanion (1998) is less

critical and focuses more on the community benefits like “increased care of the

properties,” while also noting that more attention should be given to the external factors

causing these families to live in poverty.

Community Based Organizations and Nonprofits and the Role that They Play

Community based and nonprofit organizations are also key players in determining

housing opportunities across the country. These organizations provide opportunities for

the poorest in our neighborhoods and consistently play key roles in policy decisions. The

government often partners with nonprofit groups that provide housing services as they

meet the needs of those with low income, are always affordable, and “have no desire to

reap capital gains” through sales or charging market rates (Schwartz 2010, p. 232).

Community Development Corporations or CDCs makeup the largest portion of the

nonprofit housing sector and are responsible for building or renovating over one million

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homes between their beginning in the 1960s up until 2005 (Schwartz 2010, pg. 233).

CDCs focus on individual communities and offer additional activities such as counseling,

repairs, financing and more (Schwartz 2010, 234).

Community Development Financial Institutions are another central factor in

community and low-income housing. These Community Development Financial

Institutions or CDFIs are community credit unions or banks that “provide basic financial

services at little or no cost to their members or customers,” (DeFilippis and Saegert 2008,

p. 82). Due to discriminatory redlining practices, homes in low-income districts are often

more difficult to purchase and CDFIs help residents stay current on their payments

(DeFilippis and Saegert 2008, p. 82). CDFIs usually don’t offer first mortgages, but

second mortgages and members usually have to undergo education classes prior to

approval (DeFilippis and Saegert, 2008). Similar to CDCs, CDFIs provide other activities

to assist in the continued success of low-income homebuyers with services like “post-

purchase counseling to help buyers make their payments and avoid predatory re-

financing or other deceptive lending practices,” (DeFilippis and Saegert 2008, p. 83).

Chicago

Chicago is the third largest city in the United States with its population of nearly 3

million people (Census 2017). Located in the northeastern part of Illinois, the “windy

city” is commonly known for its beautiful views of Michigan Lake, deep dish pizza, and

being the current home of the 44th President of the United States, Barack Obama. The city

has 50 council members and a mayor with executive powers, a post currently held by

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Rahm Emmanuel. As of 2015, 22.3% of the city’s 2,704,958 residents were living in

poverty with 51% of those people having a salary less than $50,000 (Census 2017).

Now census data will be used to highlight some of the more specific housing

details in Chicago. Of the housing units in Chicago, 13.2% are vacant, not including the

numerous vacant lots in Chicago without housing units (Census 2017). Of those occupied

units, 44.3% own the properties with the remaining 55.7% as renters. The median value

of a home in Chicago is $222,900, which for owners translates into $1,859 monthly costs.

In contrast, the median monthly rental costs amount to $965 (Census 2017).

In Chicago, like many of other major cities, there is a homebuyer assistance

program. These programs vary from place to place, but some requirements are similar.

For instance, they all require that you fall into a certain income bracket, normally with

the maximum eligible income being 80% of the median income in that area based on

your family size. Some of the things that set Chicago apart with their homebuyer

assistance program are that this assistance comes in the form of a grant rather than the

usual loan. Another interesting thing about their program is that you do not have to be a

first time homebuyer to be eligible. These funds are available to go towards purchasing a

home or refinancing a home so long as no cash is given to the recipient as a result of that

refinancing. Also notable is that this program is titled on the website where the

information can be found as coming from the office of the mayor. This is at a time in

Chicago where Mayor Rahm Emanuel has an announced 5-year plan to address housing

in Chicago (Office of Rahm Emanuel 2017).

One instance in which Chicago made a decision on how to redirect funds, the

Cook County Housing Authority decided to team up with two surrounding counties to

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fund the Regional Housing Initiative that would integrate low income people in to

wealthier neighborhoods (Semuels 2015). While they would normally have been unable

to create a development with these funds, collaborating made this initiative possible and

opened up opportunities for better jobs, improved schools, and safer neighborhoods than

traditionally available with affordable housing. This presents an instance in which

officials in Chicago made a choice of how to redirect funding to provide housing, so

while it does not lead to homeownership, it does offer insight into the choices made.

Something that was mentioned in the research as being major forces of housing

developments in low-income communities were the Community Development

Corporations and Community Development Financial Institutions. Chicago features

many CDCs and CDFIs and they have varying focuses. While the Chicago CDC focuses

its effort on the creation and maintenance of affordable housing for low-income people in

the area that they serve (Chicago Community Development Corporation 2017).

Alternatively, the Northside CDC had a much more distinct homeownership approach

and offered homebuyer courses and foreclosure prevention assistance (Northside

Community Development Corporation 2017). Additionally, the CDFIs in the area were

actively working on development projects, offered home loans and more.

