If you rehabilitated your house last year - by converting a porch to a bedroom, upgrading your roof or simply making cosmetic improvements - you were part of one of the most significant trends in housing this decade.
The Census Bureau says home rehabilitation and maintenance expenditures in this country reached $31.2 billion last year, up from $21 billion only three years ago. Major alteration of housing - such as complete remodeling or rewiring - jumped a hefty $2.2 billion in one year alone, from about $6.3 billion in 1976 to $8.5 billion last year.
Reports from metropolitan areas confirm that homeowners at everyincome level - not just affluent people interested in moving back to the cities - are pouring money into housing rehabilitation.
The bulk of this activity has been private, small-scale and unassisted by public agencies. Homeowners, lending institutions and investors have responded to an inflating economy and high-cost housing market with hard cash for upgrading existing properties.
Most of the financing has been through short- and medium-term bank loans, unsecured and uninsured, at interest rates ranging from 10 to 12 percent.
The fastest growing area within the rehabilitation boom, however, has been the public sector. Although rarely viewed nationwide, direct and indirect public financing of housing rehabilitation in the U.S. is reaching multi-billion dollar levels each year. It is also beginning to involve highly sophisticated financing techniques, such as issuance of tax-exempt revenue bonds aimed exclusively at repairs of moderate-income housing.
The more these techniques are employed by government agencies, the more the rehabilitation field will tap huge, non-traditional financing sources, such as Wall Street bond-buyers, pension funds and large insurance companies.
Here's brief overview of what's happening in the rehabilitation field:
The $3.8 billion, community development block grant program administered by the Department of Housing and Urban Development has turned into the single largest conduit of rehabilitation funds nationwide. Thousands of families across the U.S. received loans on favorable terms last year with funds from the Treasury.
Block grants totaling nearly $450 million were channeled by about 1,500 cities and other recipients last year into rehabilitation loans - typically in the $3,500 to $5,000 range, often at below-market interest rates, and often to moderate-income homeowners or buyers.
What's important about the size of the block grant expenditures last year - besides the fact that they were twice the national total ot two years ago - is that in most cases the money involved "recycling" of some form or another via loan repayments, and not simply fix-up grants.
The $450 million was often used as "bait" to attract private lenders into the rehabilitation field. The carrot took the form of repayment guarantees, small subsidies or other forms of insurance to convince bankers that their money would be safe.
One dollar of public rehabilitation investment in many cities brought in four or five dollars worth of private investment, multiplying the block grants several times.
A case in point is Baltimore rehabiliitation agreement with local savings and loan associations, under which the city housing department provides 25 percent repair loans to homeowners at subsidized interest rates; the lending institutions provide the balance at close to market rates and process the bookwork. The resulting loan to the consumer carries a composite rate that is several points below the going rate - and both "lender" receive repayments for use in making additional loans.
For its part, the city is able to stimulate millions of dollars of new lending at only a fraction of the cost it would have to bear on its own.
Other cities, such as Portsmouth, Va., Seattle, and Portland, Ore., have negotiated multi-million dollar credit agreements with their banks and S&Ls. The lenders purchase special city bonds at tax-exempt rates (generally in the 5 to 6 percent range) and then use the funds for housing conservation loans at below-market rates.
The cities use small amounts of their community development dollars to guarantee the loans if they're in high-risk areas, or to lower interest rates further for some consumers by actually paying a portion of the monthly debt service for them.
A number of cities - including Pittsburgh - are working on tax-exempt bond issues to support rehabilitation loans that will be sold on Wall Street and bought by major U.S. investors. Pittsburgh's unique first issue of this type could go to market within the next 30 days.
The bonds involve financial protections for the investors - via block grant reserve guarantees and FHA co-insurance - but allow the city to attract an estimated 20 private dollars of below-market rehabilitation loans for its residents for every dollar of public funds.
Minnesota's housing finance agency has been active for two years in tax-exempt, Wall Street bond funding of rehabilitation loans and at least three other states will be jumping into the market with parallel efforts shortly.
The federal government rediscovered the importance of rehab under the Nixon and Ford administrations, but it has turned into a national phenomenon under President Carter and HUD Secretary Patricia Roberts Harris.
Besides strongly encouraging use of block grants for rehabilitation, HUD has sought - and apparently will get - a huge increase in funding for its program for 3 percent, subsididized loans known as Section 312.
Kenneth R. Harney is editor of the Housing and Development Reporter, published weekly by BNA, Inc.