Having assembled portfolios of vacant or abandoned properties through tax foreclosure and eminent domain, these cities now face the challenge of returning such lots to use. Under its four-decade-old Urban Homestead System, Buffalo is selling properties in urban renewal areas for $1, if buyers will bring them up to code or build a new house. It’s a rigorous process, and draws fewer than ten buyers a year. Chicago is selling lots for $1 to neighbors and non-profit groups. Detroit puts 21 vacant houses up for auction every week.
Last year, Newark — just a twenty-minute train-ride from the most expensive real estate market in the country — decided to offer lots for $1,000 each to prospective homebuilders. As John Stillman recounts in this feature, the proposal was a novel approach for Newark and attracted a huge wave of interest. So why, Stillman asks, didn’t things go as planned?
“Calling all lovebirds,” the mayor of Newark, Ras Baraka, wrote in February of last year. “Bring your sweetheart to Newark” on Valentine’s Day, the mayor implored, “and start calling Newark home.” His call was answered, and more than 500 American dreamers — from his constituency, the region, and four other continents — began lining up outside Newark City Hall the night of February 13, 2015, for a chance to purchase one of the 98 vacant parcels of land the City would sell to couples the next morning for the low price of $1,000.
They hunkered down along the sidewalk, braving seven-degree temperatures and defying the City’s “code blue” instructions to go home and stay warm. When the sun finally rose and the front doors were flung open, the couples filed excitedly inside to plunk down the $500 down payment required to claim the tract on which they hoped to build their first homes. Provided they passed the initial financial vetting process, the early-bird couples received a certificate with gothic lettering that celebrated their step towards homeownership, along with a heart-shaped donut. The first ten even got a photo with the mayor himself.
The so-called “Love Lots” program was Newark’s first attempt to funnel land directly to homebuyers, a move that placed the onus on citizens to finance and oversee the construction process.
Twelve months later, the trials of homebuilding in Newark — even with a hefty land subsidy — have overwhelmed the vast majority of those couples.
Only five have closed on the lots they secured last February. Another seven couples are in the process of closing, and eleven are seeking to secure construction loans. That leaves 75 lots mired in the grim realities that attend financing construction in areas banks see as high-risk. Of those, 21 have been returned to the city by couples that either broke up in the intervening period or decided for other reasons not to hitch their futures to the tracts they won last year, and will be developed by a construction firm headquartered just south of Newark.
For the other 54 couples, whose plans have stalled, Newark has begun a second phase. The City has asked the Newark Community Economic Development Corporation, a City-funded entity created in 2007 by then-Mayor Cory Booker, to guide buyers through another attempt. The EDC will provide a menu of architectural renderings for couples to choose from. The EDC will build out 25 of the lots; while local builders will build out the other 29. The couples will then be able to buy back completed homes.
It’s a sign that the initial attempt to increase the homeownership rate in one of America’s more troubled cities has fallen flat.
“We’re finding many of the buyers who thought they had the capacity or will or credit to borrow or pursue such a project — they don’t,” added Carmelo Garcia, Newark’s chief real estate officer. “It’s a reality of the times.”
This appears to have taken city planners by surprise. “What we’re realizing,” said Newark spokesperson Cheryl McCants, “which, when you think about it, makes perfect sense, [is that] the process of securing a construction loan is more difficult and challenging … the underwriting is more stringent” than hopeful parties on both the buy and sell side expected.
Twelve months after the sale, signs of construction are scarce. A tour of 58 of the 98 lots revealed that many are in a state of disrepair, strewn with litter, unwanted furniture, TVs, cars, and the ruins of what once stood there.
For the five families who have already gotten the green light for construction to begin, the challenge now is to build something they can move into within the stipulated 18-month timetable — or risk their lots’ repossession.
At 48 North Thirteenth Street, in the city’s West Ward, Leonardo Gomez helmed a bulldozer, wearing the proud smile of a do-it-yourselfer across his face. Gomez, a Newark resident of 15 years, had been issued a construction permit one week prior, and despite the gauntlet of inspections, applications, and hard work that lay ahead, he was delighted to finally have the project underway.
So far, he’s paid between $15,000 and $20,000 out of pocket — $3,000 to remove the excess soil and garbage that had been dumped on his lot over time; the rest for permits, designs, and a surveyor. He’ll handle most of the construction himself — Gomez and his two brothers run Three Brothers Construction — but even as the owner of a construction business, he had difficulty securing a $200,000 loan from a local bank.
“We tried to get loans from different banks, but it’s difficult,” he said. “Rates are so high.” With a short-term loan, Gomez is now able to begin construction on a two-family home. He will occupy one unit with his wife and two children and rent the other unit to help pay for the building costs. “It looked easy to get a house — only $1,000 — but it’s so difficult,” he says, looking back. “In the end,” he adds, “it was a big help to get a lot for that price.” He expects to move in between six and twelve months from now. “We’re going to be super happy.”
