HUD's FY99 Budget
Congressional Justifications
Community Planning and Development

Homeownership Zones

PROGRAM HIGHLIGHTS

   

NA = Not Applicable SUMMARY OF BUDGET ESTIMATES 1. SUMMARY OF BUDGET REQUEST     The Budget proposes $25 million for Homeownership Zones in 1999. Authorizing legislation is being forwarded concurrent with this Budget. The Homeownership Zone program enables cities to undertake large-scale, single family developments in inner city neighborhoods. Homeownership Zones reserve the majority of the new units for low- and moderate-income families, but also attract middle-income families to inner cities to help form more stable communities. In addition to increasing the supply of safe and decent housing in urban areas, the program will support new jobs in the home building industry and stimulate new investment in revitalized communities. Homeownership Zone program applicants must present a comprehensive approach toward neighborhood revitalization which will include commercial and economic development activities such as the construction or rehabilitation of business and retail centers (i.e., groceries, drug stores, dry cleaners, restaurants, etc.).     Successful development of a homeownership zone requires the targeting of a large up-front investment in a concentrated area. It is this targeted investment that creates the wholesale turnaround of a neighborhood. Such specific targeting of subsidy is not possible with CDBG or HOME because these programs are intended to benefit the entire jurisdiction and annual allocations are insufficient for such large-scale commitments. The Homeownership funding also recognizes that there are many competing demands on CDBG and HOME funding and that the need for this type of neighborhood scale revitalization is so great.     This appropriation would fund approximately five to seven homeownership zones, based on an average grant of $3 million-$5 million, in some of the most seriously distressed areas of the country, and would create approximately 1,500 new homeowners. HUD received 109 applications in the first (1996) round of the program and was able to fund only six zones with the $30 million available. HUD received 70 applications for the 1997 Homeownership Zone funding round. The Department expects to be able to fund between four and six zones with the $20 million available in 1997. Each of the 70 applicants believes that large-scale development and increased homeownership would meet the needs of their most distressed neighborhoods. Every community that wins a grant will provide models of redevelopment from which all communities may learn.     This program will provide the necessary flexible grants to units of general local government for large-scale redevelopment of seriously distressed areas to create viable communities of mixed-income homeowners. The requested $25 million for Homeownership Zones will further the National goal of increasing homeownership, stimulate public-private partnerships, leverage private investment, focus on "best practices" and support local solutions. HUD wants to play a significant role in rebuilding these once vibrant neighborhoods by making owning a home a reality for thousands of hardworking families and using homeownership as the groundwork for economic revitalization.     For fiscal year 1999, the Homeownership Zone program is being proposed as a separate, stand-alone program instead of as a set-aside within other programs. Although it is expected that these funds will be used in conjunction with other programs such as CDBG and HOME, establishing Homeownership Zones as a separate program will enable communities to use the funds to create successful projects, while minimizing the constraints of restricted eligible activities authorized for other programs, and competing demands. The CDBG program, for example, generally prohibits new construction and limits homebuyer downpayment assistance. The HOME program establishes maximum per unit subsidy and purchase price limits, and maintains strict matching requirements which limit local design flexibility, particularly in high cost areas. Both programs have income limits which discourage mixed-income homeownership programs. Furthermore, the comprehensive nature of both programs makes it difficult for communities to set aside sufficient funds for large-scale projects. The Homeownership Zone program is designed to address these limitations, while building on the successes and lessons learned from the HOME, CDBG and Empowerment Zones/Enterprise Communities programs.     Continuation of the Homeownership Zone program is needed to help address a critical problem faced by American cities--middle-class flight to the suburbs. Middle-income families continue to leave the cities leaving behind lower-income families and a weakened tax base. By creating mixed-income homeowner communities in distressed inner city neighborhoods, the Homeownership Zone program helps reverse this trend of disinvestment. It enables cities to invest in declining neighborhoods, and gives families of a diverse range of incomes the ability and incentive to become inner city homeowners. 2. CHANGES FROM 1997 ESTIMATES INCLUDED IN 1998 BUDGET     Homeownership Zones were funded from recaptured Nehemiah Housing Opportunity Grant funds in 1997 and are reflected in that account. Award of these funds is expected in the near future. 3. CHANGES FROM ORIGINAL 1998 BUDGET ESTIMATES     Funding for Homeownership Zones was requested under the Community Development Block Grant appropriation in 1998 and related amounts are reflected in the CDBG account. However, the 1998 Appropriations Act contained no funding for this program. EXPLANATION OF INCREASES AND DECREASES This Budget proposes that $25 million for Homeownership Zones be made available as a separate appropriation in 1999. It is anticipated that the full amount will be obligated in 1999, resulting in outlays of $500,000 (outlays from the 1997 round were funded from the transfer of unobligated Nehemiah grant funds and are not reflected in this justification). PROGRAM DESCRIPTION AND ACTIVITY 1. Legislative Authority. Authorization is required for the Homeownership Zone program. An authorizing proposal is being forwarded concurrent with this Budget. 2. Program Area Organization. The Homeownership Zone program will provide flexible grants to units of general local government for large-scale redevelopment of vacant and blighted areas to create viable communities of mixed income homeowners. This program advances Strategic Objective #7, "Increase homeownership opportunities, especially in Central Cities, through a variety of tools, such as expanding access to mortgage credit." It also supports Strategic Objective #3, "Increase access by families and individuals to affordable housing in standard condition," and Strategic Objective #4, "Reduce the isolation of low-income groups within a community or geographical area."     a. Eligible Recipients. Eligible grant recipients include units of general local government.     b. Allocation of Funds. Homeownership Zone grants would be distributed competitively. Applications will be evaluated on specific criteria, such as the degree to which the proposed activities meet the goals of the program, the financial soundness of the proposal, the level of economic, social and physical distress in the area to be served, the degree to which grant funds are used to leverage other resources, and the capacity of the applicant to carry out the program.     c. Eligible Activities. The Homeownership Zone program allows communities the flexibility to conduct those activities necessary to foster homeownership as the ground work for revitalizing the Homeownership Zone. Funds are intended to create a large number of new homeowner opportunities in a concentrated area. Eligible activities include property acquisition, housing construction, housing rehabilitation, demolition, site preparation, public improvements, development and rehabilitation of infrastructure, assistance to homebuyers, homeownership counseling, relocation, housing marketing and activities to further fair housing, project related costs, program administration (up to 5 percent of award) and other activities essential to homeownership. Performance Indicators The six Homeownership Zone Grants, together with the Section 108 loan guarantees they support, awarded in the 1996 Economic Development Initiative will result in over 1,800 new homeowners. Of the total, approximately 70 percent will be newly constructed homes, the remainder will be rehabilitated previously vacant, blighted properties. The majority of the new homeowners will be low- and moderate-income families. The average Homeownership Zone Grant is between $3 million-$5 million and each grant is expected to leverage twice this amount in additional investment in the targeted neighborhoods. Each grant will also create approximately 300 new homeowners. Increased homeownership will buttress additional commercial and residential investment in these areas. In the short-term, success of each Homeownership Zone will be measured by the number of new homes built; the number of vacant, blighted properties rehabilitated and converted to productive use; and the number of new homeowners created. In the long-term, a successful Homeownership Zone will be characterized by increased property values, a decrease in crime rate, a decrease in unemployment, an increase in academic achievement, and an increase in family income. Each grantee has supplied HUD with detailed benchmarks by which the success of the program may be assessed. STATUS OF FUNDS 1. Balances Available     a. Unobligated Balances. The following table compares the program obligations with funds available by year.     b. Obligated Balances. The status of obligated balances is as follows: