Photographs courtesy of Illinois Department of Conservation Division of Historic Sites

'New' houses from old: the rehab challenge

By BEVERLY ANN FLEMING

THE BIGGEST stumbling block for urban revitalization was identified in 1977 by the late Nathaniel Rogg, national housing expert and author of a major study on housing rehabilitation (Urban Housing Rehabilitation in the United States). Rogg said there must be a fundamental change in attitude toward our older neighborhoods by all individuals involved in the housing industry: realtors, financial institutions, the insurance industry, appraisers, the construction industry and public officials. Rogg's point was well taken and, perhaps, prophetic. Today, nationwide, there is a surge of interest in conserving older housing and neighborhoods.

Our housing values have shifted; more and more people are buying and restoring old homes rather than seeking new ones. An awareness is dawning that neighborhoods don't necessarily have to decline, and if they have already declined, they can be revived The fix-up, maintenance, rehabilitation, remodeling, repair or adaptive reuse of existing structures is certainly not a new phenomenon; it has been carried on through private initiatives or publicly funded programs for years. What is new about "rehab" in the 70's and 80's is who is doing it and how it is being done. For the first time, significant numbers of middle- and upper-

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Neighborhoods are like human beings, they are born, go through a development and growth period, a period of relative stability, and then a period of decline. The development and growth period starts when the land is subdivided and most of the houses are being built, during which prices increase. When development slows down or stops, the neighborhood enters into the stability period. This is generally the period of highest value and attractiveness of the neighborhood. Sooner or later the neighborhood will start to go into a decline period. The families that move into the neighborhood will be of a lower educational, economic, and social level. The density of the population tends to increase, new uses begin to move in, maintenance deteriorates and frequently value lowers. Sometimes it is possible to renew and revive a neighborhood as has been happening with the "back to the cities" movement. Henry S. Harrison, The Real Estate Appraiser (May-June 1976)

income households are reinvesting in older neighborhoods that were once the home, by default, of low-income groups. What is perhaps more important is that this reinvestment is not public, but predominantly private. The public funds that are spent are not used to clean up an entire neighborhood (as urban renewal tried to do), but to rehabilitate one or two structures with the intention of stimulating private investment. In some cities, private investment is accomplishing what numerous government programs have not been able to do: revitalization of nearly dead neighborhoods. Yet this so-called "back-to-the-city" movement is affecting only a few neighborhoods in Illinois. Large areas of Chicago and major portions of East St. Louis continue to deteriorate. And, unfortunately, private investment concentrated in specific neighborhoods has created another problem, namely, who should reside in these revived neighborhoods, former residents or newcomers?

Traditional housing supply and demand theory says that housing filters down from upper to middle and then to moderate- and low-income households. Upper income groups can afford to buy new housing and usually leave their old, less desirable and obsolete housing to less wealthy families. But, suddenly, these older homes are not just for the less fortunate, they are being sought eagerly by the affluent. Why?

'Stay-in-the-city' trend

Demographic shifts have created an increased number of new types of households demanding affordable housing (see January, "The American housing dream: a report"). The new home industry is not satisfying this demand. The costs of new construction have risen dramatically (see February, "Homebuilding costs . . . up, up and away!"), eliminating from the new home market all but those who can afford upper-priced housing. Existing housing in older neighborhoods usually provides a cheaper alternative. Consequently, new homebuyers are purchasing their first home in the city rather than in the suburbs as they would have in the past. In short, the "back-to-the-city" label is a misnomer; it should be called the "stay-in-the-city" trend.

For many householders, young and old, older housing in older neighborhoods has strong advantages. Young singles, childless couples and the elderly often prefer an urban lifestyle rather than a suburban one. These households are interested in living near adult pursuits found in the city: work, entertainment, recreation and cultural activities. And much less importance is given by these households to living near good schools and other child-centered activities of the suburbs. On the economic side, with the pressure of increasing energy costs, older urban housing will become increasingly desirable as daily commuting costs from the suburbs continue to rise.

