Interesting wrinkle on neighborhood revitalization: investor fixing nearby properties to raise own property values (part one)

The Wall Street Journal has an intriguing article, "Companies Spruce Up Neighborhoods, Putting Gentrification in Overdrive," about how a company, REO Homes LLC, which scooped up a bunch of single family houses after the 2008 real estate crash led to massive price drops, is investing in neighborhood improvements in neighborhoods where they own a preponderance of houses, in order to drive up prices and demand.

From the article:

On a recent weekday morning, a crew was busy sprucing up the exterior of Koonal Parmar's one-story house in West Oakland. They trimmed trees, pressure-washed the wood siding and touched up his paint job.

Mr. Parmar didn't pay a dime for all this. The upgrades were compliments of REO Homes LLC, an investment firm that owns several houses on Mr. Parmar's block. In addition to helping homeowners upgrade their homes, REO has mended fences and planted hundreds of trees along city streets.

"The neighborhood was badly in need of capital, to maintain, beautify and restore it," said REO founder Neill Sullivan, while driving his hybrid sedan through the streets of West Oakland.

The company's motives aren't altruistic. They are part of a broader strategy designed to upgrade the neighborhood to attract higher-income residents who, in turn, will help boost properties' values. ...

These efforts aren't occurring everywhere. In cities far away from vibrant employment centers or where crime and unemployment are high, vast tracts of housing remain abandoned. But in working-class communities in or near Washington, New York, Boston, Los Angeles and San Francisco—where employment is relatively strong and housing costs are high—big investors have become an active part of the housing market.

It's the opposite of what in the past I have called "churchly blight," where inner-city churches buy up properties around their building, and don't maintain them, to drive demand and prices down, which makes it easier for the church to amass more property.

It is an interesting thing about the market vs. government involvement, that if money can be made, the private sector can and will move forward, and more quickly, so that they can realize their investment.

The key is that there is a difference between weak markets (at the metropolitan, city, and neighborhood level) and strong real estate markets.  Where money is hard to make, you're not going to find many private investors investing in their own properties, let alone other people's.

In short, you aren't going to find private investors making similar investments in weak markets and weak submarket neighborhoods, unlike what REO Homes is doing in West Oakland.

Typically inner city revitalization of neighborhoods is driven by government and other non-market programs, because the real estate market on its own isn't favorable.  Various methods for improvement include:

• historic preservation and the creation of historic districts
• programs like Pennsylvania's Elm Street program (Maryland copied it but calls it Pine Street) which uses principles of the Main Street commercial district revitalization program, but applied to residential areas
• other housing improvement measures
• conversion of formerly commercial buildings into housing
• use of historic preservation and New Markets tax credits to rehabilitate buildings (some states and localities may have additional historic preservation tax credits programs of their own)
• housing ownership programs of various sorts (such as Paducah, Kentucky's program for artists)
• use of low income housing tax credits to construct housing
• investment in other civic facilities; etc.

Rolf Goetze's Building Neighborhood Confidence (long out-of-print) is very interesting in how it describes a process for reinvigorating confidence in otherwise declining areas, to arrest and reverse the downward trend.  He makes the point that public investment in otherwise private matters is done not to foster dependence on public monies, but to prime the pump so that people are motivated to invest their own time and money in improvement.

Part of a chapter in Death and Life of Great American Cities describes redlining--the process where banks systematically deny loans to commercial and residential applicants in certain neighborhoods, because they are considered high risk, most often in the inner city--and how the author noticed one neighborhood was thriving in an otherwise declining region.  There was a community bank still based in the neighborhood, and it continued to make loans.  (Note that until the earlly 1970s, even the Federal Housing Administration wouldn't providing mortgage financing to loans in mixed race neighborhoods because they were seen as high risk.)

The chaining up of banks has made this prospect more and more unusual, although there are various small banks developing again, in response to the chaining up, plus there are what are called "Community Development Financial Institutions" which are designed to provide small business loans to community applicants.

And Alan Mallach's Bringing Buildings Back: From Abandoned Properties to Community Assets is another important resource concerning neighborhood revitalization in weak markets.

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Interestingly, the Norfolk Virginian-Pilot has an article, "Norfolk residents speak on Ghent's removed benches," about how in one park in the Ghent neighborhood, all the benches were removed because of complaints about loitering.  That's an indicator of declining neighborhood rather than an improving one.  Most of the story comments are critical, but some are not.

But the point is that if you want a park to serve as a foundational neighborhood and civic asset, design and placement of benches is very important, depending on where on the ladder of neighborhood revitalization the community is placed.

See the past blog entry "Systematic neighborhood engagement."