Habitat for Humanity, Split on Mission, Builds $800,000 Condos
Habitat for Humanity, Split on Mission, Builds $800,000 Condos
Dec. 14 (Bloomberg) -- Meki Minni's home in Alexandria, Virginia, was once a source of pride, not anxiety. He moved into the three-bedroom townhouse built by Habitat for Humanity International in 1999, taking out $200,000 in no-profit, no- interest mortgage loans from Habitat to repay the charity.
The home, a short walk from the Federal-style houses of generals and politicians he once served at a Pentagon dining room, let Minni quit one of two jobs and return to school. Then the property's value more than doubled, boosting his taxes and raising monthly payments almost 70 percent, to $900 from $534.
``It was like they turned me back to what I was,'' says Minni, 43, who juggles engineering school with a job managing a parking lot. ``My kids ask me to take them to a movie, but I cannot afford it.''
The five-year real estate boom is straining the nation's largest homebuilding charity, slowing its pace of building in the U.S. and forcing it to abandon its ideal of home ownership in the most expensive cities, where it will rent condominiums instead. Soaring land prices have led to divisions within Habitat over its mission and accusations that it's focusing on upscale projects at the expense of basic homes for the poor.
``I call it Lottery for Humanity: A few nice houses for a few nice families,'' says Habitat founder Millard Fuller, 70, who started the Americus, Georgia-based charity in 1976. He was fired as president in January.
$800,000 Condos
Some condos that Habitat is building in California will be worth as much as $800,000. Lots in Minneapolis that cost the group $5,000 a few years ago now run as high as $50,000, according to Stephen Seidel, director of Habitat's urban programs. Karen Cleveland, head of the Northern Virginia branch, won't say what she paid for properties bought recently near Washington. ``It would upset people to know how much,'' she says.
A debate between Fuller and others within Habitat became public in the past year as Fuller fought an employee's accusation of sexual harassment. The board said it couldn't prove the allegations, then dismissed him over what it called ``divisive and disruptive'' public comments.
Fuller denies the harassment accusation. He says the board used the issue as an excuse to remove him after persistent disagreements over Habitat's expansion plans. He says he often questioned ``creeping affluence'' that detracted from the original mission of simple, decent homes.
``The houses have just gotten fancier, more expensive,'' he says. Meanwhile, Fuller says, Habitat is retrenching. ``They're slowing down.''
``I always was pushing people, pushing people, pushing people,'' he says. ``Some of the senior staff didn't like it.''
In April he started his own charity called the Fuller Center, which he says has raised more than $2 million. Among its first projects: building 100 homes in Nepal for $750 apiece.
New CEO
Habitat's new chief executive officer, Jonathan Reckford, who took over in September, says the group has no choice but to adjust its model as land prices increase and standards of living improve.
``If we were only building houses the way we built them 29 years ago, we would be failing miserably as a ministry,'' says Reckford, 43, a Presbyterian minister from Edina, Minnesota, who earlier worked for New York-based Goldman, Sachs & Co. and Walt Disney Co. of Burbank, California.
Habitat, whose Web site identifies it as ``a nonprofit, ecumenical Christian organization,'' is run as a loose federation of affiliates. They had worldwide revenue of $904.7 million in fiscal 2004, the charity estimates.
Commune Roots
Habitat's roots date to 1965, when Fuller, then a Scripture-quoting, mail-order business operator from Alabama, and his wife, Linda, visited the Koinonia Farm commune in rural Georgia. Residents there farmed together and built one another's homes.
The experience inspired the couple to quit business and give away their belongings, including a Lincoln Continental, 20 horses and 2,000 acres (809 hectares) of land, Fuller says. Since the group's founding, it has built more than 200,000 houses for almost 1 million people in 100 countries.
About 100,000 have gone up in the past five years alone, relying on the hammer-and-nail work of such volunteers as former U.S. President Jimmy Carter, as well as hundreds of hours of labor from each home's recipient. The charity also rebuilds homes. After Hurricane Katrina struck the Gulf Coast on Aug. 29, Habitat recruited volunteers to build new house frames and ship them to the region.
One of Habitat's major achievements is in building a brand that has diminished the stigma of low-cost housing, says William Apgar, senior scholar at Harvard University's Joint Center for Housing Studies and assistant secretary at the Department of Housing and Urban Development from 1997 to 2001.
`Raving Housing Maniacs'
``They'd go into an ordinary city on a Monday, and by Tuesday you'd have a batch of raving housing maniacs,'' says Apgar, 59.
Wall Street executives are prominent in Habitat's management; Citigroup Inc. operations chief Kevin Kessinger is on the national board and Lehman Brothers Holdings Inc. managing director Paul Shang is vice chair of the New York branch of Habitat.
Corporate donations help keep down costs. Appliance maker Whirlpool Corp., based in Benton Harbor, Michigan, has donated a refrigerator and a range to every home built in North America since 1999. New York-based Citigroup has contributed $16.8 million in zero-interest mortgage loans.