Another factor encouraging urban housing rehabilitation is the now rooted realization that natural resources are exhaustible. The notion that we can simply abandon the obsolete and buy a new model is being challenged. The nation's existing housing stock is too large a resource to go unused or be razed. Moreover, Illinois can no longer afford to bulldoze its valuable farmland into subdivisions. Agricultural land is precious for the food it produces, and is as valuable a natural resource as oil. Both the Task Force on the Future of Illinois and the State of Illinois Comprehensive Growth and Resource Conservation Policy, endorsed by Gov. James R. Thompson in 1978, strongly support housing rehabilitation and urban reinvestment.

Environmental awareness, a desire for livable cities and an appreciation of our historical and cultural heritage, as

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A federal historic preservation grant-in-aid was used to remove aluminum siding from this 1889 frame house in Peoria's West Bluff Historic District. The house was remodelled in order to eliminate further maintenance in 1955. Unfortunately, synthetic siding is not maintenance free. The siding faded and peeled, permitting moisture to collect underneath, causing rot and preventing the early detection of termites. The frame structure was also damaged during the installation of the siding. Saving older buildings by any means is still saving a home ALTHOUGH they are frequently used interchangably, the terms historic preservation, adaptive re-use, rehabilitation and remodeling are not equivalent. The terms, of course, all refer to methods of saving older buildings � but for different purposes, and sometimes with very different results. At one end of the spectrum is preservation, the chief priority of which is to save buildings for aesthetic or historic value. For economic reasons, preservationists are often forced to consider the usefulness of a building in addition to aesthetic or historic values. Few museums are financially self-supporting, and society cannot afford to preserve in amber all historic buildings, as has been done with Lincoln's home in Springfield. At the other end of the spectrum is remodeling, that is, making changes in a building to extend its usefulness with little or no consideration of the building's original character. Somewhere between the extremes of preservation and remodeling is rehabilitation (updating or repairing a building), and adaptive reuse (changing a building use, for instance from a warehouse to senior citizen housing). Both rehabilitation and adaptive re-use can be done in a manner that is sympathetic to the original character of the building. Historic preservation has earned a bad name among individuals who are trying to provide housing units for low- and moderate-income groups. Saving the original design and character of a house, while making it livable, is believed to raise costs unnecessarily. Preservationists say that this is not always the case. They argue that protecting the original integrity of a house, although perhaps initially expensive, is good economic sense in the long run. Good design maintains a building's value over time; poor design results in a loss of value. And good design is usually the original design. What troubles preservationists is rehabilitation and/or remodeling that permanently damages a building, and which is solely intended to produce short-term savings or immediate cosmetic improvement. In the long run, however, the building's value may be greatly diminished if the original structure of the building is not protected. For example, sandblasting exterior bricks destroys their protective patina and leaves them susceptible to erosion by wind, rain and dirt. A sandblasted building looks fresh and clean, but it will crumble more easily than if it were left alone.

manifested in the popularized historic preservation movement, have all strengthened the desire to save older housing. Not every neighborhood has been affected. Rather, the focus has been on neighborhoods that have something special: historical character, unusual architecture or topography, parks and open spaces, or a relationship with a particular ethnic group. A 1977 Urban Land Institute Report, Private-Market Housing Renovation in Older Urban Areas, points out, "People are less interested in living in the central city per se than living on Capitol Hill in Washington, Munger Park in Dallas, Park Slope in Brooklyn, or the Hill District in Saint Paul." The report could have added: Hyde Park, the Gold Coast or the Pullman District in Chicago; West Bluff in Peoria; Franklin Square in Bloomington; the Washington Park area of Springfield; or most of Galena. Another development that has fed neighborhood reinvestment, especially among not-so-affluent groups who are trying to remain in their old neighborhoods, is the neighborhood political/social action movement. As older housing has become more desirable among the affluent, public policy is gradually shedding its anti-urban bias and recognizing the viability of urban neighborhoods. Mortgage redlining, the refusal of banks or savings and loan institutions to make loans in many older urban neighborhoods, thus fostering their deterioration, is now illegal (see July, "Redlining: A black and white issue?"). State and federal legislation and accompanying public scrutiny has released previously unavailable financial resources for investment in urban neighborhoods, although inflation and the current money market is eating away at that gain. Illinois has led the nation in identifying the problem of insurance redlining that is, the refusal of insurance companies to offer insurance coverage in many older neighborhoods. Unable to obtain normal insurance coverage at fair prices, property owners in older neighborhoods either accepted less than full coverage, paid exorbitant rates for full coverage, or relied on the state's FAIR plan. State FAIR plans (Fair Access to Insurance Requirements) mandated by Congress in 1963 offer coverage to those individuals

