1 of 9ODD Group owner Heidi Eagleton opens the gate to one of the homes she is building in Acres Homes Friday Aug. 31, 2018 in Houston. Eagleton acquired the land for the home from the Houston Land Bank program, …Photo: Michael Ciaglo, Houston Chronicle / Staff photographer
The idea was simple: Houston would acquire lots in blighted neighborhoods and sell them at a discount to developers, who would build affordable homes.
Low-income residents would become homeowners, gaining a foothold on the climb to financial security. Struggling neighborhoods would get millions in new investment, flipping eyesore lots into productive properties and sparking a turnaround in neglected areas.
Fifteen years and $15 million later, however, it is clear the Houston Land Bank frequently has fallen short of its mission.
The land bank — Houston’s largest locally-funded affordable housing program — has operated with little to no oversight from city officials, who acknowledge they have no idea how many of the roughly 400 reduced-price houses built through the program actually went to low-income buyers. Public records and interviews suggest dozens of buyers’ incomes were too high to qualify under program rules.
It was not until the Chronicle started asking questions last year that housing department leaders grasped the rules surrounding the program, and it took them a year to take steps to begin enforcing them, undercutting Houston’s housing goals at a time when rising prices are putting homeownership out of reach for an ever-growing share of families.
Other shortcomings include:
Homes sold through the program are being rented out, some by real estate investors, in violation of program rules. The city produced no evidence that it has taken action against these landlords.
Some residents sold their homes soon after buying, some because they saw little sign their neighborhoods were being revitalized. City officials acknowledge they have not acted to recoup their subsidies from owners who sold before they had lived in the homes for 10 years, as stipulated in program rules.
Some buyers — who had received a combined $389,000 in subsidies to help them make down payments — lost their homes to foreclosure.
More than 700 land bank lots remain vacant, and many have become overgrown or acted as illegal trash dumps, leading the agency to be repeatedly ticketed for city code violations. The agency also acquired and then later gave up on more than 200 other parcels it deemed unsuitable for development.
“We are faced with such an affordable housing crisis right now, especially among the lowest-income families within the city of Houston,” said Chrishelle Palay, Houston director of Texas Housers. “To know that those who could afford market-rate housing are given the deep subsidies that really should go to the lowest-income folks — that’s outrageous.”
The land bank’s struggles are just the latest example of Houston’s haphazard history with affordable housing.
A Chronicle investigation last year found that, of the nearly $100 million Houston spent over the last decade from local taxes earmarked for housing, nearly half went to administrative costs, federal fines or keeping projects moving after the city lost state and federal grants, and that, when the funds were used for housing, officials rarely could quantify the results of their investments. The Chronicle’s repeated questions about financial discrepancies also led the city to discover it had tens of millions of dollars more in its local housing fund than officials thought.
The housing program that received the single largest chunk of those funds has been the land bank.
“This was not a particularly well-thought-out program from day one, and, as time went on, those vulnerabilities caused problems,” city Housing Director Tom McCasland said. “What we’re trying to do is pull it back in and put the system in place that’s going to allow it to function properly.”
Daiquiri Lucas, an accountant making $150,000 a year, had just bought a place in the Hill Country and swapped her home in Kingwood for a cramped apartment on the west side when she spotted a “confusingly inexpensive” home for sale in Independence Heights.
She loved the roomy house, and the mortgage would be cheaper than rent. To the Fort Bend County native the move was a “no-brainer.” She signed the papers in February 2013.
Her doubts grew after she moved in. Packs of stray dogs roamed the low-income neighborhood. The lot across the street was always piled with trash. Many neighbors had dogs on chains in their yards, and Lucas, an animal lover, could not bear to hear them whining at all hours. Then there was the horse that lived on the street.
“Sometimes the horse would be in the driveway. I’m like, ‘Hello, horse,’” Lucas said. “It was just really weird. It just wasn’t turning around quickly enough.”
She sold in November 2014 and moved back to Kingwood.
