- (female announcer) Production funding for Behind the Headlines is made possible in part by the WKNO Production Fund, the WKNO Endowment Fund, and by viewers like you, thank you.

- The challenge of affordable housing in Memphis, tonight, on Behind the Headlines.

[intense orchestral music] I'm Eric Barnes with The Daily Memphian.

Thanks for joining us.

Before we get started with our guests tonight, I will note that, obviously, there was an election this week in which we've covered extensively in Daily Memphian.

It'll continue as things happen on that front.

We'll be reaching out to the now Democratic and Republican candidates for county mayor and to the candidates for sheriff and try to get them on in the coming weeks.

We'll also go deeper into changes at County Commission and county clerk, other things that are going on, the outcomes of the election as we move towards the general, and then beyond.

Also, there was probably, as we record this Thursday morning, sometime Thursday, a vote on redistricting of the state legislature.

We've been covering that at The Daily Memphian, Bill and others.

And you can keep up with that there.

We'll be digging into that as a show, or shows, probably in coming weeks and months.

And of course, not to be forgotten that the state is taking over Memphis-Shelby County Schools.

So, a new board will be proposed and appointed.

In coming weeks, we'll be digging into that on the show and in "Daily Memphian", and WKNO-FM has news updates on those as well.

So, but I am very pleased to have a group here talking about affordable housing in Memphis.

Let me start by introducing Zach Amos, Director of Public Policy for Habitat for Humanity of Greater Memphis.

Thanks for being here.

- Thank you.

- Kelbert Fagan is Program Manager for Convergence Memphis.

Thank you for being here.

And Ron Brooks is President of River City Capital.

Thank you for being here.

- Yep.

Thanks, Eric.

- Along with Bill Dries, reporter with The Daily Memphian.

I think I'll start and maybe we'll just do it in the same order I just introduced you all.

I'll give you 30 seconds, a minute, just to talk about what your organization does, and then we'll go deeper into that.

But just some people are familiar with, or maybe in some ways, like with Habit, and we're gonna start with Habitat.

They're familiar with some of what Habitat does, but in the affordable housing space, give us the snapshot of what Habitat does in Memphis.

- So, Habitat for Humanity of Greater Memphis has been around for about 43 years now.

We've built almost 650 homes in the Greater Memphis area.

We are an affordable home ownership organization.

We make our homes affordable by offering a 0% interest mortgage to our homebuyers.

We serve folks who are at 80% area median income or lower.

That's our main program.

Our secondary program is our Aging in Place program that we've done since about 2015, where we provide, at no cost, critical home repairs to low-income seniors throughout the city of Memphis.

- And we'll dig into more of what you do, but thank you.

And I'll go to you, Kelbert.

Talk about what Convergence Memphis does.

- Convergence Memphis was founded by the Mortgage Banks Association and THCA to increase home ownership amongst low to moderate-income minorities in the black community here in Memphis.

We work as a subsidiary of United Housing.

So, we basically converge with all the housing professionals interested in the mission.

We focus both on the inventory side and the demand side, helping the consumer and the emerging developer with partnerships around Memphis.

- Okay.

And River City Capital does what?

- Yeah, so, Eric, River City Capital is a subsidiary of Community LIFT.

And we are what's referred to as a Community Development Financial Institution, or a CDFI.

And so, we come in on the capital side.

And we work with many of our bank partners and foundations.

We've existed since 2010 and we support largely small business owners.

So, you think about the entire ecosystem and then emerging developers as well with Capital Stack.

- All right.

Let me bring in Bill and we dig into all this.

- So, Kelbert, talk about emerging developers.

What kind of a pool is there in the city presently?

- Well, I think in Memphis, in particular, there's a definitely a strong desire for emerging developers with organizations like local CRA, the Developers Academy, which is done by the Alliance for Housing Progress.

There's a lot of support for 'em.

- Mm.

- We find that through our land expo that we put on, we have typically over 200 people that come to that event where we offer the opportunity for 'em to know about the projects to develop land here in Memphis has been pretty successful.

And it also shows the demand for emerging developers to have projects.

- Mm.

- They're very interested in that.

