Another door to homeownership
Some residents renting to own with new Metcalfe Park program

By Tom Daykin
Milwaukee Journal Sentinel, January 26, 2008

Melody Jones found her two-bedroom apartment was running out of space after her third child was born. But her job as a nursing assistant doesn't provide much income to save up for a down payment on a house.

So Jones is taking advantage of a new form of housing in Milwaukee by renting a home, with the option of eventually buying it. The arrangement will allow Jones and her three children, ages 12, 6 and 1, to move into a four-bedroom house in Metcalfe Park - contributing to that north side neighborhood's renewal.

Jones is among several renters who have leased up the subsidized prefabricated homes, which are being developed by Madison-based Gorman & Co. In the project's first phase, Gorman developed 30 houses and quickly found renters. All of the houses, which are being fabricated at a north side facility, will be completed by the end of February.

The demand has been so strong that Gorman plans to build another 24 houses in 2008, said Chris Laurent, Gorman's Wisconsin market president. The houses, with two to four bedrooms, are being leased to families who qualify for below-market rents, ranging from $675 to $825 a month. Fifteen years after people begin renting the homes, they will be available for purchase by their tenants at discounted prices.

That "rent-to-own" strategy has been used in Cleveland to improve homeownership opportunities for lower-income people. It has only rarely been used in the Milwaukee area, but Laurent says the approach makes sense for Metcalfe Park, one of the city's poorest neighborhoods.

"Our model doesn't get people in with unrealistic expectations," he said.

That may be particularly important given the recent collapse of the subprime mortgage market.

Subprime home loans were made to people with poor credit, and the borrowers were required to make only small down payments - or sometimes no down payments. That enabled borrowers to buy homes that turned out to be beyond their means to afford. Many first-time homeowners have found themselves unable to keep up with their monthly loan payments, particularly when the interest rates increased on their adjustable rate mortgages.

Still, homeownership remains "sexy in our society," Laurent said. And the rent-to-own concept can work for tenants who are willing to make a long-term commitment, he said.

Also, Laurent said, the long-term renters will help bring badly needed stability to Metcalfe Park, which is characterized by a large transient population, a lack of jobs and crime.

But 15 years is a long time for a tenant to stay in one place, even if the payoff is the chance to buy a house at a discounted price. Laurent said one way to encourage tenants to rent the same house over several years is to "produce a better product." The prefabricated houses are very energy efficient, which will save the tenants a lot of money on their utility costs, he said.

Tenants undergo training through the Milwaukee Urban League to improve their credit - a necessary step toward homeownership. They also undergo classes in basic home repairs.

"I think folks who live in rental housing are conditioned to call the landlord," Laurent said. In the Gorman homes, the renters are expected to take more responsibility for maintaining the houses, he said.
Tax credits

Financing for the $5.2 million Metcalfe Park project includes $2.3 million in affordable housing tax credits. Those federal tax credits are given to developers, who then agree to lease apartments or houses at below-market rents to moderate-income tenants. Gorman sells the tax credits to investors, with the sale proceeds providing equity financing for the project. The 15-year requirement on the units is a byproduct of the federal rules on use of the tax credits.

The project also received a $1.2 million low-interest loan from the Wisconsin Housing and Economic Development Authority, as well as a $400,000 no-interest loan from the authority.

The City of Milwaukee is providing $1.3 million in financing, including a $400,000 loan. The remaining $900,000 in city funds will be repaid through property tax revenue generated by the new houses.

The city also is helping to subsidize the project by selling the housing sites - vacant lots valued at $5,000 each - to Gorman for $1 apiece.

Gorman is keeping its costs low by using prefabricated homes. The houses are being built under a contract that Gorman has with Universal Housing Systems LLC, a new Milwaukee company formed by John Daniels and Cory Nettles, both attorneys at Quarles & Brady law firm. Universal Housing operates in leased space at DRS Power & Control Technologies Inc., 4265 N. 30th St.

The new renters include R'Yan Jhan-Thompson, interim director of the Midrys Foundation and Youth Education Fund. He moved from the Sherman Park neighborhood to a Gorman-owned house in November with his three sons. Jhan-Thompson said it's an opportunity to show his two older sons, ages 21 and 18, the ins and outs of being a homeowner, including maintenance duties and budgeting.

Jhan-Thompson said he's optimistic about Metcalfe Park's future.

"I think we're going to be a big part of the change happening in this neighborhood," he said.

Ivory Sledge, who works in food service jobs at the Bradley Center and Miller Park, said the she wanted a house for herself and her daughter, who turns 2 in April. They're moving from an apartment just west of Marquette University.

"It's way bigger and much better than where I am now," Sledge said.

Amber Fields and her two daughters, ages 18 months and 6, moved this month to a three-bedroom house from a one-bedroom apartment on the far northwest side.

For Fields it was a chance to have a larger, nicer home that's close to Milwaukee Area Technical College, where she's a nursing student. But Fields, who also works as an appraiser, isn't sure she'll stay in the house for 15 years in order to eventually buy it.

"For me, that seems like a long time," Fields said. "I've never been in one spot for that long of a time."

Both Sledge and Jones agreed that 15 years is a long time. But both women said they hope to be able to eventually buy their homes.

Kenesha Robinson moved with her 5-year-old son into a two-bedroom house in November. She, too, is in for the long haul.

"It's a big opportunity to own my own home," said Robinson, a nursing assistant who moved from an apartment in Park Lawn, a city Housing Authority development.

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