Neither Lucas nor, apparently, city officials knew it, but the purchase and sale had violated the letter or the spirit of nearly every rule of the land bank initiative: Lucas’ salary was four times too high, she was splitting time between the land bank house and her vacation home, and she sold in less than two years without penalty.
Covenants tied to each lot require a buyer be of modest means and use the home as his or her primary residence for at least a decade or give part of the sale proceeds to the city.
Meeting minutes show the land bank’s board voted in June 2007 to increase the income limit from 80 percent of the area median income to 120 percent, but the higher cap does not appear to have been reflected in builders’ contracts until 2015, and the agency as recently as May 2017 still was listing the lower limit in its formal documents, which are filed in county property records.
At the lower cap, single buyers can earn no more than $41,950 per year, and a family of four can bring in no more than $59,900. Land bank homes sold as recently as this summer, however, went to buyers making more than even the higher standard, which is $62,900 for a single person and $89,900 for a family of four.
Michael King and Louis Mackey bought land bank homes in Sunnyside in February 2011. Both made more than the restrictions on their lots allowed — King’s salary at a local TV station was about $50,000, and Mackey made about $80,000 as a regional manager managing for a car service company. Both resold before they had lived there a decade and, for the last three years Mackey owned the house, he was renting it out and living elsewhere.
“They just said, ‘Hey, we’re revitalizing this neighborhood and because of it you’re able to get this house at a much lower price than you normally would.’ I guess I got suckered into the dream that this was going to be a big thing,” King said. “It didn’t seem like the neighborhood was revitalizing as fast as I’d been told it was going to.”
No land bank homeowner interviewed by the Chronicle recalled any intervention by city officials during the purchase or sale of their homes, and few knew anything about the program’s rules.
Public payroll records show a Harris County prosecutor, a Baytown city planner and an HISD fourth grade teacher all bought land bank homes this year despite making more than the restrictions on their lots allowed — and that does not account, in two of those cases, for their partners’ incomes. Other 2018 buyers include a geophysicist employed at an oil company, a medical researcher, and a manager at an oilfield services company married to a nurse.
Ben and Lydia Navo, an architect and a business coach, were looking for a home priced under $300,000 and close to town when they spotted some new builds sprouting up along the railroad tracks on East 36th Street.
Their real estate agent told them the prices were capped at $212,000 through a city program, but the couple bought in February without knowing they earned too much to qualify or were expected to stay a decade. Ben Navo said he researched the program on the city website, but found the only listed restrictions applied to buyers receiving down payment assistance. Still, he said he is thankful the program exists.
“It was one of the only affordable houses we could find,” he said. “If it wasn’t for the program, we for sure would still be in an apartment.”
While the land bank has a volunteer board of directors, Houston’s Housing and Community Development Department is responsible for overseeing the initiative and is its sole source of funding. City officials, however, long have failed to enforce the program’s rules.
Before builders sell a home, they must notify the city and provide documents showing each proposed buyer’s income. Buyers must agree to let the city review their incomes, abide by the program’s restrictions, and file annual forms certifying that they still live in the home. City officials found no such documents on file.
In response to the Chronicle’s findings, McCasland instructed his staff to begin verifying buyers’ incomes, and the land bank board voted to form an oversight committee and revise the restrictions it files on each lot. Those covenants will make the income eligibility rules more explicit and will require builders to get written confirmation from the city that buyers meet the income rules.
“Every home going forward, the income eligibility will be determined by our department,” said McCasland. “That is not going to make this a perfect program as a result, but it should be a very big bulwark against these kinds of abuses continuing.”
McCasland said he also has asked his staff to review all land bank home sales since the start of 2016 and issue recommendations to “turn this program into something that can actually deliver on its mission.”
No exhaustive audit is needed to see that the housing department’s stewardship of the program has failed many of the people it is supposed to help.
As recently as last summer, the restrictions the land bank filed on many lots continued to limit buyers to 80 percent of the area median income, a salary that typically lets a family buy a roughly $120,000 house, said Allison Hay, executive director of Houston Habitat for Humanity. Habitat, the third most active builder in the land bank program, works only with families at that income level.
