Homesteading instead of flipping -The myth and reality of the Dollar House

Few problems vex Baltimore residents more than the fact that a growing shortage of affordable housing continues to coexist with an also growing stock of vacant homes. It would seem to be so obvious to connect those two problems, and voila, no more vacants and no more homeless and no housing waiting lists. Sounds easy, so why isn't it done? Didn't Baltimore do that once with great success? Whatever happened to that Dollar House Program?

Dollar Houses at 600 Stirling Street (Baltimore SUN sketch)

Few Schaefer years stories live on with the same mythical power as the one of the Dollar Houses and the pioneering "urban homesteaders". Lore has it that it turned whole communities from "vacants to value" long before that program title existed and created stable, desirable and attractive communities such as Otterbein.

If Schaefer could figure it out, why not any of the subsequent mayors from Schmoke and O'Malley to Rawlings Blake? Even the current Mayor, Catherine Pugh, used to gush about the Dollar House program as a candidate and vowed  that she would bring it back. Now she toes the line of her Housing Department staff who  have said for years that therefore the program can't be replicated.because the federal programs to fund it are missing today. They also say that the seven year Dollar House program did only rehab 158 houses, as many as they convert now in a good year. So who is right? Can and should the program be revived and what would it take?

Councilwoman Mary Pat Clarke has been around long enough to remember first hand experience with the famed program of the 1970’s that began on Stirling Street and transformed Otterbein and Barre Circle. She isn't buying it that one couldn't revive the program and forced a council hearing on the matter.

City residents and community activists crammed into City Hall Wednesday in hopes of bringing back the “Dollar House” program that revitalized underprivileged neighborhoods in the 1980s under former Mayor William D. Schaefer. Some of Baltimore’s top leaders and community advocates pleaded with members of the City Council to reinstate the program with the intent of rehabilitating vacant homes that number from 16,000 to more than 46,000 throughout the city. (Baltimore Watchdog, Oct 26, 2017)

It is and has been easy to obtain a Baltimore for a dollar. The problem is what it costs to fix it up. A full gut rehab costs upwards of $120 a square foot, for a 2,000 sf three story home this amounts to $240,000 and for a small two story 1,200 home it would still be $144,000. That’s a good chunk of money,especially if the house sits in a neighborhood that has no homes that are valued over $100,000, often far below that.

Stirling Street in 2015 (Photo Philipsen)

Even though in 1973 houses were fixed up for $20,000, the renovation cost problem always existed.

To solve it the Housing Department under Bob Embry as Commissioner and Jay Brodie as his deputy invented the Dollar House program and State Senator Lapides as a preservationist supported it.

It provided low interest loans to the "homesteaders" that bought a home and committed to rehabilitation within a set time-frame. (Low interest meant 7% in those days when market rates were as high as15%). The money for the loans came from City bonds with support from the federal programs including Community Development Block Grants (CDBG). The Dollar House program started in Baltimore but was quickly picked up by HUD which created in 1974 a national Urban Homesteading Demonstration Program which allowed 22 other cities to  take part in similar revitalization strategies. Even today, HUD still advertises their own Dollar Homes program.

Some are convinced that the famed Dollar House program of the 1970’s that transformed Otterbein and Barre Circle can be brought back, if Housing would just again fund the high cost of rehabilitation through special bonds, so that homesteaders wouldn't have to rely on private banks who are unlikely to give risky loans. But proponents must ask themselves what asset the recipients of such special those loans would own in the end, provided owners would be as able as those original homesteaders to successfully pay off the mortgage. They are said to have had a perfect record and no default.

If the house would turn out to be a piece of real estate which would assess lower than the cost to rehab and pay back the loan, then the program wouldn't work. Original homesteaders couldn't sell for five years, but they sure didn't want to be "under water" and not be able to sell at all. How did the old Dollar House program avoid this conundrum?

Homesteaders checking out homes in 1975 

One of the reasons for the repayment success was careful vetting of the applicants in person by a five person panel of non-city people (Otterbein). Designated staff from several city departments were at hand to guide homesteaders through the process. Successful and valuable renovation was achieved through design guidelines which usually were developed together with the homesteaders. This type of multi-agency multi-level support is mostly missing today (except for the annual V2V resource day).Small-time developers, builders and wannabe homeowners often get buildings from the City only to  fail midways, being left to their own devices, then walking away from half improved properties.

The other reason for success was context. Just as any developer  knows that a building isn't any good if it sits in a lousy area (location, location, location!), Baltimore City did everything to make sure that the new homesteaders wouldn't just own a nicely fixed up house but that the house would sit in a viable and attractive neighborhood. The recipe for creating attractive neighborhoods had several ingredients:

First, the Dollar House fathers decided to only deal with clusters of homes instead of scattered sites, so no fixed-up house would sit at the end in a sea of boarded up houses dragging down its value.

Second: The clusters of vacants for which the program was leveraged had not only been carefully scouted out, they all sat in pretty attractive areas next to downtown. The houses were vacant not because of residents had fled a terrible neighborhood conditions but because residents had been forced out to make space for ill-fated interstates or urban renewal plans. Once the silly freeway construction projects were defeated, a reversal of fortune was quite possible, once one put some effort and creativity to it.

