Tag Archives: Introduction

Introduction to Strategy

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Having presented the social ecosystem and discussed key findings, I now propose a series of recommendations linked to a set of strategic outcomes and objectives. These recommendations address the social ecosystem of two- to four-unit buildings in Woodlawn, barriers to their acquisition and renovation, and the need to improve property management and expand access to capital. The strategy also builds upon the strengths and opportunities that I have identified and speaks to the interests of local stakeholders.

Acquisition
Despite the substantial number of vacant two- to four-unit buildings in Woodlawn, many languish and continue to physically deteriorate because of direct barriers to acquisition and indirect factors that discourage investment. Currently, properties whose owners have fallen behind on property taxes, municipal services and building code violations cannot be purchased and renovated without paying these debts. As a result, additional strategies for easier acquisition are needed.

Renovation
Renovation strategies must be flexible in order to accommodate the unknown and varied building conditions. Controlling labor costs and providing reliable technical assistance are necessary to enable middle-income homeowners and smaller, entrepreneurial developers to take an active role in renovating two- to four-unit buildings. To ensure that properties are renovated sufficiently, a holistic approach must be taken to prevent landlords from milking properties and weakening the strength of the housing stock. Lastly, the economic activity generated by this labor-intensive process is a potential source of wealth for neighborhood residents.

Leasing, Sale and Property Management
Many of the “soft” issues in real estate development remain important to consider in the development of the strategy. Homeownership is down nationally, and increased rental demand presents an opportunity that should only be ignored at the peril of housing planners. Property management, a task that concerns homeowners and investors alike with two- to four-unit properties, has specific challenges given the nature of smaller buildings in weak market neighborhoods with a concentration of voucher recipients. Care must be taken to avoid blaming the most vulnerable participants in the real estate process, i.e. low-income tenants, for environmental conditions over which they have no control. More support for the landlords pursuing “high-road” property management would upgrade the residential options for all residents and reduce the viability of short-term cash flow driven investors. Attracting homeowners as well as tenants requires being more resolute and strategic about improving quality of life and public safety challenges in the neighborhood. A second approach for increasing homeownership is to rely more on tenants with an existing connection to the neighborhood.

Capital Availability
Several general and more specific challenges in capital availability have significant ramifications for two- to four-unit properties in Woodlawn. Beyond the macroeconomic challenges that have reduced many families’ earning capacity to purchase a home, homeownership is difficult because households cannot obtain financing in the same way they did prior to the recession. Because of the obstacles that would discourage many investors from renovating these properties, an important step is bolstering the ability of homeowners to obtain acquisition and rehabilitation financing. Much of the shortage in financing can be attributed to low property appraisals in the neighborhood, appraisals that are artificially low as a result of continued foreclosure, short sales and cash purchases. The community development institution in Woodlawn that historically filled this niche (ShoreBank) doesn’t exist anymore, while the institutions that do target Woodlawn fill a different niche in their lending. Developers can follow a series of best practices for obtaining financing: they need track records and carefully cultivated relationships with lenders, they need scale in putting together portfolios, and they need either personal funds for down payment or investment capital. Ideally, this last condition would ensure that asset appreciation takes precedence over cash flow. As a consequence of the difficulty of obtaining traditional sources of capital, other business strategies that are less community-minded become less viable.

Organization of Thesis

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This thesis is composed of six chapters. The first, the introduction, provides an overview of the research topic and the literature. The next chapter presents the findings pertaining to the development process that stretches from acquisition, renovation to leasing/sale of two- to four-unit buildings (or parts within), and includes the availability of financing. The next two chapters present the social ecosystem that surrounds the development process. The third chapter focuses on the web of interrelated individuals and organizations that are capable of exhibiting agency with respect to the two- to four-unit building market, including the resource providers, partners, alternative providers of housing, customers, problem makers and bystanders The fourth chapter focuses on the environmental conditions that shape what players can exist and their relationship with each other, including the economy, laws & regulations, demographics, culture and geography. The fifth chapter presents key findings and their implications. The final chapter presents the strategic plan that was developed in line with the findings.

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The Role of Housing

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Particularly with the onset of the Great Recession, housing foreclosures began to contribute to neighborhood decline. Mortgage brokers and banks targeted high-minority neighborhoods like Woodlawn with a considerable amount of single-family and multifamily homes for sub-prime loans and home equity loans in the high-risk boom leading up to the Crisis (Immergluck, 2011). Immergluck and Smith’s analysis of Chicago foreclosures demonstrates not only that each additional single-family (one- to four-unit) foreclosure decreases surrounding property values, but that properties in low to moderate income communities experience an even more dramatic fall in property values when they are in proximity to a foreclosure (2005). Lastly, when property values fall, obtaining financing for surrounding properties becomes more difficult given the loan to value ratios of lenders and the lower rental income in low to moderate income communities (Seidman, 2005).