Other housing experts put the figure higher — perhaps $140,000, or higher if a buyer has no debt or gets down payment assistance — but the land bank in 2015 increased the maximum price at which its homes can be sold to $212,000. The move was spurred partly by builders’ concerns that shrinking profit margins were making it difficult for them to continue in the program. The city, however, has offered no down payment help to anyone making more than 80 percent of the median income since the new cap has been in place.
Hay said it is not clear how people at the lower income levels could buy houses significantly pricier than the ones Habitat builds, particularly without help making a down payment. Records, however, show numerous buyers bought homes tens of thousands of dollars more expensive than that despite receiving no down payment assistance, raising questions about how often the program’s income rules were ignored.
“Habitat doesn’t know of a way to be able to accomplish that,” she said. “Nor would I want my homeowners to do that, because the areas that have the larger house prices have more taxes.”
About half of all land bank buyers received city down payment assistance, records show. In most cases, that assistance came from federal grants that carry the same income limits filed on the land bank lots, and for which the city has an established income verification process.
In 59 cases between 2007 and 2013, however, records show the assistance was paid from local housing dollars then earmarked for families earning up to 110 percent of the area median income. That suggests that, in some cases, the city checked applicants’ incomes, found their salaries exceeded the restrictions on their lots, then sold the homes to those families anyway.
It is logical that the land bank would feel pressure to increase the maximum price builders can charge amid rising home prices, Palay said, but that is precisely why the program must keep homes affordable for low-income buyers.
“If the whole primary purpose of this is to address affordable housing, then the developers’ profits should not be the No. 1 priority,” Palay said. “The people need to be considered first.”
More troubling to Heather Way, director of the University of Texas at Austin’s community development clinic, is that the land bank is targeting buyers up to 120 percent of the area median income, when lower-income residents have few good options in the private housing market.
“That’s a huge shift, a really disappointing policy shift, and a whole different demographic,” Way said. “Who’s moving into these homes? Is it really the folks most in need?”
Despite the program’s problems, the city council voted last week to give the land bank another $5 million to acquire land, in part to help further two new housing initiatives that McCasland and land bank Chairman Nick Hall said will help lower-income families.
One will use Hurricane Harvey aid and other dollars set aside for families earning up to 80 percent of the area median income to build new homes, and another will provide deeper subsidies to families with even lower incomes, then place the underlying lot in a trust, ensuring perpetual affordability.
“What we need for all three of those income levels is what Nick and his team can do, which is buy land,” McCasland said. “There is no one tool in our toolbox that will address all the issues. It’s about how much subsidy is needed and ensuring there’s appropriate protection on it.”
The vote also gave the land bank $1.3 million in operating cash, mostly to pay its first fulltime CEO, who will start next week, and additional staff. Hall said the decisions to hire staff, form an oversight committee and engage consultants to better manage its programs and to examine best practices in the field show the agency is improving its operations.
“To the extent there’s been any miscommunication, this oversight committee is going to ensure that we can look at these issues and learn from them,” Hall said.
Builders seek buyers
Jim Waller is the fifth most active builder in the land bank program, but he never expected to be.
The owner of Solaris Homes was building mostly high-end houses when he was talked into signing up as a land bank builder at a 2009 cocktail party by then-mayor Bill White.
When Waller attended the closing for his first buyers, he was hooked: The young couple wept. It was the first home anyone in their family had owned, and it meant their kids would play in a yard of their own and not in the street.
Throughout his work with the land bank, Waller has sold to affluent buyers alongside low-income families, saying his understanding was that the program’s intent — though he admits not its paperwork — was to apply income limits only when buyers got down payment aid. Still, Waller can rattle off programs for blue-collar buyers and said he was disappointed most of the people interested in his Acres Homes houses this year were young professionals priced out of the Heights.
“Two of my three houses that sold were to hipsters. I didn’t see that coming,” Waller said. He paused, then shrugged. “It still helps the neighborhood. The spirit of the program is urban renewal.”
