"And I am praying to God on high,
And I am praying Him night and day
For a little house--a house of my own--
Out of the wind's and the rain's way."

         An Old Woman of the Roads, st. 6
Padraic Colum (1881-1972)

RECOMMENDATIONS FOR HOUSING
HOW TO GET NEW HOUSES BUILT

Wind & Rain is a for-profit developer of single family detached houses in West Coconut Grove for ownership by low-to-moderate income first-time homebuyers. Starting in 1995, With the Help of the Coconut Grove Local Development Corporation and the City's HOME "soft 2nd" mortgage program, Wind & Rain has built and sold nine new 1,536 sq.ft. 3BR/2BA houses in the West Grove. Following are some suggestions for using CDBG funds to encourage more homebuilders to build houses:

  1. Permitting. Time is money, and the profit margin for "affordable" houses is only $5,000 to $8,000 per house. Use CDBG funding to provide expedited plans review, including "master" permits for replicated model houses.

  2. Permit fees. Wind & Rain's houses sell for an average of $85,000. The City's permit fee is based on $65 per sq. ft., which means, on a 1,536 sq. ft. house, the fee is assessed on a presumed cost of $99,480. In target areas, CDBG funding could be used to make up the difference if permit fees were "capped" at, say, $50 per sq. ft. Keep in mind that the average cost of houses in the rest of the Grove is well in excess of $100 per sq. ft. , so the present fee structure actually has the effect of subsidizing some non-target areas.

  3. Impact Fees. Depending on when or if a lot last had a house on it, new houses built in the City pay School and Road Impact Fees, and Water and Sewer Impact Fees. Since these fees go to the County, the City can't waive them, but it could subsidize them with CDBG funds in target areas.

  4. Infrastructure. Depending on whether there are conforming sewer and water lines adjacent to a buildable lot, there may be as much as $10,000 in hook-up costs and infrastructure improvements required to get a building permit. A pool of CDBG funds could be made available to subsidize these costs.

  5. HOME "soft 2nd" mortgages. The City's current HOME program of providing up to $35,000 in 2nd mortgage financing per home at 0% to 3% for 30 years is wonderful and the key to all new housing in the City's low-to-moderate income neighborhoods. It bring's the "blended rate" of the market rate 1st mortage and the "soft 2nd" mortage to around 5%, which drops the PITI monthly payment to under $700 per month (about what it costs to rent a 3B/2BA house) In fact, if the program could be expanded by supplementing it with CDBG funding to, say, $55,000 per new house, so that the price of the houses could rise to an average of, say $99,000 per house, then all of the other subsidies proposed above would not be necessary. Private enterprise would say: the profit margin is now great enough to bear the risk of some delays, and some infrastructure costs, and some "surprises" when that is definitely not the case now. Keep in mind that even at 0% for a $55,000 "soft 2nd" mortgage, the taxpayer "burden" of this subsidy would only amount to about $213 per month, compared to the average taxpayer "burden" to subsidize each Section 8 rental house of $500-$700 monthly. (Miami Today, page 1, "City sees vouchers as remedy for housing woes", April 8, 1999). Also keep in mind that homeownership reduces social costs such as crime and drugs, and that provided the house built is good enough to have a chance to go up in value, new homeowners don't default if their monthly mortgage payment is approximately the same as the rent they would be paying.

TO SUM IT UP, JUST REMEMBER TWO KEY POINTS:

FIRST: THE KEY TO GETTING PRIVATE ENTERPRISE TO BUILD NEW HOUSES IS THE PRICE OF THE HOUSE--IT HAS TO BE HIGH ENOUGH FOR THE DEVELOPER TO GET A DECENT RETURN FOR THE TIME, EFFORT AND INVESTMENT INVOLVED IN CREATING EACH HOUSE.

SECOND: THE KEY TO AFFORDABILITY OF ANY NEW HOUSE IS NOT SO MUCH THE PRICE OF THE HOUSE, BUT THE AMOUNT OF THE FIXED MONTHLY PAYMENT, OVER 360 MONTHS, REQUIRED TO PAY THE MORTGAGE(S) ON THAT HOUSE.

That's why HOME is such a beautiful program--it allows both keys to work on the same lock to unlock the door to new houses for ownership by low-to-moderate income families..

Respectfully submitted,

Anthony R. Parrish, Jr.
President



Example 1.
(Required family income $26,559/yr.)
NOTE: A one wage-earner family working for 50 weeks/yr. at $13.50/hr per 8hr. day earns $27,000/yr.

Cost of Land - $4,150
Cost of Permits and Impact Fees - $10,000
"Hard Cost" of House - $55,000
"Soft Cost" of House - $4,000
Developer's Profit - $7,750
Price of House - $80,900

Down Payment - $3,000
Amount Financed
1st Mortgage at 7% - $42,900
2nd "HOME" Mortgage at 3% - $35,000
Total Down Payment & Financing - $80,900

Homeowner's Monthly "nut"

Real Estate Taxes - $120/mo.
Insurance (Fire and Windstorm) - $110/mo.
1st Mortgage at 7% fixed - $286/mo.
2nd "HOME" Mortage at 3% fixed - $148/mo.(Taxpayer Cost: $85/mo)

Total fixed monthly payment(30 yrs) - $664/mo.


Example 2.
(Required family income $26,240/yr)

Cost of Land - $15,000
Cost of Permits and Impact Fees - $10,000
"Hard Cost" of House - $55,000
"Soft Cost" of House - $4,000
Reserve for "Surprises" - $5,000
Developer's Profit - $10,000
Price of House - $99,000

Down Payment - $3,000
Amount Financed
1st Mortgage at 7% - $41,000
2nd "HOME" Mortgage at 0% - $55,000
Total Down Payment & Financing - $99,000

Homeowner's Monthly "nut"
Real Estate Taxes - $120/mo.
Insurance (Fire and Windstorm) - $110/mo.
1st Mortgage at 7% - $273/mo.
2nd "HOME" Mortgage at 0% fixed
$153/mo.(Taxpayercost:$213mo)
Total fixed monthly payment (30 yrs) - $656/mo.


Example 3.
(Required family income $22,240/yr)
NOTE: A one wage-earner family working for 50 weeks/yr. at $11.25/hr per 8hr. day earns $22,500/yr.

Cost of Land - $0 (Assumes donation of City lot)
Cost of Permits and Impact Fees - $10,000
"Hard Cost" of House - $55,000
"Soft Cost" of House - $4,000
Reserve for "Surprises" - $5,000
Developer's Profit - $10,000
Price of House - $84,000

Down Payment - $3,000
Amount Financed
1st Mortgage at 7% - $26,000
2nd "HOME" Mortgage at 0% - $55,000
Total Down Payment & Financing - $84,000

Homeowner's Monthly "nut"

Real Estate Taxes - $120/mo.
Insurance (Fire and Windstorm) - $110/mo.
1st Mortgage at 7% - $173/mo.
2nd "HOME" Mortgage at 0% fixed
$153/mo.(Taxpayercost:$218/mo)
Total fixed monthly payment (30 yrs) - $556/mo.


Back to Index of Articles

Home | Inside Wind & Rain | Portfolio | Articles





All Content © 1999 Wind & Rain Inc.

star graphic Site designed and maintained by
Alaskan Star Software & Design
© 1999