Why has stabilizing Chicago's neighborhoods been so tough?

The city of Chicago has gotten $169 million from the federal government to revive neighborhoods hard hit by the foreclosure crisis. But turning blocks around has been more challenging than expected, forcing the city to overhaul its strategy.

April 9, 2012

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Banks filed foreclosure on fewer homes in Chicago last year, so it’s easy to think the problem is fading. But five years into the crisis, a lot of neighborhoods are still coping with abandoned buildings that are dragging down prices and posing a danger.

One vacant house on the city’s Northwest Side recently went up in flames, killing two people thought to have been squatting there.

The federal government has poured $7 billion nationally into stabilizing neighborhoods hard hit by foreclosures. But that’s proven a lot tougher than expected.

Most people say the city’s initial approach has not worked.

On one of those really warm days in March, people are wandering into this newly renovated home in North Pullman for an open house. Realtor Brian Caron points out all the fine touches – bamboo floors, stainless steel appliances, and a really spacious bathroom.  

All the people visiting this house say it looks amazing. And here’s what’s even more amazing: The city spent $350,000 to rehab it and is now selling the place for $105,000.

A house for less than a third of the cost? And the city is still having trouble selling this one and places like it.

That reality has forced the city to have to overhaul how it spends the $169 million it got from the federal government for the neighborhood stabilization program.

The original plan was to mostly buy foreclosed single family homes and two-flats, fix them up and sell them. With the rest of the money, the city planned to do rentals.

But observers like Kevin Jackson of the Chicago Rehab Network, an affordable housing non-profit group, say that initial approach hasn't worked.

The city has sold 27 homes so far, which he says is a disappointment.

"That’s not a real strong track record for several years now and $169 million to work with," Jackson said.  

But this isn’t so much a story about government dropping the ball. It’s a story about how the housing crash totally upended the world of real estate – and made everyone’s previous assumptions invalid.

Rewind the clock to 2009 – you’ve got boardups everywhere, and the federal government with cash in hand.

Katie Ludwig is in charge of spending the city's money to revive hard-hit blocks. She says everyone thought it would be simple and straightforward.

"We’re shooting fish in a barrel. This is going to be easy," she said. "You go out and you buy them, and you fix them up."

But nothing has been easy – starting with buying vacant properties.

"Everyone always assumes a vacant building must be bank-owned. `Oh, you got to go after the banks." And we’re finding that’s simply not the case," Ludwig said. "There’s a number of properties that are bank-owned and then an even larger percentage of buildings that are either investor-owned or just stuck somewhere in the foreclosure process."

So even though the city wanted to concentrate dollars on certain blocks to have maximum impact, it proved tough.

The federal government put tight deadlines on using up the money, so the city couldn’t dilly dally six months trying to track down an owner.

Even if the city wanted to buy all the board-ups on a block, they couldn’t – and that’s made it harder to sell the ones they did rehab.

Lots of people have been checking these houses out. Monique Talison and her cousins drop in on the open house in North Pullman after church one Sunday.

She says she’s looking for a home for herself, her mom and her grandmother. She likes this place, but wonders about other boarded up houses nearby.

"That’s why I asked him the cost of the house because I’m sure that probably brought the value down," Talison said.

People with the money to buy these days can just go to better neighborhoods and avoid the ones with run-down, empty houses. And lots of other people who want to buy can’t get mortgages.

Caron says he had a buyer for this place but the bank rejected the mortgage at the last minute.

 


Pat Bolton lives on Champlain, one street over, and says she’s trying to get people she knows to buy these NSP homes, including her younger son. But she says even though her son wants to buy one, he hasn't been able to.

"He just couldn’t qualify because of the credit," she said. "He just didn’t make enough money."

So the city's had to adapt to this new world order.

"We’re very much about evaluating what we’re doing as we’re going along and if we need to make corrections and adjustments, we do that," Ludwig said.

Chicago has made a major correction in how it tackles troubled blocks - focusing now on turning foreclosures into affordable rentals.

Many people say that's a good strategy because the city for years has lacked enough affordable rental housing.