Another innovative program in Chicago is their Large Lots program in which

local residents have the option of purchasing empty lots in their neighborhood for as low

as one dollar. This program is intended to benefit both the city and local residents as the

city will have someone to pay taxes on the property and the locals will own property in

their own neighborhood. The main requirement is that the person lives in the

neighborhood for which they are buying property and pay the taxes. The other major

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requirement is some upkeep of the space. If the lot purchased is next to their residence

then they simply have to do basic grounds keeping while if the land is elsewhere in the

neighbor then the owner must place a fence around the property. The upkeep of the

property is intended to add value to the neighborhood and lower crime in those vacant

lots. While this program isn’t directed at low to moderate-income people, it is creating

opportunities for ownership, adding to neighborhoods, and the program does have a

desire to eventually offer housing on the properties (Large Lot Program 2017).

Los Angeles

Los Angeles is second only to New York City in terms of population with its

population of approximately 4 million. Los Angeles is located in southern California and

it popular for its neighbor the Pacific Ocean, amazing weather, and of course Hollywood.

The city has 15 city council members and a mayor with executive privileges, with Eric

Garcetti currently in office. As of 2015 22.3% of the population was living in poverty

with 49.6% having salaries less than $50,000 a year (Census 2017).

Now census data will be used to highlight some of the more specific housing

details in Chicago. Of the housing units in Los Angeles, 6.5% are vacant, which is less

than in Chicago while LA is not plagued by various empty lots (Census 2017). Of those

occupied units, 36.8% own the properties with the remaining 63.2% as renters. The

median value of a home in Los Angeles is $471,000, which for owners translates into

$2,454 monthly costs. In contrast, the Los Angeles gross rent comes to about half the cost

at $1,209 per month (Census 2017).

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Los Angeles also features a homebuyer assistance program although there are

distinct differences than the one offered in Chicago. For example this homebuyer

assistance is offered in the form of a loan available up to $60,000. Only first time

homebuyers are eligible and refinancing your home in the future is available under

certain circumstances. The program is made available through the Los Angeles Housing

and Community Investment Department, a department created by the city of Los Angeles

and funded by a CDBG to provide basic human services in 1976 has since combined to

form the department it is today (City of Los Angeles “Homebuyers” 2017).

Los Angeles features numerous Community Development Corporations and

Community Development Financial Institutions as well. For example, the West Angeles

Community Development Corporation focuses primarily on economic justice and

alleviating poverty through community development. The TELACU Family of

Companies is another interesting example of these community development

organizations as this one is a sort of mix between a development corporation and a

financial institution. Although they began as a CDC, they now offer business and home

loans to community members in Los Angeles (TELACU 2017).

The mayor of Los Angeles, Eric Garcetti has announced a new initiative in the

city in an attempt to address one of the major issues in the major city, homelessness.

Mayor Garcetti has rolled out his new initiative titled Housing First as a “new approach

to tackling homelessness” in a reversal of the current order of service delivery to people

experiencing homelessness (Office of Mayor Eric Garcetti 2017). Rather than provide

people with services to better their situation while still experiencing homelessness,

provide that housing first and proceed to provide any necessary accompanying services.

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Homelessness is a significant issue around the country and particularly noticeable in large

urban areas, making this a very visible issue for the mayor to tackle in a logical manner.

While, again this may not specifically address low-income homeownership, it shows a

choice by a city official on how to best address housing issues in this area.

Analysis

The literature spoke of the many federal funding sources available to cities and

states and the choices they have in determining where those funds are directed. Both the

cities of Chicago and Los Angeles offer public access to their action plans where they

detail how all entitlement funds awarded from the Department of Housing and Urban

Development will be used and fit into their respective goals. This action plan allows for

the determination of the priorities of these cities as can be judged by where they prioritize

the funds. Also given the knowledge on the restrictions of use of these funds, we know

the variety of choices available to them.

Chicago was awarded $72,093,122 in Community Development Block Grant

funds and $14,874,943 from the HOME Investment Partnership for 2017 (City of

Chicago 2017 Action Plan 2016). Of those funds, the vast majority were dedicated

towards rental housing projects and programs according to the action plan. The CDBG

funds were broadly described as being used “to support community development

programming,” which is later described by program (City of Chicago 2017 Action Plan

2016). For example, one program is expected to assist 151 households with home

purchasing financial assistance; this project is being allotted $3,476,572 of the CDBG

funds (City of Chicago 2017 Action Plan 2016). All of the HOME funds will be

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dedicated towards the development of affordable rental housing within low and

moderate-income census tracts meaning although the officials had a choice, they chose

rental opportunities (City of Chicago 2017 Action Plan 2016). To illustrate the

connection between some of the Community Development Corporations, if the $742,632

budget for homeownership counseling services offered, $90,000 was awarded to the

previously mentioned Northside CDC (City of Chicago 2017 Action Plan 2016).