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unable to obtain coverage elsewhere in the private market. Often, however, they provide only the barest coverage (usually only fire protection) at high premiums. Insurance redlining has been prohibited since 1977 in Illinois. The Illinois Department of Insurance is strongly enforcing the state's present anti-insurance redlining laws and is reforming the state's FAIR plan. Several insurance companies are now offering new policies designed with the needs of older neighborhoods in mind and/or are undertaking aggressive marketing programs in older neighborhoods. Yet in some areas of the state, like East St. Louis, private insurance coverage is still unavailable.

Neighborhood incentives

In addition to anti-mortgage and insurance redlining legislation, the General Assembly has also passed legislation to support older neighborhoods through tax relief. Homeowners are often afraid that any home improvements will increase their property taxes, but Illinois has a four-year property tax freeze of up to $25,000 on homestead improvements. Illinois also offers to the elderly, who are often an important population group in older neighborhoods, a homestead exemption and circuit breaker tax relief. The 81st General Assembly last year passed a 10-year tax freeze on pre-1939 homes located in neighborhoods designated as landmark districts either by local ordinance or placement on the National Register of Historic Places. Intended to encourage preservation of the homes, the legislation is effective January 1, 1981.

At the local level, the assessed value of property is frequently not increased for deferred maintenance improvements such as wiring or new siding, but is increased only when floor space is added. Over the long run, however, as the general condition of a neighborhood improves, tax assessments go up on all properties; but, of course, so does market value. In some cities, Chicago or East St. Louis, for example, some properties are over-appraised and the high property taxes that result still deter investment in older parts of the city.

Local building and housing codes, originally intended for new construction, are often a handicap to the rehabilitation of older structures, especially in Chicago. Older structures were built with different (not necessarily less safe) methods than today's. Upgrading a building to current construction codes means a great deal of extra time and expense with little or no increase in the building's safety.

It is also difficult to find good contractors who will take on rehabilitation projects. This situation has temporarily improved because of the slow-down in new home construction caused by the high mortgage interest rates. Usually, contractors are hesitant to become involved in housing rehabilitation: it's frustrating and time-consuming because each building is necessarily a custom job. Often it may involve working around the occupants. The housing industry has been slow to relinquish its focus on new construction except in the case of condominium conversion jobs which can mean big profits (see March, "Condo capital controversy").

Who is investing in older neighborhoods? People attracted to older neighborhoods for some of the reasons stated earlier: economic pressure, interest in urban cultural and recreational opportunities, neighborhood pride, the cachet of a 19th century house. Who does the rehab work? It may be the homeowner. Or it may be the traditional home remodeler, a tradesman such as a carpenter expanding his business, or the ex-home builder interested in the profit and/or challenge of converting apartment buildings to luxury condominiums.

When reinvestment is concentrated in only a few neighborhoods, as has happened in the "back-to-the-city" shuffle, the demand for housing in those areas soars. Unable to compete with the financial resources of the affluent, the less wealthy residents who occupied the neighborhood before reinvestment are forced to seek housing elsewhere. The phenomenon has been labeled displacement or gentrification � the British term. Displacement is not a new phenomenon. It was initially generated by federal urban renewal activities in the 60's, and it continues to occur as a direct or indirect product of some publicly funded programs. Today, however, displacement often centers around private-market activities. Nationwide, historic preservation is pointed at as the chief culprit. In Chicago, the most vocal criticism has been leveled at condominium conversions.

