5thWard fighting to keep low-rent housing
Soaring costs, taxes challenge nonprofits
When a block of 600-squarefoot homes were built behind the DeLuxe Theater on Lyons Avenue, the thoroughfare was the cultural and commercial center of Fifth Ward, a thriving business district where more than 40 Black-owned businesses sold everything from groceries to shoes.
The area suffered after highways split the neighborhood into pieces and businesses began to close, including the DeLuxe Theater. But now, property values are on the upswing as investment, long withheld, pours into the neighborhood. And the same nonprofit that resurrected the DeLuxe Theater has bought the 15 two-bedroom cottages with the vision of preserving affordable housing and preventing displacement.
“Fifth Ward is rapidly undergoing the threat of gentrification,” said Kathy Payton, president of Fifth Ward Community Redevelopment Corporation, the nonprofit that purchased the collection of cottages. “Both forsale housing and rental rates have grown beyond the means of longtime Fifth Ward residents.”
So Fifth Ward CRC has begun to focus on purchasing existing homes to keep their rents at rates affordable to the community, which has a median household income of roughly $30,000. But as it does so — it has recently acquired roughly 30 small cottages, including the ones it plans to renovate as the DeLuxe Village — it is feeling the pressures of the red-hot property appreciation and historic levels of inflation.
Its property taxes and insurance costs, like those across the nation, have soared at a rate the organization cannot pass down to renters if it is to keep units affordable. In some instances, Payton said, Fifth Ward CRC saw nearly 100 percent increases in its property valuations. It is currently operating the DeLuxe Village, where longtime tenants are paying $250 to $575 a month, at a loss.
So affordable housing operators are turning to donors, fighting tax appraisals and exploring other options in a bid to keep housing stock available for lowand moderate-income households.
“Even with conservative pro
jections, there’s no way you can anticipate a 100 percent increase in your taxes year over year,” said Mayra Bontemps, chief real estate officer at Fifth Ward CRC. “It really causes significant concerns for those of us that are providing affordable housing.”
Battling rising costs
The average home value increase — as appraised by the Harris County Appraisal District, which determines the values used to calculate property taxes — went up a staggering 21 percent.
Many neighborhoods that had long been affordable have seen an especially rapid rise in property values. What’s more, according to a 2019 analysis by Houston-based data science consulting firm January Advisors, homeowners in low-income neighborhoods are much more likely not to save money by protesting their valuation.
Insurance costs have risen steeply as the price of replacing a home has surged due to the increased costs of building materials and labor. Major insurance providers saw premiums increase between 6 and 31 percent in the second quarter of 2021 compared to the year before, according to the financial information company S&P Global.
Those rising costs have put the squeeze on affordable rental operators at a time when their properties are in increased demand. “It’s very critical for us because in the grand scheme of all the operating costs that these properties have, insurance and property taxes make up the majority of those expenses,” said Travis Gordon, chief financial officer of the affordable housing nonprofit Avenue. “And those costs are really outside of our control.”
In order to battle rising tax and insurance costs at Lyons Village, Fifth Ward CRC is looking to restructure its financing, Payton said. At the 24-unit LowIncome Housing Tax Credit property, rents are kept affordable to families making half of the Houston area’s median income — or roughly $40,000 for a family of four — but those rents are no longer enough to cover operating costs.
So the nonprofit is exploring ways to lower the monthly payment, perhaps by changing the loan so that it can be paid off over a longer period or at a lower interest rate. Monthly payment could also be reduced if the loan amount can be lowered through
“There’s no way you can anticipate a 100 percent increase in your taxes year over year.”
Mayra Bontemps, chief real estate officer at Fifth Ward Community Redevelopment Corporation
grants or equity investments.
“It’s a challenge for us,” Payton said.
Nonprofits are also looking for ways to reduce their property tax burden. New Hope Housing, a nonprofit that provides housing to people on limited incomes or at risk of homelessness, sues the Harris County Appraisal District — a common maneuver by some companies — in order to have a conversation about taxes, said the company’s chief executive, Joy HorakBrown.
“There’s no question that rising property taxes are a very serious threat to affordability,” she said, arguing that, for properties where rents are restricted for affordability reasons, the valuation should be based on the property’s income and not the sales of comparable properties that do not have affordable rents.
In addition, nonprofits are looking to charitable donations as a way to keep rents low. Donations can be used both to lower or eliminate the debt on a property and to offset operating costs.
JPMorgan Chase recently donated to Fifth Ward CRC $1 million, which it is putting toward multiple projects including DeLuxe Village. The nonprofit has received free design services from students and professors at Rice University, which is helping offset the estimated $2.6 million renovation costs.
JPMorgan Chase also recently awarded Avenue $1 million, which will go toward the nonprofit’s effort to buy apartments to turn into permanently affordable housing. It also gave the Houston Community Land Trust $1.2 million, which will support the nonprofit’s program allowing low- and moderate-income families to buy homes at affordable prices in Harris County.
“As the cost of homes and apartment rents climb rapidly, the gap between the haves and the have-nots widens right along with it,” said Dorian Cockrell, vice president of global philanthropy for JPMorgan Chase, in a statement about the need for preserving affordable living in Houston.
Plans for DeLuxe Village
Fifth Ward CRC’s vision for DeLuxe Village involves transforming the collection of cottages into a place where low- and moderate-income families can live alongside artists working to enrich the neighborhood.
Three or four of the homes would be transformed into livein artist studios, where artists in residence can stay for free in exchange for contributions to the community, Payton explained. One of the homes will be transformed into a space for artists to host exhibits, stage shows, hold events or community meetings and sell their works; another would be replaced with a plaza that could double as an outdoor stage.
The rest of the homes would be completely renovated in a way that preserves historic details while modernizing the homes, which were built in the 1920s and ’30s, according to Harris County Appraisal District records, and lack central air. The half a dozen families who still live in the homes from before Fifth Ward CRC purchased them will have the option of staying if they like, Payton said.
Donald Edwards, 69, was among the residents who plan to stay in DeLuxe Village long term. He’s lived there for over a decade and said he was familiar with some of Fifth Ward CRC’s projects. “They’re beautiful,” he said. “I imagine they’ll do the same here.”
When asked how much rents will be for new families moving into renovated units, Payton paused. Fifth Ward CRC is still raising capital for the project and is not yet sure of its monthly costs. While she wants rents as low as possible, they have to be high enough to offset taxes, insurance, management and repairs.
“We hope we can pull this project off with little to no debt on the project, so we’ll just have to cover operations,” she said. “We are going to preserve affordability as best we can.”
It wasn’t likely that rents would go above what was affordable to a family earning above 80 percent of Houston’s area median income, she said — much higher than Fifth Ward’s current median income, but still affordable compared to elsewhere in the city.
“Certainly not (rents targeting) above 120 percent of the median income.”