Urban Housing Policy by William G. Grigsby

Author:William G. Grigsby [Grigsby, William G.]
Language: eng
Format: epub
Tags: Social Science, Sociology, General, Urban
ISBN: 9781351300551
Google: Om5QDwAAQBAJ
Publisher: Routledge
Published: 2017-09-29T02:11:55+00:00

MORTGAGE FINANCE AND HOME OWNERSHIP

In his study of the declining West Side of New York City, Chester Rapkin emphasized the fact that “every real estate market depends for its sustenance upon the flow and availability of mortgage credit” and that in so-called declining areas, the “flow of new money declines to a trickle, making the replacement of worn out equipment more difficult and/or rehabilitation virtually impossible” (24). He concluded that under such circumstances deterioration accelerates, thus “converting decline into galloping decay” (25).

In many cities, the dearth of mortgage capital is a critical factor in the declining inner-city market and in the middle ring as well. Both FHA and traditional lending institutions have been reluctant to insure or finance the sale of moderately priced housing for low-income families in older areas. As a consequence, existing homeowners who move from the inner city usually are forced to sell their homes to professional investors who have sufficient cash, ready access to non-institutional funds, or access to mortgage credit at the same lending institutions that will not finance home purchases by ordinary families.

This selective kind of credit squeeze produces a number of seriously unfavorable results. First, it forces out-migrating families to sell at depressed prices and, if outstanding mortgage balances exceed values, prevents some of them from moving at all.

Second, it denies home ownership opportunities to many families who could afford to make purchases if decent financing were available.

Third, it raises the cost of housing to many families, since their monthly out-of-pocket housing expenditures as owners would be less than their present gross rental payments. This is because as owners they would not be obliged to earn a profit, would have no vacancy losses, and could perform some of the maintenance themselves.

Fourth, it shifts the inventory to a class of owners who as a group do not nurture the inventory with the care exercised by owner occupants.

Fifth, it discourages and sometimes prevents investors from maintaining and upgrading their properties.

Finally, it forces lower-income families who fervently desire ownership to seek non-institutional loans which bear less attractive terms than do regular mortgage loans. For them the privilege of home ownership exacts a heavy price. This aspect of the problem is particularly severe in Baltimore. Because most of the older stock lends itself to home ownership, there has been, until quite recently, a large amount of non-institutional lending to families who could not obtain regular financing. Investors have purchased units from departing families and resold them to in-migrants on land installment contracts (LICs) or leases with options to buy. In effect, they have been non-institutional financial intermediaries who have enabled sellers to liquidate and potential buyers to realize their dreams. They have been most active at the edges of the inner city and among the near-poor and lower middle-income families.

At the time of our first household survey in 1968, about 9,000 families were buying under lease-purchase arrangements. All of their homes were either close to or well above housing code standards. We guess that another 5,000 owner

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