Strategies for Preserving Chicago’s Small NOAH Buildings: Supporting Owners
This is the first in a series of blog posts exploring policies and programs to preserve small naturally occurring affordable (or “NOAH”) properties in Chicago.
How do we support current owners of 2-4 unit buildings?
It can be challenging to own and manage a small rental building. Property owners—both owner-occupants and small non-resident owners—may need extra support to do it well. Supporting existing owners can help them hold and maintain their properties over the long term, building generational wealth. Research indicates that long-term ownership plays a role in preserving tenants’ affordability.
1. Make existing resources for owners more accessible.
There are existing resources for 2-4 unit property owners, but there is no centralized source of information on these programs. Currently, owners must independently seek out resources. A centralized source could help ensure owner-occupants access the full breadth of available resources, and a hub could help coordinate the development of new programs for 2-flat owners.
Potential policies include:
2-Flat Initiative: Stakeholders could explore launching a ‘Chicago 2-Flat Initiative’ based on the Historic Chicago Greystone Initiative and Chicago Bungalow Initiative. A ‘2-Flat Initiative’ would raise awareness, connect owners with new and existing preservation programs, and act as a centralized source of information for owner-occupants and investors.
Unified website: If funding constraints make it challenging to fund a larger, staffed 2-flat Initiative, a centralized website with information and resources could be a good starting point. A single page website, similar to the Unified Rental Assistance website, could help property owners understand and identify existing resources.
Funding for existing programs and organizations: Many community-based organizations already conduct outreach to small property owners as part of their existing programs. The Chicago Flats Initiative is a new partnership among grassroots groups, housing policy organizations, and funders focused on preserving 2-flats. Dedicated funding could help expand and formalize this existing work.
2. Offer targeted support in times of crisis.
The 2008 financial crisis demonstrated that 2-4 unit properties are particularly vulnerable to loss of income by owners and/or tenants. In the wake of the pandemic, 2-4 unit properties should be aggressively targeted for loan modification and mortgage assistance, particularly when tenants or owners were economically affected by the pandemic.
Potential policies include:
Outreach: IHDA’s Homeowner Assistance Fund (HAF) and other mortgage assistance programs should work with one or more housing counseling agencies familiar with the 2-4 unit stock. Programs should affirmatively market that owner-occupants of 2-4 unit properties are eligible.
Program navigators: IHDA should consider creating a team within HAF or among contracted housing counseling agencies dedicated to helping owners of 2-4 unit properties navigate the application process. Owner-occupants of 2-4s may face challenges navigating a program designed primarily for single-family homes.
Property taxes and utilities: IHDA should consider providing assistance with property taxes and/or utilities in addition to—or in place of—mortgage assistance. Some owners in need of relief may own their property outright, or may have kept up with their mortgage at the expense of property tax or utility payments.
3. Help owners manage their properties and reduce operating expenses.
Interventions that help decrease operating expenses, expand owner-occupant capacity, and decrease time commitment can help stabilize owner-occupants. Reducing the most challenging elements of owner-occupancy will help encourage and facilitate long-term ownership.
Potential policies include:
Property management training for owner-occupants: CIC’s Property Management Training program provides landlords with the knowledge to better market, manage, and maintain residential rental property. Past sessions for owner-occupants in partnership with NHS have been successful. This program could be expanded to provide training to owner-occupants of 2-4 unit buildings on a more regular schedule.
Property management solutions: A great example of this comes from the Local Rental Owners Collaborative, a Los Angeles nonprofit. LROC successfully partnered with AVAIL to provide small property owners access to tech solutions. Participating property owners received free access to online tools that simplified the process of finding tenants, helped them accept online rent payments, and made it easier for them to respond to maintenance requests. A similar partnership could provide important resources to Chicago 2-4 unit building owners.
Qualified contractor and architect list: The success of the Chicago Bungalow Initiative shows that it can be helpful to have access to a list of qualified construction and maintenance professionals. Making it easy to identify responsible contractors and professionals could improve property conditions, ensure quality work, avoid larger issues, and reduce maintenance costs over the long run.
Energy efficiency programs for 2-4s: Some existing low-cost and free energy efficiency resources can serve 2-4 unit properties, but Elevate Energy has found that 2-4 unit buildings may have more difficulty accessing energy efficiency upgrades than owners of multifamily buildings. Clarifying which existing programs serve 2-4s and encouraging utilities to develop special programs for this part of the stock could help reduce utility expenses.
4. Develop financial resources and explore new approaches to underwriting.
The unique nature of owner-occupied 2-4 unit properties can limit mortgage and refinance options from traditional lenders. Capital from financial institutions or the City could enable CDFIs or other lenders to modify existing loan programs to better serve 2-4 unit properties and/or create new products. Grants and forgivable loan products can help households become homeowners, keep current owners in their homes and improve conditions for tenants.
Potential policies include:
Underwriting: In the wake of the last financial crisis, lenders significantly reduced the proportion of rental income considered during the underwriting process. This means that prospective owners who may be able to cover debt service when more of their rental income is considered alongside their household income cannot qualify for a sufficiently large mortgage. CDFIs could explore opportunities to revise underwriting standards accordingly.
Down payment or refinancing assistance: Down payment assistance could be provided to prospective owner-occupants to help overcome challenges presented by high sales prices and conservative underwriting. Such assistance could be conditional on owners committing to long-term affordability of the rental unit or require the property to be entered in to the Chicago Community Land Trust (CCLT). Similar programs could help cover the cost of refinancing an owner-occupied property.
Forgivable rehab loan programs: Loan programs could build on the success of the 606 Bloomingdale Trail Homeowners Forgivable Loan program, or additional pilot areas could be identified. These rehab loans have a 5-year term, with 20% of the loan forgiven each year as long as the owner continues to live in the subject property. Increasing the grant amount or scaling it based on the number of units in the property could serve as a stronger incentive for long-term affordability. A program could be targeted exclusively to 2-4 unit properties. A program could also pair with down payment or other acquisition assistance for prospective owner-occupants acquiring a 2-4 unit property in need of rehab.
Owner-occupant grant programs:The Neighborhood Housing Services of Chicago Accessory Dwelling Unit Grant provides an excellent model. This grant program is particularly innovative because property owners can apply for a project planning grant, a construction grant, or both. By offering grant funds to help owners with planning expenses (which could include architect fees, expenses related to the permitting process, etc.), NHS’s program helps ensure that owner-occupants without a strong background in renovation are able to work with experienced professionals. Depending on the level of assistance provided, program administrators could consider longer-term affordability requirements.
