Plan 'Buys' Neighborhood Stability
January 17, 1993
By Jim Sulski
Keeping a neighborhood together while it goes through racial or ethnic change often has seemed an insurmountable problem, but a program started in Chicago three years ago has helped do just that, say community activists and those connected with the program.
The plan, which is available in just three areas of the city, is known as the home equity assurance program. After an owner registers with the program, the participant's home is appraised. After five years, registrants who sell their homes for less than that appraised value are covered for any losses that may occur because of deteriorating neighborhood conditions; the administration of the program in each district has the responsibility of determining whether that decrease is due to neighborhood conditions, lax upkeep by the homewner or other conditions.
The annual cost of the plan-from $12 to $25 a year, depending on the home's assessed value, though there is a one-time registration fee of $125-automatically is added to every participant's tax bill. The programs were started by voter referendum in the three areas-two on Chicago's Southwest Side and one on the Northwest Side-and work as autonomous operations.
Clayton Daughenbaugh, director of the Southwest Parish and Neighborhood Federation, a community group, said the home-equity program is one of a handful of factors that have helped maintain stability in neighborhoods. He also credits laws regulating mortgage bankers and banning real estate agents from soliciting business from people who haven't declared an intent to sell their homes.
Daughenbaugh doubts that integration would have taken place without programs such as home equity. "If it was 20 years ago, it would have been a total changeover," he said. "Our perspective is that, most of the time, if people are allowed to work this thing out on their own as neighbors, it will be successful."
That's what John Massura thinks is happening in his neighborhood, Gage Park, which runs from 49th Street on the north to 59th Street on the south, Western Avenue on the east and the Grand Trunk Western Railroad on the west.
"A few years ago, I had friends who moved from here because they thought the neighborhood was going to change," said Massura, whose bungalow at 51st Street and South Francisco Avenue is registered in the Southwest Home Equity Assurance Program. "But there's been a few of my neighbors who have decided to stay in the neighborhood because I fixed up my house. They realized that I'm staying long term. When people see other people investing in their homes down the street, they feel better about their property."
"The program is primarily a psychological tool," said Helen Juozapavicius, executive director of the Southwest Home Equity Assurance Program, which covers an irregularly shaped area that stretches from Harlem Avenue on its westernmost point east to Ashland Avenue and from 26th Street on its northernmost point south to 79th Street.
"It's there to create a sense of security for a homeowner," she said.
"My home is a big investment, one of the largest I'll make," said Massura. "I can't afford to take risks with it."
"People have told me that when they were looking at homes and talking to a real estate broker, they would specifically ask if a home was in the home equity program," said Robin Larson, director of the Northwest Home Equity Assurance Program, which covers an area bounded, roughly, by Harlem on the west, Pulaski Avenue on the east, North Avenue on the south and Devon Avenue on the north. "They wanted a feeling of protection."
"It's a terrific program," said Northwest program participant Jim Polczynski, who lives in the 2300 block of North Major Avenue. "I recently bought a 1990 Dodge Caravan, and in five years it won't be worth much at all. But each year my home goes up in value.
"People don't realize that they have two-thirds of their life's earnings in their house, and for a $125 registration fee and a few dollars a year, they can protect it," Polczynski said.
"Seeing a piece of paper with their appraisal amount locked in on it-and knowing that's the worse they could do in a few years-is very reassuring to our homeowners," said Peggy Behun, the administrator of the Southwest Guaranteed Home Equity Program, which covers 9,000 households in an area just south of Juozapavicius' program, from Western Avenue west to Cicero and from 79th Street south to 87th Street.
Because the three programs have been operating for only three years, their administrators say they can't gauge their overall success.
But the Southwest Home Equity Assurance Program, said Juozapavicius, has been successful at stabilizing home values in neighborhoods in a "state of transition," such as Chicago Lawn, 16 square blocks bordered by the Belt Railroad (near 75th Street) on the south, 59th Street on the north, the Conrail tracks (2200 west) on the east and the Grand Trunk Western tracks (3600 west) on the west.
"We're seeing home values there go up in a soft real estate market," she said. "Years back, you'd hear stories of how values were up and down like Yo-Yos."
More important, Juozapavicius said, the program is preventing "white flight" and panic peddling in communities where blacks, Hispanics and other minorities are buying homes.
Southwest Side officials cite the West Englewood neighborhood to the east as an example of change that caused the community to deteriorate. From the late 1960s through the mid-1970s, whites fled the neighborhood as blacks moved in.
The officials say that real estate agents took advantage of the situation, buying the homes cheaply from whites and selling them at a markup to black families.