The filtering hypothesis posits that older housing structures provide a source of housing for newer migrants, as well as great value in understanding that neighborhoods do not have static populations (Kennedy, 1987). However, it assumes a much simpler housing market than one impacted by racial discrimination, school quality and a different bundle of services across municipalities. It also begs the question of how the filtering of black neighborhoods—when residents are bound by a similar ethnicity and solidarity that often cuts across economic lines—will impact these sociopolitical identities if they “filter up” to a newer housing stock. In other words, what about when residents resist mobility in favor or stability. The “natural” filtering process thus poses great challenge for acknowledging but refusing to accept the inevitable consequences of a subpar housing stock.

Though mixed-income development, the explicit attempt to use housing to create communities with more economic diversity, has been advanced as the solution to concentrated poverty. Its primary empirical advantages revolve around the benefits of informal social control and higher quality services that are associated with higher-income residents. The former happens through strong social capital and participation in voluntary neighborhood organizations, whereas the latter happens through the greater political leverage that more affluent residents are able to exert on city services (Joseph, Chaskin, & Webber, 2007).

Many argue that subsidized housing is another cause of neighborhood distress, but there is sufficient evidence to cast doubt on many of these assertions. Through the rigorous use of neighborhood-level data, Ellen et al make a compelling case that the introduction of housing vouchers recipients into neighborhoods does not lead itself to additional crime. Growth in housing vouchers may in fact be a consequence of increasing crime, as landlords turn to the voucher program as other challenges arise (Ellen, Lens, & O’Regan, 2011). In Woodlawn, the observation that voucher holders track crime would suggest that the Housing Choice Voucher Program is less than effective in expanding housing choice; voucher recipients should be moving to “opportunity areas” not declining neighborhoods. Susin (2002) demonstrates that formula-allocated housing choice vouchers increase the price of housing for non-subsidized housing as much as 16%, both for low-income, middle and upper-income residents. This also conflicts with the hypothesis of vouchers as leading to decline for neighborhoods, since across the board increases in housing revenues should support more production. This, however, does not fully consider the question of quality versus quantity.

Pendall’s (2000) study of why Section 8 participants live in more distressed area suggests a neighborhood like Woodlawn will be in high demand because it has so much available rental units yet it is not as distressed as other neighborhoods. The implication of this literature would be to acknowledge the reality of voucher concentration, to dispel the causal relationship with neighborhood decline and raise the prospect of ensuring housing and neighborhood quality amidst a seemingly market-driven (though government-assisted) phenomenon.

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Neighborhood Revitalization

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After neighborhood decline has set in, whether complete or still in process, much of the existing literature defines and refines how the revitalization will take place. Though external factors are to blame for decline, revitalization will not take place without the alignment of a supporting internal environment.

There is a significant role for strong local institutions in mitigating revitalization. The examples of the Chicago neighborhoods of North Lawndale and Englewood show that while both neighborhoods suffered because of increasing competition for residents from suburban neighborhoods with greater amenities, West Lawndale has gained noticeably because as a direct result of various local institutions and influential organizations that remained committed to redeveloping the area (Zielenbach, 2000).

Increasingly, there is consensus around the need for public actors who can improve demand in revitalizing neighborhoods. A series of successful efforts to create Healthy Neighborhoods have relied on resident-led and demand-focused. This approach views the revitalizing challenge as a loss of resident and investor confidence, and demands the involvement of homeowner groups and the creation of a positive image of the community in order to compete for residents (Boehlke, 2010).

Suggesting another set of players that contribute to neighborhood improvements, the series of successful efforts to create Healthy Neighborhoods have relied on resident-led leadership that focuses on the neighborhood’s residential demand, noticeably among homeowners. Under such terms, it would be hard to imagine a successful revitalization effort in Woodlawn that was not fully supported by the residents (Boehlke, 2010). In Woodlawn, there is a practical source of tension between the notion of focusing on residential demand and enhancing supply for low-income residents. Opponents of gentrification make normative claims in favor of using public funds to improve the outcomes of low-income residents as opposed to appealing to higher-income residents, who may eventually price current residents out.

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Causes of Neighborhood Decline

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I consider, next, the historical circumstances that led to the conditions that exist in communities like Woodlawn. Many authors attribute neighborhood decline to factors external to the boundaries, as opposed to those that are purely self-contained. In addition, the role of race is always explicitly or implicitly a factor. Hirsch’s (1998) striking examination of further concentration of urban renewal in Chicago highlights the extent of segregated housing markets in the 1950-1960s, which subjected rural black Southerners often to higher-cost, sub-divided housing in Chicago and white residents to block-busting and social and economic pressures to move to the suburbs. Hirsch’s work stops decade before the start of this research, but conditions he described in his work continued into the 1980s as described by Taub (1988) in the case of South Shore. Gangs took over Woodlawn, as they did in several neighborhoods, putting further pressure on middle-class residents to move.