And through that, they'll attend, they may find out about programs like the Essential Housing Program through the CRA, where they get an opportunity to have lots made available for them, if they can meet the criteria.

And if they do, then we offer a $10,000 forgivable loan grant to them.

- Right.

- Give them an opportunity to take care of the pre-development costs, 'cause that's kind of a barrier for emerging developers, and they can get started and it helps put a dent in our lack of affordable inventory here in Memphis.

- Right.

And are you talking to developers for homes to own and rental properties as well?

- Yes.

- Okay.

- It's typically developers are either interested in building a single-family home to sell to an end user, or they are interested in building a multi-family home for rent up to a fourplex.

- Mm.

Right, right.

Talk a little bit about multi-family, because when some folks here, multi-family, historically in Memphis, they automatically think of a large apartment complex, kind of '60s or '70s style.

That's not what's happening with multi-family.

Right, Ron?

- Right.

That's correct.

So, what you typically see in multi-family is everything above, say, the duplex.

So, above four units is where you typically start their, Bill.

And so, what we see is, as Kelbert mentioned, there's a huge demand for developers to develop in some of those smaller even unit spaces where they can acquire land, acquire it affordable.

And where we tend to come in on the capital side and that community development is, how do we inject capital into those performers and those balance sheets to really help a project be able to really take off.

- What does capital look like for the city's push for affordable housing?

Because the guys with the capital, they wanna see this pencil out, - Yeah.

- So to speak.

- Right, right.

Yeah, yeah.

So, it looks at a myriad of different ways and comes in different forms, right?

So, you think of that capital stack, you're thinking of some sort of anchor.

So, that could be a bank, that could be a foundation, could be a CDFI like us, Bill, that comes in.

- Mm.

- And then, when you think about on the demand side, as Kelbert mentioned, there's a huge push for aligning custom-tailored products in the lending side for those borrowers.

So, things around how can you assess risk and how can you assess credit without some of the traditional sort of frameworks that have existed.

- Mm.

- So, yeah.

- Zach, Habitat works exclusively home ownership.

Right?

- That's right.

- How does the mix of rental with single-family home ownership, what's that mix like from your perspective?

- Well, it may be counterintuitive, but we, as Habitat, we really care about the affordable rental market because those are people that we eventually want to see as potential clients and homeowners.

I think one thing that we see a lot in home ownership spaces is that when people do not have affordable rental, they can't save up for a down payment for their first home.

And that is really the biggest barrier for individuals to buy a home today.

It's that first initial down payment.

The median rent in Memphis is about, I think $1,200 a month.

And that is gonna be really expensive for a lot of folks in our community.

When you're wanting to have affordable housing, the benchmark is you want somebody to spend less than 30% of their take-home pay on those housing costs.

That's not necessarily just rent, that's also utilities, that's also home insurance.

It's all of it bundled into one.

And so, with our affordable home ownership program, our 0% interest mortgage helps save people a lot of money on that monthly payment.

Our average monthly payment for a mortgage is about $850.

And that is, again, for home ownership.

So, affordable rental is absolutely crucial in the spectrum of affordable housing.

And we need investment at all levels in order to make a better community for Memphians.

- Forty years is a long time to be in the building business, the business of building homes, whether they're rental or home ownership.

How has Habitat seen the Memphis market change in that regard?

- Well, I think there's kind of a before and after story.

After 2008.

Before 2008, the home ownership rate in the city of Memphis was about 71%.

But nowadays, it's closer to 48%.

So, it has gone down significantly.

There's also a pretty significant split between white home ownership rate and black home ownership rate in the city of Memphis, which is not necessarily surprising, in terms of economic differences throughout our city, which is unfortunate.

We have built, again, like I said, 650 homes in this time.

We've also, in the past 10 years, have built 200 homes just in Uptown Memphis.

And I think what we have seen is there are a lot of communities in Memphis, where, as you were mentioning earlier, the deals don't necessarily pencil out.

They're exist what we call an appraisal gap, where the cost to build actually is higher than what the ultimate appraisal comes in at.

So, for example, if it costs us $200,000 to build a home and the appraisal comes in at $170,000, that's why something doesn't get built.