Meanwhile, slack federal loan guidelines allowed families to buy properties they could not maintain. Businesses stopped investing in the area. Homes were abandoned, properties deteriorated and foreclosures occurred.
"The idea was that the (real estate agents) wanted to sell the homes as quickly as they could, and a lot of times the banks wanted to foreclose on them as soon as they could," said Daughenbaugh of the Southwest Parish and Neighborhood Federation, which operates in much the same area as the Southwest Side equity programs. "The homes were sold to people who couldn't afford them, let alone keep them up."
The federation is even working to ban "For Sale" signs from lawns in its neighborhoods, said Jean Mayer, chairwoman of the federation and a Southwest Side community activist who fought for 15 years for the home equity program.
"When the `For Sale' signs crop up in a neighborhood, they make people uneasy," said Mayer.
Southwest Side officials say the neighborhoods near Western Avenue have seen the most change.
According to 1990 Census figures, the Chicago Lawn and Gage Park communities are roughly 45 percent white, 30 percent Hispanic and more than 15 percent black. The rest of the residents are Arabs and Filipinos.
Census data from 1980 showed that whites previously made up more than 80 percent of the population of those neighborhoods.
Juozapavicius said that the area's new diversity can also be seen in the storefronts along its main drags, such as 63rd Street, where Persian restaurants stand between Mexican groceries and Polish beauty salons.
Neighborhoods closer to Harlem Avenue, meanwhile, remain predominantly white.
The concept of a home equity assurance plan has been around for more than 20 years.
Mayer's federation first looked into the idea in 1972.
Five years later, Oak Park passed a version. In 1984, community groups from the Southwest and Northwest Sides formed the Save Our Neighborhoods/Save Our City Coalition, which conducted several home equity feasibility studies.
After several years of lobbying politicians and knocking on homeowners' doors to seek support, the coalition was able to place a local referendum on the home-equity issue on the ballots in several wards in the November 1988 election. It was approved by almost 90 percent of the vote in those wards, which now make up the three home-equity districts. By March of 1990 the first participants had signed up.
Outside of the annual bill, there is just the $125 registration fee (it's $135 for Behun's program), which covers the cost of an appraisal. An added benefit is that many local lending institutions are accepting the programs' appraisals for home equity or home improvement loans, and if a homeowner upgrades the property by more than $5,000, a second appraisal would cost only $62.50.
Despite the benefits of the program-and even though every homeowner in the three districts automatically pays for the program via his or her property tax bill-the registration rates for all three plans are low.
Of the 67,000 households in the two Southwest Side areas and the 46,000 households in the Northwest Side area, fewer than 5 percent of all homeowners have registered. Homeowners are signing up at a rate of about 50 to 75 a month, said the officials.
Those associated with the programs believe the low signup rates are a result of miscommunication, a lack of interest or the appraisal fee.
"I believe the $125 fee does scare some people away," said 23rd Ward Ald. Jim Laski, who has joined the program. "I also feel that in certain areas of the Southwest Side, especially near Midway Airport, property values have been escalating rapidly, and that has made people feel more secure about their neighborhood.
"In the 1980s, Midway was dead, the hotels were dead and businesses were moving out," he said. "Now the city is investing $30 million in Midway, there's a new elevated line opening up, and there's been a lot of commercial activity. As a result, home prices are climbing."
"The average property value we're registering in the program is between $80,000 and $95,000 for single-family residences," said Juozapavicius. "The average we found two years ago was closer to $80,000."
Laski said that three-bedroom bungalows are going for $125,000 to $135,000 in his ward, about $20,000 more than just a couple of years ago.
The $500 million-plus Midway Rapid Transit Line is the most visible catalyst, officials say, and will probably drive prices higher once it begins operation this spring.
In the area covered by the Northwest Side program, values also are doing well, with many homes being appraised for more than $100,000, said Larson.
Homeowners such as Massura and Polczynski, meanwhile, see the program as a security blanket that allows them to invest in their homes without worry, thus stimulating more investment in the market.
"You know you are covered," said Massura. "That gives people confidence in their neighborhood."
To draw more registrants into the program, administrators plan direct mailings and are working with community groups. The Southwest Side program is even using a cartoon mascot, Equi Dog, to communicate information in booklets, though officials in all three areas believe word of mouth will be the best marketing tool.
Despite the low registration rates, some have deemed the program a success.
"We didn't expect a rush of people signing up," said Mayer. "It gives people a sense of security just because it's there."
But it will be at least two years, when the first homeowners could take advantage of the coverage, before officials really can gauge how successful the program is.
"In 1995, we'll be able to make a real determination on how well the program is doing," said Juozapavicius. "In the meantime, I believe we're making good progress."