PETER GAGLIARDI
Authored new report

The state’s affordable housing programs are helping to concentrate poverty in struggling cities like Springfield, Pittsfield and Fitchburg and often block efforts to revitalize such communities, according to a new report.

The report, released last week by the Pioneer Institute, urges the state to loosen restrictions on the length of time homes built with state subsidies must remain affordable in blighted neighborhoods with a significant amount of vacant or abandoned properties. It also asks the state to allow people with higher incomes to purchase such homes at below-market prices.

Peter Gagliardi, who wrote the report, said that state programs such as the Housing Stabilization Fund and the Affordable Housing Trust Fund, which are used to pay for the creation of affordable rental and homeownership units, are designed to preserve housing affordability in communities with booming real estate markets. But the programs are proving to be an obstacle for cities and towns with weak or nonexistent housing markets, according to Gagliardi, who is executive director of HAP Inc., a regional housing partnership based in Springfield.

For example, homes built using money from the Housing Stabilization Fund, which is administered by the state’s Department of Housing and Community Development, must remain affordable for 50 years. That means that owners wishing to move after living in the home for a shorter time can’t resell homes at market-rate prices even if an area’s housing market has greatly improved. In addition, the homes must be sold to households earning no more than 80 percent of the area median income.

Such restrictions are discouraging many buyers from taking the risk of purchasing a home in an area struggling with high crime and neglect, because buyers realize they won’t be able to profit from rising property values resulting from neighborhood improvement.

“A 50-year deed restriction is a pretty stringent limitation with regard to the equity that would be shared if a homeowner had to sell,” said Gagliardi. “Fifty years is a long span. Someone buying a house in their late 20s or early 30s is going to figure they’re never going to see an upside” because of the length of the deed restriction.

Long-term deed restrictions are aimed largely at preserving housing affordability and battling gentrification in cities like Boston and Cambridge where home prices have surged in the last five years.

But those types of strategies aren’t working in neighborhoods like Springfield’s Old Hill, where there are more than 130 vacant lots and abandoned buildings and only 4,700 residents, according to the report. From September 2005 to September 2006, 22 single-family homes were sold in the neighborhood with prices ranging from $35,000 to $159,000, the report shows.

Gagliardi’s group, HAP, is planning to build 100 homes in Old Hill over five years as part of a revitalization initiative. However, the deed restrictions attached to the state housing programs that are available have a “deadening effect on a cautious buyer,” said Gagliardi.

“The challenge when revitalizing a weak market is to attract new people to the neighborhood while giving current residents reason to stay. Existing homeowners should be encouraged to restore value in their properties, which means they should be able to profit from reinvestment – even if that investment includes some public money. Even with such improvements, attracting new people to the neighborhood is essential to the market’s revival Â… under the current regime of deed restrictions, buyers may not profit from rising values that they help to stimulate,” the report states.

Restrictions a Challenge
Indeed, community-based nonprofit development groups have found that long-term affordability restrictions are a challenge to attracting buyers.

“A number of our members share the general concern that deeds restrictions are a problem in weak market areas because prospective homebuyers are reluctant to buy homes that can’t appreciate when they can buy homes in the open market,” said Joseph Kriesberg, president of the Massachusetts Association of Community Development Corporations.

Such long deed restrictions can “trap people” who want to move after several years because, while home prices may rise in a neighborhood, their equity hasn’t increased enough to be able to purchase a pricier home in the private market, explained Kriesberg.

But Kriesberg said changing such policies can be tricky. Any modifications must be done carefully to protect public investment in affordable housing and prevent homeowners from getting “a huge windfall” while, at the same time, protect buyers from getting “unfairly squeezed out,” he said.

The report recommends that the state either waive the deed restriction or limit it to five years in weak market areas like Old Hill, and allow people earning more than 80 percent of the area median income to buy the subsidized units. It also recommends that homebuyers of the below-market rate units be able to accumulate equity in the property.

The report includes a list of criteria to determine whether a neighborhood qualifies as a weak market area, including a requirement that more than 5 percent of the neighborhood’s units or parcels are vacant and another stating that the neighborhood’s median household income must be below 50 percent of the area median income.

The Pioneer Institute report was presented at a conference focused on revitalization strategies for smaller cities in Massachusetts that was organized by MACDC and the Citizens’ Housing and Planning Association last Tuesday. Those organizations issued a different report that makes recommendations about economic development and housing initiatives and policies that could aid small cities.

The MACDC and CHAPA report – which specifically examines Fitchburg, Lynn, New Bedford, Salem, Springfield and Waltham – calls on the state to provide adequate funding for public housing and to institute flexible policies for existing housing programs.

The report also recommends: creating financing pools or other mechanisms to help homeowners renegotiate predatory mortgage terms; increasing support to nonprofit community developers; adopting zoning changes; improving regional transportation; restoring community policing funds; increasing funding for English literacy programs; and providing state technical assistance to help cities identify and develop revitalization strategies.