We're able to eat it a little bit as a nonprofit.

But in that Uptown community, for these past 10 years we had seen appraisal gaps on every single home that we had built until February.

On February, we got our first two appraisals that met the cost to build, which I think is an example of when there is dedicated investment into a community, it is worth it.

We made a bet that Uptown was a place that should be invested in, 10 years later, we were right.

And so, I think that is an example of it takes dedicated investment and dedicated effort to turn around a lot of communities.

- Let me go to you, Kelbert.

[participant clears throat] The challenge, I mean, there's challenges building housing all across the country at virtually every level, right?

There're just, even coming off, we mentioned '08 and the big, the financial crisis.

Lending standards changed.

They tightened dramatically.

Some would say they overcorrected from the loose subprime, I don't know if that's true, but that's been an argument that's been made.

A lot of people got out of the business, the trades, or they went into other types of development, and just said, now we're not gonna deal with housing interest rates.

All that happened even before the last COVID and you've got inflation and the cost of building materials and labor going up, and land costs going up.

- Mm-hmm.

- How do you, [chuckles] with all those impediments across the board, and then you add in affordable housing and some of the challenges y'all are talking about, - Yeah.

- How do you get past all those hurdles to make this happen?

- Yeah, I think one of the key things with Convergence is we believe that it's going to take every institution to come together to create a solution.

That's why we believe in partnering with River City, Habitat Humanity, like I mentioned, local CRA, the Community Redevelopment Agency, the local development academy that's held by Alliance Progressive Housing.

Like we believe that these organizations together have a solution.

Some have pre-development funds, some have low-cost loans, there's training there, there's opportunity for land, if you bring in Memphis city government, and their housing department.

So, when you get everybody in the room with all the resources for the, let's say, the emergent developer, then I think you increase your chances of overcoming some of the challenges.

- I don't know if we said this out loud, but part of the backdrop [participant clears throat] of this is Mayor Paul Young, City of Memphis, announced a goal some months ago of 10,000 new or renovated homes by 2030.

I can't remember the... I've heard different numbers about the overall need for affordable housing units, but it's much- - 39,000.

- 39,000.

- Yeah.

- So, we probably should have said that sooner.

The scale of it is super challenging.

One thing I'll ask you is - Yeah.

- All these challenges aside, are there investors, lenders, who make money on affordable housing?

Or is it all a form of philanthropy?

- Yeah, there's a form, Eric, of some level of sort of philanthropy and support that comes into play.

It goes back to some of what Zach mentioned, which is some of the gap between the appraisal values and cost to build, and things of that nature.

So, what we're seeing in affordable spaces is from the lender perspective, is there is some sort of injection in some form.

Now, they could vary in different forms and flavors, and things of that nature.

But I think one of the big pieces that we see, Eric, is, and just piggyback on something that Zach mentioned quickly is, defining really what is affordable to begin with.

And he used the formula that we use.

And that's just where, like Kelbert mentioned, when you talk about collaborating is, we have to get aligned on speaking the same language, which is the aligning cost and that development piece with the capital.

And sometimes, there's a gulf in that, as you mentioned, coming now.

So, we look at underwriting the same way.

Is the mortgage expense to, say, the household 30% or less?

And so, as we align more on those pieces and we're speaking the same language, I think that helps with Kelbert's point in terms of collaboration.

- Where do, one more for me, and I don't know who wants to take this, but where does, one big outcome of the, or byproduct of the financial crisis, the subprime crisis, all of that, was corporate and hedge fund, big, big dollar, billion dollar entity said, oh wow, we can buy up houses all around the country for very, very cheap, ostensibly hopefully fix them up and rent them.

And that became a huge business that took thousands, I mean tens of thousands nationally, if not hundreds, of homes both existing, renovated, and probably, I would assume new, off the market for home ownership.

[participant clears throat] In Memphis specifically, who wants to take this, have the corporate ownership, the corporate rentals, have they been good, bad, or mixed?

- Go ahead.

- I would say, I think sometimes renting gets a bad rap, but it still works towards home ownership.

You can say it's one of the first steps to becoming a homeowner.

