Cleveland-area neighborhoods that haven’t kept up with the economic recovery could get a major upgrade. County officials have drafted legislation that would pump $30 million into distressed neighborhoods to help increase home values. Of course, that would help those neighborhoods but when you start making improvements to specific areas, it can have a ripple effect that benefits the entire market.
The Western Reserve Land Conservancy published a report recently, on local housing trends in the Cleveland metro area. Frank Ford, of the Conservancy, says the housing recovery has turned Cleveland into two distinct housing markets. One of them is thriving as a seller’s market with rising home prices, and bidding wars. The other is stagnating with thousands of abandoned homes and blight that discourages anyone from buying or investing in those neighborhoods.
Thousands of Vacant Homes
According to Cleveland.com, the county has already demolished 7,000 homes and renovated another 1,800 since 2009. But there are still some 18,000 homes sitting vacant and in disrepair. That’s more than 4.2% of the county’s housing supply. The plan calls for an emphasis on saving and renovating as many existing homes as possible, instead of demolition. It’s sure to be a win-win deal for those neighborhoods and the Cleveland market, in general.
County official, Kahlil Seren, says, “Finding which house to improve to improve a whole neighborhood, to affect the valuation of the neighborhood most effectively — that’s where the county land bank’s strategy comes in.” (1)
The land bank will still be demolishing some homes, but it will try to steer the program toward rehabilitation. That means, current or potential homeowners could get financial and technical assistance through this program. Cleveland.com says the program will help low-income or entry-level homebuyers with home repairs or mortgages that are less than $70,000.
Divided Housing Market
Many of the recommendations for this program were included in a study published in 2017. It identified the two areas in need of assistance as the East side of the city, and the eastern suburbs. In the East side of the city, about 12% of the homes are vacant. In the eastern suburbs, about 4% sit empty.
It was a different story in 2005. Housing values were not that far apart on the two sides of the city. Back then, the median home price on the West Side was $89,000. On the East side, it was $80,000. Fast forward to 2017, after the housing recovery. Market recovery was about 67% for the West Side with a median home price of about $60,000. The East Side lagged far behind. Market recovery there was just 31% with a median home price of about $24,000.
The reason the East Side sank so low during the housing crisis was due to the high number of foreclosures. Homeowners in the East Side lost 4,359 homes to foreclosure while homeowners in the West Side lost just 1,885. The report says, East Side homeowners were also predominantly African American, and victims of predatory lending. The county’s proposal will help address this disparity, between the white and black communities, by helping home values in those more distressed areas.
The program operates on three levels. One attempts to encourage private investment in these markets by improving the value of the homes already there, and proving to investors and lenders that the areas are worth the investment effort. A second component of this plan involves the construction of new affordable housing on vacant lots. This will provide more options for buyers who want newer homes. And third, the plan calls for a major overhaul of neighborhoods that are still a few steps away from being investment-worthy. (2)
Rent Growth in Cleveland’s Core
While those two areas are struggling, other parts of Cleveland are sizzling. If you are a RealWealth member, you know that Cleveland has a strong single-family rental market. A new report on multi-family rent growth also offers a glimpse into the strength of Cleveland’s rental market.
According to rent research firm, Yardi Matrix, we’re seeing more rapid rent growth in Cleveland. It says rent growth was 2.2% year-over-year through October of last year. That’s after a bit of a lull for most of 2017. If you compare that to the national average, it’s about 1% less, but remember, the national average includes all your high-priced coastal markets. (3)
The Multi-Housing News also reports that job growth has picked up in Cleveland. It says, “Trade, transportation and utilities led growth by adding 9,200 positions year-over-year through September.”
Downtown Cleveland has also undergone a massive renaissance with an estimated $19 billion in redevelopment projects since 2010. Vacancy rates are down near 2%, and home sales are up about 12% year-over-year.
It’s very affordable to buy a single-family rental in nicer areas. You can find properties in B neighborhoods for as little as $70,000 and rent those homes for $800 a month.
(3) Rent Growth