Soaring property prices in the U.S. have exacerbated a shortage of adequate housing. In the 1990s the number of people living in crowded households, defined as more than one person to a room, grew by one-third to 6.1 million, the largest number since 1960, according to 2000 U.S. Census data.
Declining Affordability
Meanwhile, the median price of existing homes has jumped 47 percent since the end of 2001, reaching $218,000 in this year's third quarter, according to a Nov. 28 report by the National Association of Realtors. The Chicago-based group said housing affordability, which takes interest rates into account, touched a 14-year low.
Until the housing boom, Habitat's business model was little changed. In most cities, the model remains: Recipients get a no- interest mortgage, often for 20 or 30 years. The mortgage is set at a level low-income buyers can afford, typically $50,000 to $150,000. The down payment averages $500.
Owners are usually barred from selling their houses, except to Habitat, until they build equity over several years. Once the mortgage is paid, the homes are theirs to sell or hold at will.
Land, Money Hunt
Soaring prices have slowed Habitat's progress in the U.S., forcing the charity to spend more time scouting for properties and then raising money to buy them. Habitat's U.S. chapters completed 5,455 homes last year, down from a peak of 6,064 in 2001. Worldwide, they completed 22,046 homes, up from 18,460.
In such cities as Santa Monica, California, and Seattle, the charity is erecting multi-family condominiums and turning to arrangements where families would effectively rent their units because of high costs.
``We've got to find new ways to break out of these logjams,'' CEO Reckford says.
The price squeeze is particularly acute in Santa Monica. On a street lined with sweet-gum trees, a few blocks from a community college, Habitat is developing five townhouses for families making less than $34,000 a year on a plot purchased for $425,000.
The homes won't be extravagant by California standards, says Robert Dwelle, director of real estate at Habitat's Greater Los Angeles chapter. The two- and three-bedroom units each will have a maximum of 1,100 square feet (102 square meters). Some will have balconies. All will share a children's play area and a room for bicycle storage.
Resale Restrictions
Land is at such a premium in Santa Monica, where the average home price is $1.5 million, that each unit's market value will be $800,000 by the time it's finished in 2007, Dwelle says.
As a result, the families will be restricted from selling the units except to other buyers who earn less than 60 percent of the city's annual median income, or $39,300 at the family median of $65,500. A land trust, a non-profit entity set up to hold the property's title, will be the units' ultimate owner. The charity is negotiating with the Los Angeles County Assessor to levy taxes based on the expected sales price of $150,000 rather than the market value, Dwelle says.
`Really Home Ownership?'
``We've had many discussions about this: Is this really home ownership?'' he says. ``But these families could never afford the property tax.''
Seattle's Habitat chapter also may turn to condominiums managed by land trusts after seeing land prices jump to as much as $75,000 from $20,000 a few years ago, local director Dorothy Bullitt says. ``We've always wanted them to own this whole asset, but it just may not be possible,'' she says.
Condominiums allow the group to house more people on each piece of land, she says. They're also more complex and expensive. Builders often must use thicker concrete in stairwells, or install sprinklers to meet city fire codes.
Critics question whether an $800,000 condo can be considered affordable housing.
``If you're not upper-middle class, you probably have no business shopping in Santa Monica,'' says Adrian Moore, vice president of research at the Reason Foundation, a group based in Los Angeles that advocates free-market policies. ``You need to go down the road to Culver City.''
Gentrification
David Snell, an affordable-housing consultant in Colorado Springs, Colorado, who started volunteering with Habitat in the 1980s and joined the board of the Fuller Center this year, says Habitat should stick to simpler homes.
``They've gentrified their operations,'' he says. ``We're not developing like Habitat.''
The size of the average Habitat house has grown 20 percent in the past two decades, according to Snell. The charity says its guidelines require that a U.S. three-bedroom house have no more than 1,050 square feet of living space.
In Farmington, Connecticut, Habitat built a Victorian- style, three-bedroom home with a full basement and a garage last year.
Fuller joked about changing the name to ``Habitat for Vehicles,'' says Bob Knebel, president of the branch in Bridgeport, Connecticut. Knebel says garages are sometimes built to satisfy city requirements for off-street parking.
``This is where I disagree with Millard,'' Knebel says. ``Simple, decent housing is defined by the local community.''
Cleveland, who manages the northern Virginia branch, says building in affluent communities such as Santa Monica allows people who work there to avoid long commutes and to place their children in better schools.
Tax Relief
Relief may be on the way for Minni and the other Alexandria homeowners, she says. The city has agreed in principle to allow them to pay property taxes based on the amount of the homes' original mortgages rather than their current market value, according to Cleveland.
``These are people that should be involved in the community,'' she says. ``They are the teachers' aides in the schools. They could be custodians, they could be your X-ray technician. Somehow, we need to make this work.''
To contact the reporter on this story: Peter Robison in Seattle on robison@bloomberg.net
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