I think for us, as we do some of our home expos, homebuyer expos, when we go out to the neighborhoods that are majority minority, say about 80 to 85% of those folks are renters.

So, it's good for them to start somewhere to have housing.

And once they get the information they need to get about all the different products that are out there for them to become homeowners, there'll still be a house available for them despite what the corporate companies are doing.

- Yeah, I think- - Zach and then... - Yeah.

- Zach.

- Yeah, when it comes to corporate home ownership, in Memphis, the rate is higher than it is nationally.

How much is it?

It depends on who you ask.

The city of Memphis does not have a rental registry, so we can't necessarily give you a precise number.

- Which is worth pausing on and is kind of mind-blowing - Yeah.

- That there is not a database anywhere at the Assessor's Office, Trustee's Office, county, city, there is no sort of list of these homes are owned by these people and rented, and are primarily rental units.

- The best you can do is, and I'll shout-out Innovate Memphis here, they're a property hub.

If you have a list of all of the corporate names, then you can filter by those names, but those names can change by the day.

- Yeah.

But keep going.

I interrupted you.

- No.

And the corporate landowners, I think, it depends on if they are buying a distressed house, that entity is incentivized to renovate it, get it up to standard, get it into a place where it is livable.

So, that is a benefit.

- And stabilizing of a neighborhood that might otherwise get blighted.

- 100%.

- That's part of the argument.

- 100%.

But there is a very legitimate tension that people have that say, "Well, that's the American dream that's owned by somebody who's just looking at it on a spreadsheet."

Like, this is supposed to be someone's life, someone's dream, and it's just a number to someone else.

And so, I think that tension is really palpable in many communities throughout Memphis.

- Ron, you wanted to chime in?

- Yeah, I think it's a huge tension point.

What I would say, and coming off the backs of Kelbert and Zach is, I would, is lean more on the side, Eric, that it's created, that sort of gulf that Zach mentioned, which is going from 71% pre-'08 to now 71% or greater.

- No, 50%.

Yeah.

- Oh, actually 50.

- Yeah, yeah.

Is that what you said?

50%?

- 48.

- 48.

Okay, yeah.

- 48%.

Yeah.

Yeah.

- So, 48% home ownership, but a large percentage of on the renter side.

And I don't necessarily see the transition from that renter to ownership happen at scale.

And so, then, what happens is there's sort of this almost glass ceiling that gets created, where folks are not able to make that transition.

And I know there's a lot of work being done in that space to help fill education gaps, and then also in terms of gaps in lending product to be able to support.

- Yeah.

- But a lot of what I see with that, and we also, we tend to think of like the large players, like the Black Rocks and things like that.

But there are many of these, as Zach alluded to, these sort of corporate entities that are, in some cases international, - Yeah.

- That are maybe not the best fiduciaries in terms of standing up property and avoiding blight and things of that nature.

We particularly see that here in Memphis.

- Yeah, yeah.

Bill.

- So, if the appraisals are going up and you've seen some indication of that, does that change how investors look at it, Ron?

- Yeah, yeah.

Well, it certainly does.

And Zach can certainly speak to this even better than I could in terms of that appraisal gap and what it does ultimately to performance and to the financials of a potential deal.

And how, particularly in the traditional lending space, that creates a gap.

And that's where organizations like ours, Bill, in terms of - Mm.

- At the Community Development Financial Institution, or CDFI, where we're able to come in and help fill those gaps.

And as Kelbert mentioned earlier, the more we can come together as Avengers and use our superpowers for good to align in that space, I think that's where those gaps can get filled strategically and ensure that you have a long-term viability.

- Well, Zach, is it a trend or did you just get lucky on those two properties?

- It's a trend based on communities throughout the city.

- Mm-hmm.

- If one area is gonna be booming, that doesn't necessarily mean everywhere is.

I think there are often some places where we build, where I know, Eric, you were mentioning land costs going up, there are sometimes where we buy a lot that's worth $1,000.

And so, when we are building a $200,000 structure on it, that means your appraisal's not gonna be there.

On average in a healthy real estate market, eighty percent of a parcel's value is in the structure and 20% is in the land.