Further, as many home-owning and middle-class (and white) families left inner-city communities, so did the commercial retailer on whom all families depended (Bright, 2000). The disappearance of employment opportunities in the city and the movement of many households away from inner black neighborhoods left black communities racially and economically isolated (Wilson, 1996). Beyond these social and economic pressures, public policy had a significant role in causing neighborhood decline: FHA and VA codification of racial bias. locational bias in mortgage lenders, federal tax deductions that privileged homeowners rather than renters, and highway construction that fueled the suburbanization of job opportunities (Massey & Denton, 1993).

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Methodological Concerns

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This thesis doesn’t test a particular hypothesis, yet the literature review is an important aspect of any process. At times incidentally and other times explicitly, my research has been motivated by the methodological approach of grounded theory. Grounded theory requires a researcher to develop categories from empirical data, identifies additional data along the categories and tells a story around a “central phenomenon” being investigated (Creswell, 2007). As described by Dunne (2011), there is a robust debate over the role of literature among researchers who employ grounded theory. In this approach, theories generated from empirical data are privileged over existing theoretical frameworks, and such a literature review can prevent an unfettered discovery process (Glaser & Strauss, 2012). In conducting my research, I have continued to review literature after the initial research proposal. This allows my research to have a non-trivial degree of breadth, and the expectation of comprehensiveness when conducting research in community development where economics, public policy, psychology, building systems and demography may all bear on the subject at hand.

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Development of Strategic Plan

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The final part of the research process was developing a strategic plan for two- to four-unit buildings, addressing the challenges identified in the key findings and building on the opportunities. The strategic plan was created through a fairly informal process. Many of the recommendations were recorded in a journal during various parts of the research process. Juxtaposing both the key findings and the recommendations, strategic outcomes were selected that met the criteria as visions. The recommendations were organized into more direct and measurable objectives. Final implementation steps revolved around prioritizing each recommendation by the perceived amount of effort required and a grouping of general priority attached to each.

The Strategic Outcomes are listed below

  1. Stabilization – A stabilized, well-functioning property market for two- to four-unit properties
  2. Advocacy – Policies and organizational infrastructures better aligned for addressing the unique challenges of two- to four-unit properties
  3. Loan Fund and Financial Assistance – Interested and current homeowners in Woodlawn have adequate financial resources to invest into two- to four-unit properties
  4. Assistance and Counseling – Interested and current homeowners in Woodlawn have adequate technical assistance and counseling to invest into two- to four-unit properties
  5. Responsible Development – Current residents have pathways to build wealth through local economic development and pathways to homeownership, while diverse rental products and necessary amenities attract newer (moderate income) residents.

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Development of Key Findings

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The next stage of my research was identifying the most important findings and implications of the data collected and analyzed along the analytical frame. First, using a traditional strategy of qualitative research, I kept a journal of emerging patterns throughout the process. This journal was most active throughout the several months of translating interviews into the detailed a case study using the aforementioned analytical frame. When each interview was entered in the database, I often summarized emerging themes that would only become more prominent. These preliminary findings were grouped in evolving categories of real estate development, community development and public policy. My intention was to recognize the multi-faceted nature of two- to four-unit properties and consider different approaches in developing recommendations. To systematically uncover additional findings not readily apparently during earlier parts of the research process, I performed a SWOT analysis within these categories, considering existing “strengths” and “weaknesses” specific to Woodlawn or two- to four-unit properties, as well as “opportunities” and “threats” originating elsewhere. With a comprehensive list of important findings, the last two steps were revisiting the four research questions as a means for selecting the findings that were relevant, organizing them, and isolating each finding into an observation and its implication.

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Analytical Framework: Social Ecosystem and Development Process

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The workhorse of this research thesis has been an analytical framework that analyzes the social ecosystem and development process of two- to four-unit buildings. The framework was inspired by Bloom and Dees whose work on community development financial institution Self-Help Credit Unions effectively analyzed its social ecosystem and re-shaped the home mortgage market and prospects for low-wealth borrowers and clients (Bloom & Dees, 2008). The first component of the social ecosystem are the “players” (individuals and organizations): a web of interrelated individuals and organizations who are capable of exhibiting some form of agency that is pertinent to two- to four-unit building market, including resource providers, partners, alternative providers of housing, customers, problem makers and bystanders. The environmental conditions represent a second component that shapes which players can exist and their relationship with each other, including the economy, laws and regulations, demographics, culture and geography. I augmented this framework by explicitly incorporating the process of real estate development, the acquisition, renovation, disposition and management of two- to four-unit properties.

