Wednesday, March 2, 2016

Home Ownership for the Homeless

By Scott Wagner

One excellent solution for providing homes for the homeless in Sonoma County may be to have them buy their own homes. Sounds crazy, doesn't it? Well, it's not! A preliminary look at the numbers and the deal structure shows that it might well pencil out, given the county's need to start attacking homelessness aggressively. A proposal is being looked at and picked apart that takes advantage of 3 unusual aspects of opportunity locally in 2016:

1) The county has land that can be made available for homes. Building on county land would save lots of money, not just by eliminating having to buy land, but also because of the potential to waive many of the very high development fees through county involvement. Also, development of a relatively large number of modest homes might be possible for the truly low- or no-income as a standalone development, without having to come in as the traditional 20% low-income 'bribe' for a developer who only builds 'low-income' housing (actually middle-income housing) so they can build very high-priced homes.

2) We can build modest-sized homes of about 150 square feet per person that take advantage of modern design to be comfortable, provide all the normal home amenities, provide a large storage area (an often-overlooked necessity), and allow potential expansion. These homes can be formed into attractive, cohesive communities. Using the mid-tier cost estimate of $200/square foot, a home could be built for about $30,000. If we estimate $20,000 each for electricity/water/sewer expense, and $10,000 for renegotiated fees, total cost would be $60,000 per person, which is much lower than the estimated cost of $160,000 for studio rental apartments, the only other current proposal for building housing.

3)  This is an incredible interest-rate climate. The average landlord is making a very good return on their mortgage investment, because rents are so high and interest rates are very low. This climate is a disaster for getting the homeless into rentals- but if the homeless ARE the homeowners, the problem gets turned on its head, into a great opportunity! Interest rates are so low that a $60,000 home, including all homeownership and utility expenses, nothing down, and a 15-year mortgage, would be about $400/month. If the county is willing to guarantee a significant amount of the mortgage, similar to the structure of a VA or Fannie Mae loan, some banks will likely finance the mortgages. The price and payments are so low that very modest subsidies, much lower than Section 8 housing subsidies, could make the home free or nearly free. Consider the power of a $10,000 subsidy upfront, and $150/mo. in help with the mortgage: that would reduce monthly costs in this scenario to less than 200/month per person! Homeless people could well have a home of their own in Sonoma County, which they couldn't have even dreamed of, and enjoy the dignity, safety, consistency, and mental and physical health advantages of having a permanent home, thereby saving the government the costs associated with chronic homelessness. At the end of 15 years, such a home could be free and clear, providing people with a solution when they're elderly. 

There are many details to iron out, and we're still consulting experts, but we wanted you to be able to think about this before floating it to politicians. Please make any comments, suggestions or critiques to Scott Wagner,

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