And a lot of the communities that we build in, the structure that we build is 98% of the value of the entire parcel.

- Mm.

- And so, but this happens over time.

If there's not a lot of activity in a neighborhood, there aren't very many things to compare a new build to.

And so that, you're just comparing it to a recent sale of a much older home that's in a worse condition, and that can drag down appraisal values.

- Mm.

So, Kelbert, talk about the first builder or developer into an area like that, they're taking more of a risk than maybe what you hope - Yeah.

- Comes later, right?

- Yeah.

Typically, [participant clears throat] it's definitely a risk if you're building a brand new home.

'Cause like Zach was saying, the comps don't work out normally.

The house is gonna cost more to build than the current houses that have sold maybe in the last six months.

Again, that's why it's important to bring other agencies into play to help decrease the cost to that emerging developer.

- Mm-hmm.

- And once that takes place, then you can reset the comps, especially if you can build more than a few houses in that area.

And once you reset the comps, you start creating a higher level of equity for the current homeowners in that area.

- Mm-hmm.

- And it also can deter crime and there are stats behind that, things of that nature.

So, that really is how the emerging developer can benefit bringing in other institutions, which is what we try to focus on to help them overcome the cost.

And then, you can reset the value of the homes once you get enough new builds in the area.

- So, when someone starts to, who's a developer, maybe drives through this area or hears about and drives through and sees construction going on, I don't imagine they just pick up the phone right there and say, "I've gotta build here," but they maybe start looking at it.

Right?

- Right, right.

Yeah, absolutely.

I think there's just a lot of resources out there that we're working to make people aware of - Mm.

- Through so many events we do.

So that when the emergent developer, he's driving through, he or she is driving through an area and they see a lot that they wanna develop, they know they can call Ron at River City Capital.

Or they can contact someone at the City's housing department to find out what kind of incentives they can get to help them purchase that lot or have their lot donated, and find the financing for them to build a home.

So, we really work in a space where we want them to know that, hey, it's possible for you to build something in this area that may have been disinvested in.

- All right.

Ron.

- Yeah, I was gonna add one thing and when we think about holistically, Bill, and what Kelbert's saying, often what gets left out of affordable housing is the ancillary sort of community around it.

So, you think about the live, work, play sort of element.

And as Kelbert mentioned about partnerships, really looking to build.

As you develop housing you're developing housing density, you have to be thinking about what are the businesses that are supported around it.

What- - Is there a partner there?

- Yeah.

- Something like that.

Yeah.

- Absolutely.

Right.

Where's the coffee shop?

Where is... - Mm.

- And thinking about that, not from a cookie cutter perspective, but what actually works and would be well received by the community that is there currently present.

And what works culturally within an area.

- And I think that that's gonna be really important as the city goes through the latest UDC refresh.

- UDC?

- The Unified Development Code refresh.

It's gonna change some of the zoning throughout the city.

I think that's gonna be really important to not only get these community-based amenities that you're talking about, but also create more variety - Yeah.

- In the types of housing that we can see throughout the city.

Over 70% of the city of Memphis is single-family detached housing, which is pretty common for southeastern kind of Sun Belt cities, but it is very much out of the norm for most cities in the United States.

So, having more diversity in housing type is gonna be really important throughout the city to create that more density.

It's less of a strain on public services and that it can provide more economic opportunity for businesses to come in and fill economic needs.

- We can talk, there are so many more things I wanted to get to with schools and with MATA and all the kind of other factors that go into this, but we are out of time.

We appreciate all of you being here very much.

Thank you for being here, Bill.

As I mentioned at the top of the show, obviously there's an election this week and there's likely a redistricting that was voted on Thursday as we're taping this.

We'll be tackling those issues and digging into them in future shows, as well as the school takeover, and again, upcoming elections, the General and the National elections, the State elections, all that and more coming up in future shows.

And meanwhile, we of course, Bill and others at The Daily Memphian will be covering that stuff every day, every hour.

We appreciate you joining us.

If you missed any of the show today, you can go to wkno.org, the Daily Memphian, YouTube to get the full video.

Or you can download the show as a podcast wherever you get your podcasts.

Thanks very much and we'll see you next week.

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