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Sunday, 13 May 2018 19:00

Housing developers struggle with ROI for costly abatements

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New Development Corp. of Grand Rapids receives federal and state funding to complete lead abatements when it rehabs homes like this one on Page Street on the city’s northeast side. New Development Corp. of Grand Rapids receives federal and state funding to complete lead abatements when it rehabs homes like this one on Page Street on the city’s northeast side. PHOTO: NICK MANES

GRAND RAPIDS — When New Development Corp. rehabilitates older homes before selling them to qualified low-income families, the organization takes great care to remove contaminants like lead.

The lead abatements are a matter of policy and obligation for the Grand Rapids-based nonprofit, which receives state and federal funding to support its work. Still, the projects come at a significant cost to New Development, averaging more than $24,000 per building for the last five homes the company rehabilitated on the city’s north side.

Experts agree that removing lead and other contaminants from houses is the right thing to do to protect families and children from health issues including asthma. However, they also acknowledge that developers have a hard time justifying the business case for the abatements because of the significant costs associated with the projects.

“I don’t think there is a business case — it makes me sick to say that,” said Helen Lehman, executive director of New Development. “It’s the right thing to do, but there’s no return on investment — unless we as a society want healthy children and healthy adults.”

While buyers, particularly if they have young children, gain peace of mind in knowing that their home is free of lead-based paint, the abatements do little to serve as a marketing tool or increase the value of a home, Lehman said.

Industry sources say companies rehabilitating cheaper older homes tend to do little to promote healthy housing, particularly on the lower end of the market, because of the cost and low ROI. By contrast, developers of new housing build the healthy features into their pro formas.

While it may be hard to make the business case for investing in lead abatement or other actions that can lead to healthier housing, sources say real economic consequences can result from ignoring the issue.

“When a kid is lead poisoned, it’s talent that pays the price, mostly in the educational system, a little bit in health care,” said Paul Haan, executive director of Healthy Homes Coalition of West Michigan, a Grand Rapids-based nonprofit focused on addressing environmental issues in housing.

Children with asthma, for instance, are more likely to be absent from school, particularly in kindergarten through third grade, according to data from Grand Rapids Public Schools.

Moreover, numerous studies have found that children with lead poisoning are prone to issues with impulse control and are more likely to commit crimes that lead to incarceration.

In recent years, policymakers and other stakeholders have started to recognize the issues affiliated with lead and other health concerns. That’s because reports showing the 49507 ZIP code on the south side of Grand Rapids contains more lead-poisoned children than any other geographic area in the state have made the issue harder to ignore.

Last month, the city of Grand Rapids announced a new grant from the U.S. Department of Housing and Urban Development that will allow qualifying homeowners to remove lead from their homes for free, up to $20,000.

But addressing the issue at scale remains a challenge, Haan said, noting that he estimates remediating all the lead-tainted homes throughout just Kent County could cost as much as $300 million.

“Part of the challenge is government doesn’t have that kind of capital,” Haan said. “Nobody wants to add that kind of drag on the marketplace, but nobody wants poisoned kids. At a reasonable pace, we need to raise standards.

“It’s like restaurants: If we didn’t have a public health code for restaurants, they wouldn’t pay the costs on this, so we’ve had to step in and say they need to do this. An increased set of standards would really help.”

While homeowners and investors might struggle with the cost justification for remediating older housing stock, experts note there’s considerable, unmet demand for housing that promotes health and wellness on the front end.

Data presented at the Urban Land Institute’s annual spring meeting in Detroit this month found that 71 percent of tenants of new buildings — both affordable and market-rate housing — want the developments to incorporate healthpromoting elements.

That can include fitness centers and access to biking infrastructure or even the promotion of walking and taking stairs.

Moreover, the ULI research found that only 16 percent of developers are making those elements a priority in their projects.

“The other reason for doing this, real estate developers, is there’s a huge demand out there for health-promoting environments,” said Joanna Frank, president and CEO of the Center for Active Design, a New York City-based organization focused on promoting health and wellness in the real estate development sector.

“There’s a very strong return on investment argument to be made for overtly promoting health with the projects you’re building, financing or involved in anyway,” Frank said during the ULI event.

Read 2352 times Last modified on Sunday, 13 May 2018 17:27

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