Trying to serve the needs of the not-so-affluent households and yet not stifle neighborhood reinvestment is the goal of local government programs and private organizations. By far the most well-known and highly regarded neighborhood reinvestment program is Neighborhood Housing Services (NHS), a privately funded nonprofit housing program which concentrates on specific neighborhoods, usually neighborhoods with a high degree of homeownership and in which the housing stock, although beginning to show signs of deterioration, remains basically sound. Illinois has five NHS neighborhoods in Chicago and one each in Aurora and Peoria. The NHS program uses small amounts of seed money to pry additional funding from private resources, foundations, individual homeowners and cities. These monies are used to offer comprehensive housing rehabilitation and financial services to residents of NHS neighborhoods. The program has compiled a remarkable track record, using less than $9 million in federal demonstration grant funds during 1974-77 to further generate an estimated $74 million in public and private improvements. An important characteristic of the NHS program is to encourage reinvestment for the benefit of the present residents of older neighborhoods, not newcomers.

NHS is a working partnership of neighborhood residents, representatives of local financial institutions and local government. Although NHS programs exist in 55 neighborhoods in 46 cities, each local NHS program remains an autonomous, resident-controlled operation and has its own staff who offer financial and rehabilitation counseling services to residents. Local government provides neighborhood-wide housing code inspection and needed neighborhood improvements. A high-risk revolving loan fund makes possible home improvement loans (at below-market interest rates and easier terms) to residents who cannot qualify for normal commercial loans.

The NHS program has been especially successful at capturing private investment. In addition to the financial support of local savings and loan institutions, some dozen insurance companies have contributed to the

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operating budgets of the Chicago NHS's. One company, Allstate, has been especially generous, contributing $500,000 to the operation of the Neighborhood Redevelopment Corporation, a subsidiary of NHS in Chicago. A new program, the Neighborhood Redevelopment Corporation buys houses and smaller apartment buildings in NHS neighborhoods and rehabilitates them. Other Illinois businesses, such as the Caterpillar Tractor Company, have also contributed funds to local Illinois

While the NHS program primarily encourages homeownership, a Chicago program � RESCORP � concentrates on multi-family housing. RESCORP, the Renewal Service Corporation of Chicago, was organized in 1973 by 40 Chicago-area savings and loan associations with the goal of stemming housing deterioration and neighborhood decline in Chicago's inner city and at the same time making a profit. Today 55 institutions belong. According to Saul Klibanow, the corporation's president, RESCORP tackled the rehabilitation of multi-family housing, because of the major influence the condition of this housing has on the overall well-being of a neighborhood. RESCORP's first two projects were New Vistas I and II, consisting of 148 units in five buildings and 154 units in six buildings, respectively. All the units were within a two-block area on Chicago's South Shore. About $8 million was spent on the rehabilitation, and long-term financing came from the Illinois Housing Development Authority. These and later projects in the immediate vicinity have had a positive effect on the surrounding neighborhood, generating other fix-up efforts by property owners. Klibanow is pessimitic about the future, although RESCORP has now expanded its activities to the northside of Chicago. "How do you make the numbers work?" he asks. "The present economics of rental property are doubtful."

Beyond the NHS

Nonprofit groups struggling to revitalize older neighborhoods and provide housing for low- and moderate-income households abound in Chicago. The Greater Southwest Development Corporation (see December, "Lawn area rebuilding effort led by S & L's") is rehabilitating not only apartments and single-family homes, but also neighborhood commercial ventures. Some 20 other neighborhood-based and three citywide groups are tied together under the umbrella of the Chicago Rehab Network in their objective of trying to provide affordable housing. But because of today's difficult housing economics, the job is almost impossible.