Heidi Eagleton of the ODD Group was concerned when she read the program’s affordability rules in applying to be a land bank builder in 2016. Buyers at the specified income would not be able to afford the $190,000 to $200,000 price she needed to charge to cover her costs, and she thought it was unreasonable to ask buyers to stay in the homes 10 years.
In looking at the sales of other land bank homes, talking to fellow builders, and asking her consultant to inquire with city officials about the rules, she was told she could sell to buyers of any income as long as she capped her home prices.
“It was ignored,” she said. “Or the city said, ‘Don’t worry about it.’ It was just a known fact.”
Eagleton’s approach was to “self-police,” turning away investors who called wanting to buy the houses and rent them out.
Many builders and brokers interviewed over the last year initially said the land bank does not limit buyers’ incomes. In subsequent conversations this summer, however, many of the same builders said they are aware of the program’s restrictions but said city officials either did not tell them whether to enforce them, told them income limits applied only for buyers who got down payment assistance, or told them simply to make a good faith effort to sell to middle-income families.
McCasland, Hall and Chris Butler, the land bank’s longtime director who now is deputy director of the city permitting center, said they never told builders the program’s income rules could be disregarded, and stressed the rules are clearly stated in the firms’ contracts. Builders inquired whether they could sell to buyers of any income as long as they capped their home prices, Butler said, but were told the land bank’s attorney had confirmed both income and price restrictions needed to be enforced.
At a recent forum for land bank builders, McCasland directed the companies to begin sending every prospective buyer through the city’s down payment assistance office for the buyers’ incomes to be verified.
“Not a single one of them said, ‘Oh wait a minute, we didn’t know income restrictions applied.’ No one was shocked. No one was confused,” McCasland said.
Some builders insisted in interviews that, whatever the program’s faults, the land bank cannot be abused for profit. Not only are home prices capped at a below-market rate, they said, but many homes are priced at less than the maximum. And though land bank lots are sold at a discount, they said, most are overgrown and lack infrastructure, and some carry unresolved liens or permit snafus.
Where’s the affordable?
Builders have implored the city to offer more down payment assistance to buyers and expand the program to reach middle-income families. Some say not doing so while also beginning to enforce the land bank’s income limits could grind the effort to a halt.
McCasland said the city is considering doubling its existing down payment assistance to $30,000 and extending the program to cover families making up to 120 percent of the median income if their homes were damaged by Harvey. Still, he urged the builders to seek lower price points, pointing to six homes priced from $105,000 to $125,000 that were completed in Acres Homes this year.
Several builders said they are moving to smaller floorplans or scrapping garages to keep prices in check, though they said rising construction costs in Harvey’s wake are a challenge.
“It is a doable product, but it requires folks to change what they’re putting on the ground, to change their vision of that,” McCasland said. “We don’t need everyone building $90,000 homes, but we can’t have everyone building $200,000 homes.”
Meanwhile, Kameta Robinson will keep looking for a home.
The 43-year-old property manager decided several years ago she would not rent all her life, as her mother had, and started cleaning up her credit. She was approved last year to buy a $135,000 home but, even with $15,000 in down payment help from the city, that didn’t go very far.
So Robertson retired the rest of her debt — a credit card, a car note, her daughter’s orthodontic bills — and applied again. This time she was approved to buy a $180,000 home, but her search has not been easy.
“I missed a lot of homes because I couldn’t offer them more,” she said. “Everybody was like, ‘What’s your final and best?’ That is my final and best — that offer that I submitted. I don’t have a final and best.”
She is optimistic she and her two daughters will find a good home, but there are still disappointments, such as when she recently called a land bank builder working in Acres Homes.
“I was asking him what his pricing was — because I’m approved now, I’m ready to go,” Robertson said. “And he sent back ‘$209,000.’ Where’s the ‘affordable’ in $209,000? He builds beautiful homes, but where am I going to get that kind of money?"
Rebecca Elliott contributed to this report.