Los Angeles showed a similarly strong prioritization of rental housing

opportunities as opposed to homeownership in their action plan for 2016-2017 (42nd Year

Action Plan (2016-2017) Findings 2016). For this cycle, the city had a budget of

$60,926,879 for Community Development Block Grants through a combination of the

award, revenues from the programs, and unused funds from the previous cycle (42nd Year

Action Plan (2016-2017) Findings 2016). Through a similar combination of funds, the

total HOME Investment Partnership budget was $31,152,156 (42nd Year Action Plan

(2016-2017) Findings 2016). Of those lines in the budget that showed what programs the

funds were dedicated to, only one was related to homeownership simply titled

‘Homeownership Assistance,’ (42nd Year Action Plan (2016-2017) Findings 2016). The

total amount for homeowner assistance was $5,752,076 with $2.3 million coming from

the CBDG funds and the remaining $3.3 million from the HOME budget (42nd Year

Action Plan (2016-2017) Findings 2016).

There is an interesting set of information towards the beginning of the document

that detailed where cuts and additions would be made if the federal award different from

the projected amount used to create the action plan. This section stated that if the CDBG

funds were more or less than projected, the funds would either be pulled or added to the

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‘Homebuyer Assistance’ line in the budget up to the amount of $250,000 (42nd Year

Action Plan (2016-2017) Findings 2016). If the difference is greater than $250,000, the

next line item is the ‘Affordable Housing Trust’ (42nd Year Action Plan (2016-2017)

Findings 2016). It is also notable that over time, the CDBG awards are decreasing

(DeFilippis 2008). This further illustrates the claim that when offered these choices on

how to allocate funds, place less emphasis on homeownership.

It is evident through this analysis that the prioritization of the funds and the

initiatives within the cities lies with providing affordable rental housing rather than

homeownership opportunities. Chicago’s Home Buyer Assistance Program opens the

opportunity to a broader spectrum of people than the comparable program in Los Angeles

Office of Rahm Emanuel 2017, City of Los Angeles “Homebuyers” 2017). While Los

Angeles’ program is limited to first time homebuyers, Chicago’s program is available to

all purchasers, including those who may have previously lost a home.When comparing

the allocation of funds from the HUD entitlement programs, both cities are similar in that

prioritization of affordable rental housing. In Los Angeles, approximately 3.8% of the

CDBG budget and 10.6% of the HOME budget was for homeownership assistance (42nd

Year Action Plan (2016-2017) Findings 2016). It is more challenging to determine the

percentages of the block grant funds designated towards homeownership in Chicago, but

many of those homeownership projects listed described affordable housing development

as a part of their program (City of Chicago 2017 Action Plan 2016). While this is

understandable given that some low and moderate-income households may not be

adequately prepared for the necessary additional resources that accompany

homeownership, it is not evident that there are enough resources to support those who

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are. This is just to highlight a few of the ways these cities create more opportunities for

affordable rental housing for their residents.

Conclusion

This paper serves to argue the fact that when cities are given choices on the

housing opportunities they afford to their low and moderate-income citizens, they often

prioritize affordable rental housing, losing the potential community wide benefits of low-

income homeownership. The literature aided in the understanding of what housing

programs are available and how many choices they afford the grantees. Additionally the

literature highlighted some of the social benefits associated with homeownership.

Information on Chicago and Los Angeles, the two cities used in the comparative study

provided a snap shot of what they are currently doing to better set up the further analysis.

That analysis, in turn, allowed a look at the choices they are making with the view of the

literature, showing exactly where they were allowed decisions, and the choice of

affordable housing they both often made. This process allowed for a conclusion that

although options are given, these cities chose to make homeownership a distinctly second

choice, losing those benefits of increased political engagement, better maintained

communities, and asset building for less fortunate households (Engelhardt 2010).

Looking towards the future, cities and the officials that run them, should further consider

the impact of their decisions and know that the prioritization of homeownership could

elevate more families out of poverty and decrease the need for the affordable housing

they always put first.

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References

Chicago Community Development Corporation. “Mission Statement.”


http://www.chicagocdc.com/mission-statement/ (November 7, 2017).

City of Chicago. Office of Mayor Rahm Emanuel. Home Buyer Assistance Program.
https://www.cityofchicago.org/content/dam/city/depts/mayor/general/HomeBuyer
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City of Chicago. 2016. City of Chicago 2017 Final Action Plan.


https://www.cityofchicago.org/content/dam/city/depts/obm/supp_info/CDBG/Acti
on_Plans/2017_Action_Plan_Final.pdf (November 7, 2017).

City of Chicago. Planning and Development Department. “Large Lots Program.”


https://www.cityofchicago.org/city/en/depts/dcd/supp_info/large-lot-
program.html (November 7, 2017).

City of Los Angeles. Los Angeles Housing and Community Development Department.
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West Angeles Community Development Corporation. “Home.”
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