Otterbein infill. From Design Guidelines

Third: The cluster areas and new communities were masterplanned. The Otterbein area, today typically used as the most successful example of the Dollar House program, was carefully masterplanned by Cy Paumier, Principal of LDR, a then well-known land planning firm. The charming community we see today, with its new infill townhomes, carefully restored historic houses, the rear alleys with screened parking, the cobble stone, and the preserved street grid, even the inserted matching material highrise did not just happen on its own. All this is the result of good planning and public investment in public infrastructure, streets, alleys, water, sewer, parks and playgrounds and detailed design guidelines worked out between the homesteaders, city agencies and consultants.

No such public effort accompanies the current Vacants To Value program. Today, if there is a masterplan for an area at all, it is because a larger master-developer stepped in and prepared their own plan as in the case of Barcley. An exception is still the somewhat mysterious Green Network Plan which Baltimore Planning currently advances and which may result in a more connected green infrastructure of parks and trails throughout disinvested neighborhoods.

In short, today's many more vacant properties are the result of urban flight, extending over vastly larger areas of the city than the vacants of the 1973 when Baltimore still had 890,500 residents.

Even back then, not all Dollar House communities were as successful as Otterbein and Barre Circle. Stirling Street in Oldtown, the first homesteading area with 42 Dollar houses, still looks lovely, but the City plans in the surrounding area including the Old Town pedestrian mall failed spectacularly and today Stirling Street homes sit in total isolation. Homes there assess just a bit over the low City median price of $125,000.

Stirling Street homesteaders on the cover of Leisure &
Travel, 8/78

Another big part of the Dollar House success was the funding. Bob Embry wanted a self-supporting loan approach for the program and established the Baltimore Rehabilitation Environmental Assistance Loans, (REAL) funded by repeatedly vote-approved local bonds, a way of funding sites outside of the designated urban renewal areas with their federal funding. In 1972, a two million dollar bond issue passed, with the first 29 loans released to those who qualified in 1973. Not all funding was local, some came from federal Section 312 money, a revolving rehabilitation loan fund with a focus on assisting low income households. At the time the Fair Housing Act was already in effect and loans were given fairly to all who either had the skills to do "sweat equity" (do work on their own houses) or enough resources to demonstrate that they could pay back their loans, clearly a more middle class focus, even though successful homesteaders were a diverse group.

Councilwoman Mary Pat Clarke speaking on TV about
the Dollar House program

In spite of the glorious image which the Dollar Program has attained over time, it certainly didn't run without glitches in its day. Otterbein's progress was once again threatened by plans of placing I-395 in such a manner that the renovated houses were greatly impacted. Once alignment was finally changed some homesteaders disliked that the Federal Reserve was placed as a buffer at the edge of the community. In Barre Circle two designated houses were accidentally demolished by city crews. Homestead applications experienced such delays that at one point only 27 houses were processed in three years.

Otterbein facades. From Design Guidelines

Of course, the question of gentrification also played a role in the discussion about the Dollar House program then, when ACORN housing advocates placed sit-ins against the program's lack of focus on low income participants. Federal law was subsequently changed. Today local tax exempt REAL bonds in their old form are no longer legal. Under President Nixon and his HUD Secretary Romney the long road of defunding HUD began, which continues to this day.

In spite of those changes, Mary Pat Clarke thinks that communities want a hand in repairing their communities. “Baltimore wants to fix itself,” she says, and judging by the unbroken enthusiasm for the Dollar house and her revival idea, she is right. While Housing's current program "Vacants to Value" does not preclude local engagement, it lacks the distinct touch of the community-based "bottom up" approach that the Dollar House program emanated especially in contrast to the then popular top down urban renewal and its large scale displacement. In V2V communities see outside investors swoop in like vultures too often with flipping in mind instead of homesteading.

Vacant houses in Sandtown (Photo: Schamp)

The vast number of vacants in so many communities all around the city seems disheartening. For a new bottom-up program to succeed, promising clusters need to be identified, masterplans created, amenities financed but most importantly, one must stop lumping all vacant buildings into one pot. Instead, one needs to create at least three or four categories, not only a listing according to markets (as the City does) but also by metrics such as preservation value and structural/architectural condition. Not all houses need a costly "full-gut rehabilitation", even though the threshold for falling into this category is pretty low. A Dollar House Program would be most successful for houses that need only  upgrades and not an entire rebuild. Those, once they go into foreclosure, are fetched up by flipping sharks that do nothing to build back a community.

In the end the nostalgia about the Dollar House Program is not just semantics but a lot about psychology. The sense that people can turn communities around with "sweat equity, risk taking and commitment if they can get a helping hand from an equally committed and hands-on City government is still there and could be a potentially powerful force in the gigantic task of re-filling thousands of vacant houses. The task his too big for a single program to succeed. But the Mayor and the new Housing Commissioner would be well advised spending less energy on explaining why the Dollar House can't be done anymore and instead figuring out how they can tweak their current efforts so this community energy can be harnessed again.

Klaus Philipsen, FAIA

Baltimore SUN: Council brings back hearing on the Dollar House Program
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Baltimore's Brick Walls, Jennifer Gerdom