The analytical process transformed many qualitative insights into a detailed examination of the social ecosystem. Though I recorded (with permission) all but a few of my interviews, I opted not to transcribe the majority of the interviews. I developed a 35-column database to organize the following background information for each informant, including detailed notes from the interview, and to perform a quick check about the important implications.

Category Informant Database Columns
Source Background Information Type
Name of Source
Stakeholder Category
Date Conducted
Title & Affiliation
Contact Information
Permissions Granted
General Causes of Vacancy
Choice Neighborhoods Efforts
Environmental Conditions Economics and Markets
Politics
Public Policy and Administrative Structures
Geography and Infrastructure
Social and Cultural Factors
Historical Factors
Players Resource Providers
Competitors
Complementary Organizations and allies
Beneficiaries and customers
Opponents and problem makers
Affected and influential bystanders
Development Processes Acquisition
Renovation
Sales, Leasing and Disposition of Buildings & Property Management
Capital Availability
Preliminary Analysis What people, event or situations were involved?
What were the main theme or issues in the contact?
Which research questions and which variables in the initial framework did the contact bear on most centrally?
What new hypotheses, speculations, or hunches about the field situations were suggested by the contact?
Where should the field-worker place most energy during the next contact, and what kinds of information should be sought?

The primary reason for constructing a database was to translate hours of interviews into passages of written text (short of transcription) that could be re-organized and sorted by question as opposed to informant. Generating summaries of each question allowed them to be coded for the themes, conflicts, anecdotes and patterns. The classification scheme was employed through the discretion of the author according to criteria based on social ecosystem literature. Through an iterative process, I clarified the meaning of the categories, whether information was pertinent and where it falls in the analytical frame.

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Data Collection

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Interviews

During January 2013, I conducted over 12 hours of formal and informal interviews with approximately 20 persons over the course of three weeks in Chicago. Using prior contacts and contextual knowledge during my time as an intern at POAH, I developed a list of approximately 50 individuals and organizations that I contacted through a combination of emails and phone calls. My intended goal was to create a list of informants that included residents (home-owners and tenants), advocates, developers, government officials, landlords, non-profits program officers and executive staff and various types of community leaders. Unless I encountered them inadvertently in another capacity, I did not directly interview a tenant. However many of their concerns surfaced indirectly, confirming that my list of informants was fairly representative and consistent with my initial goals.

The interviews were 30 to 60 minute semi-structured interviews; I developed a fixed set of questions that covered the topics of interest, but with the help of audio-recording technology, I was able to let the interviews take a natural progression, revisit my original topics and questions in the moment, follow up on additional topics as needed and then rely on recordings for getting sufficient detail afterwards.

Thematic Approach to Interview Questions

In developing questions for the interviews, I began with questions based on an informant’s general relationship to the research topic (developer, resident, government official, etc.), customizing those questions to fit the particular background of each informant. For example, developers with direct experience renovating two- to four-unit buildings were asked questions about smaller units which were different from those put to developers of larger multifamily properties.

There were 6 particular themes that guided both the questions and the list of informants I sought:

Component Approach/Research Objectives
Historical Context Using interviews and primarily secondary sources, to develop a historical narrative of the circumstances that create the existing environment in Woodlawn.
Neighborhood Politics  Through interview questions about political engagement, identify the political climate in which the Small Building Initiative enters. What political issues are linked to the issue of Small Buildings? What is perceived as feasible and not, and why is this the case?
Housing Stock Assess the housing stock in two parts: (1) stakeholder interviews with developers, residents, and government officials for qualitative information; and 2) analyze data on vacant buildings (which are easily available), rental and for-sale listings (available with subscriptions) and tax and parcel data (much more difficult to compile, but possibly available from secondary sources). This also involves systematically dividing up the housing into categories of occupancy, foreclosure status, sale/rental price, building condition and number of household units.
Housing Demand Use secondary information from a market study commission by POAH in addition to conversations with developers and brokers to understand market prices for sale and for rent.
Capital Availability Through interviews with private/non-profit lenders, developers and government officials, assess whether there are identifiable limitations in capital availability for small building redevelopment, the reasons why/why not, the particular loan products needed and the primary sources of capital in the neighborhood.
Renovation & Management Gather information on other aspects of the housing delivery system that might include renovation of small building, obtaining a title, general landlord issues and scattered site rental management.

Additional Sources

For the purpose of generating additional insights for the case study, I relied on both primary and secondary sources to assist the interviews. Newspapers and news radio coverage were helpful for gaining information on historic context, and online websites such as the (now defunct) site Everyblock.com and Facebook served as a way of aggregating attitudes and opinions of residents. I also relied on administrative data from the City of Chicago, Decennial Census, American Community Survey, and Federal Financial Institutions Examination Council for background and additional evidence on the neighborhood, social and economic changes and physical features.

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