The question of how best to repopulate blighted urban neighborhoods is the most important and enduringly difficult one for formerly industrial cities like Newark. The largest city in New Jersey, Newark has lost more than 30 percent of its population since 1960 and struggled to preserve its tax base amid twin currents of suburban flight and tumultuous trends in the housing market.
According to the latest available census data, the homeownership rate hovers around 23 percent in Newark — versus 30 percent in Jersey City, NJ, 40 percent in Trenton, NJ, and 48 percent in Yonkers, NY, similarly sized cities in the region.
Still, there have recently been signs for optimism. Newark saw a boom during the early 2000s, when speculators were building and buying homes like mad. The number of building permits Newark issued tripled between 2000 and 2006, though it would tumble down lower than before once the recession hit. For the first time in a half-century, the population has been growing again — Newark has added 10,000 residents since the millennium.
But the mortgage crisis hit Newark hard, producing more than 6,000 home foreclosures. According to a report prepared by Carol Meyers of the SEIU, Newark may have lost nearly $2 billion in property values as a result of foreclosures and their spillover effects. The City has since amassed a portfolio of more than 2,000 vacant and abandoned properties.
The result has been a budget shortfall caused largely by falling property tax revenue. Selling off these assets is — perhaps unrealistically — seen as a solution.
Over the past two decades, Newark has tried a variety of tactics to dispose of these properties — some with more success than others. Sharpe James, mayor from 1986 to 2006, was convicted of fraud in 2008 for helping an ex-girlfriend buy vacant properties from the City for a reduced price that allowed her to flip them for a $600,000 profit. A legal victory won by his successor, Cory Booker, allowed the City to sell properties below market value only in support of affordable housing or other community benefits. Mayor Baraka has tried, with limited success, to offset more than half of a $93-million budget deficit by auctioning off foreclosed properties.
The “Love Lots” program forgoes the large payday Newark desired from the sale of its vacant lots in favor of expediting development, homeownership, and — following a five-year abatement — property taxes. Detroit, Philadelphia, Chicago, and Trenton have sold their vacant or abandoned properties for as low as $1 to neighboring residents, but Newark’s initiative was unique in requiring the buyers to build and live on their lots. Local banks were less keen on this approach, and hopeful homeowners found themselves squeezed between the City’s timeline and the unavailability of credit required to begin construction.
“You had some couples who romanticized the idea of building their own home,” said spokesperson Cheryl McCants, “and may not have the experience or fortitude to do what that takes.” But the trepidation of first-time homeowners was hardly eased by the largely undesirable locations of the 98 lots Newark offered last Valentine’s Day. While the Model Neighborhood Initiative introduced by Mayor Baraka in late 2014 included measures to make neighborhoods safer before enticing municipal employees to move into the City’s pre-built homes therein, only two of the 98 Love Lots are located in these zones. The rest are scattered across neighborhoods with high vacancy and crime rates. Fourteen are in the neighborhood of Fairmount, which has the city’s highest vacancy rate, over 31%, compared to 14% citywide. Twenty-nine Love Lots have seen a violent crime committed within a block of them in the year since the sale.
Depressed property values in these areas mean it’s possible the finished product will not be worth what it costs to build. City Hall’s new menu of renderings includes seven designs, ranging in price from $180,000 to $250,000. Even the cheapest option far exceeds the city’s average home sale price from last year, $150,000.
In Newark, the prospect of a creating a hundred new homeowners in 18 months was more romantic than realistic. “I think it was mainly a marketing proposition,” said Alan Mallach, a senior fellow at the Center for Community Progress, who added that by putting time pressure on buyers (One Day Only!), the City made it infeasible for them to assess value-determining factors like local schools, street maintenance, and crime levels, which come with the territory. “I don’t think it’s a good practice to pressure people into making these kind of deals,” he said.
Mr. Garcia, however, remains optimistic about the program. “These are lots that were available for them to realize the American dream,” he said. “The excitement is infectious.” Putting costs aside, he points to another source of value: “They go through this process, see how arduous it can be, and then value the struggle.”
A couple miles south of Gomez’s plot, another veteran Newarker was hard at work on a home of his own, a few doors down from a lovebird lot. After purchasing his land five years ago for $25,000, he’d caught wind of the door-buster last Valentine’s Day, and although he didn’t qualify on account of already owning a home, it struck him as a steal. “Maybe next year,” he said. “But I have to get a girlfriend?”
John Stillman writes about urban issues, pop culture, and sports. His work has appeared in Pacific Standard, Vice, Slate, and elsewhere.