Since 1974, a homestead plan in Rockford for selling foreclosed homes for the price of rehabilitation has worked for the city

Local governments are also instituting programs to encourage reinvestment in older neighborhoods. One problem in central city neighborhoods is the number of vacant houses, often in reasonably sound condition, but usually needing some repairs. If left vacant for even a short period, they become an eyesore and a health and fire hazard for the surrounding neighborhood. Some of these structures were abandoned by their owners through default on a mortgage insured by the Federal Housing Authority (FHA). One solution to the problem, and much preferable to demolition, is a locally administered homestead program. One such homestead program, an especially successful one, was started in Rock-ford in 1974. Under this program, U.S. Department of Housing and Urban Development deeds vacant houses obtained through FHA foreclosures to Rockford's Homestead Board. The board then sells the houses at a lottery for the price of rehabilitation. Funding from private financial institutions is obtained by the board, and then in turn loaned to a homesteader to pay for repairs. Homesteaders must have an income capable of supporting the total cost of rehabilitation (usually $12,000-15,000 per house) without paying more than one-third of their monthly income for rehab costs. The eventual owners must promise to occupy the house within 60 days, and complete rehabilitation in 18 months. They must live in and maintain the house according to city code and Homestead Board standards for a period of not less than four years. Ownership is not granted to participants until repairs are completed and financial obligations to the board are met. In August of 1978, those individuals who participated in the first lottery completed their homestead obligations and became full owners. The program has been very popular and one lottery had 300 applicants bidding for eight to ten houses. Since the program began, 145 houses have been homesteaded.

A 1978 study conducted by the Rockford Department of Community Development in conjunction with Northern Illinois University examined the effects of urban homesteading upon the surrounding neighborhood. The study found that homeowners in a neighborhood surrounding a homestead spent almost 50 percent more on home improvements and maintenance than a similar control group. In short, the investment of public monies seems to encourage further private investment in a neighborhood.

Many local governments in Illinois offer housing rehabilitation programs financed with either federal Community Development Block Grant funds or the Section 312 Rehabilitation Loan Program or both. These programs usually take the form of outright grants or loans (at low or no interest and easy terms), or guaranteed conventional home improvement loans. They usually have income guidelines and stipulations that the house be brought up to code standards. Technical assistance is provided, and the programs focus on specific neighborhoods. The demand for this type of rehabilitation loan can be demonstrated by the fact that in 1980 the city of Rockford has approximately $700,000 to use for the rehabilitation of approximately 50 houses. The city currently has a waiting list of over 600 applicants. Rockford has been successful at obtaining private sector capital in addition to pubilic monies for its rehabilitation program. Five local savings and loan institutions have committed over $1 million to specific neighborhoods for conventional rehabilitation loans.

Local government rehabilitation

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programs are sometimes criticized for the delay between the application process for public monies and the completion of the rehabilitation work. This often takes months, sometimes over a year. In the meantime, the intended rehab project further deteriorates and rehab costs go up. Private programs can usually avoid or reduce bureaucratic delays.

Public programs also suffer from a lack of funding; there's never enough money and there never will be. If older neighborhoods are to be successfully revitalized, the majority of the work must be done through private efforts. Yet privately financed rehabilitation creates another issue � displacement.

The strong interest in our urban neighborhoods provides a unique opportunity to create neighborhoods that are economically, racially and socially mixed. But in many neighborhoods the affluent have often driven up prices and forced out the poor. Often, the people displaced are the ones least able to cope financially or emotionally. They have few resources and few housing options. At present, no public programs provide relocation monies or assistance when displacement results from private-market activities.

Displacement seems wasteful and unecessary. The "back-to-the-city" movement is presently concentrated in only a few neighborhoods, which, of course, is part of the movement's attraction. Yet other urban neighborhoods continue to deteriorate. If some of the demand by the affluent for older housing in specific neighborhoods could be spread over all older neighborhoods, surely then, urban revitalization without displacement might be possible.

Beverly Ann Fleming holds a master's degree in urban planning from the University of Illinois at Urbana-Champaign. She is a research associate at the Center for Policy Studies and Program Evaluation, Sangamon State University.

[This is the fourth in a series of articles on Illinois housing problems. The first two studied single-family housing issues and the third examined multi-family housing problems focusing on condominiums. This article examines the rehabilitation of older housing. The next will explore the situation of public housing. Editor.]

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