Enterprise Research Reveals Promising Approaches in Neighborhood Stabilization Program Plans

By Erika Schnitzer, Associate EditorColumbia, Md.—Enterprise Community Partners has released a report that reviews the impact of NSP (Neighborhood Stabilization Program) funds allocated from the Department of Housing and Urban Development (HUD). The report concludes that many of the NSP grantees are planning to use the funds for innovative and effective programs that can provide examples for additional neighborhoods.”These are innovative program ideas that are likely to be high-impact and high success,” said Amanda Sheldon, research and policy analyst at Enterprise, during a Webcast presentation of the findings of the report, which is entitled “The Challenge of Foreclosed Properties: An Analysis of State and Local Plans to Use the Neighborhood Stabilization Program.” The purpose of NSP is to address the growing number of vacant and foreclosured properties, as well as to reduce the harmful effects this has on surrounding neighborhoods, Sheldon explained. (Click here for previous MHN coverage of NSP.)In 2008, Congress allocated $3.92 billion for NSP under the Housing and Economic Recovery Act, and an additional $2 billion was allocated in the 2009 stimulus bill. NSP was designed to give localities, including state and local governments, funds to reduce the negative effects of abandoned properties on neighborhoods.The report provides an analysis of 87 of the 306 action plans submitted to HUD to learn what recipients of NSP funds have planned to do with their allocations. Sheldon noted, however, that the sample was not randomly chosen and that the research over-sampled large recipients. The plans reviewed by Enterprise account for $2,258,194,518, or 58 percent, of the total initial NSP national allocation—despite accounting for only 28 percent of the fund’s recipients.The NSP funds are predicted to affect 77,509 residential units, though Sheldon notes that it does not take into account “upcycling,” that is, buying and selling a home to receive program income back, at which point many localities will buy additional homes. With recycling taken into account, Enterprise predicts that the number of units affected will be closer to 102,225—or even higher.Of the plans analyzed, 81 percent intend to leverage NSP funds with other sources—41.4 percent with private investors, 40.2 percent with second mortgages, 26.4 percent with HOME/CDBG (Community Development Block Grants), 17.2 percent with loan funds, 13.8 percent with low-income housing tax credits (LIHTC) and 5.7 percent with city/county funds.Enterprise researchers found that NSP dollars will be used for purchase and rehabilitation, homebuyer finance, property redevelopment, blighted structure demolition and land banks (See pie chart for breakdown of NSP use). They also looked at spending by locality (See bar graph for breakdown).The research also looked into the percentage of action plans that claim to provide environmental initiatives—nearly half say they will employ energy efficiency, 33.3 percent plan to use a green building standard and 10.3 percent will implement “other green” initiatives. In reviewing the sample of action plans, the researchers intended to come up with a list of promising approaches that can be used as tools and strategies of expansion. Furthermore, Phillip Bush, Freddie Mac fellow at Enterprise, noted at the Webcast that there is not much communication between the localities that are receiving funding and that “the purpose of the promising approaches section is to end isolation. We hope to help local governments and non-profits learn from one another on how best to use NSP.”Enterprise identified promising approaches—such as strategies, financing mechanisms and program models that appear to be sound, practical and in some cases innovative—in the areas of acquisition and discount strategies, disposition strategies, geographic targeting, green building and rehabilitation strategies, income targeting and long-term affordability, leveraging NSP funds, and partnerships and management.The categories of promising approaches include construction or rehabilitation of rental housing, including with LIHTC; rental to tenants residing in homes that are in foreclosure; supportive housing; Section 8; building on existing CDBG- and HOME-funded programs; lease-purchase; community land trusts; and soft second and shared equity mortgages.In New York, for example, the city plans to target 25 percent of NSP funds toward acquisition and rehabilitation of foreclosed multifamily rental buildings that house residents earning no more than 50 percent AMI.The researchers concluded that NSP grantees are planning to use the funds for innovative and effective programs. Therefore, the researchers are confident that NSP stands a good chance of having the desired effect of stabilizing communities across the country. However, Sheldon noted, “we read action plans that describe what localities say they are going to do, but that doesn’t determine whether the promising approaches will be best practices.” Thus, Enterprise’s policy recommendations include expanding safe harbors offered to loan modifications in the Making Home Affordable plan, making necessary regulatory and statutory changes to NSP and exploring if NSP can be transformed into a long-term policy to assist weak-market localities. Despite this, Sheldon concluded, “While it may be many years to definitely measure the success of NSP, this is a great first step to slow the decline of America’s neighborhoods as a result of the crippling foreclosure crisis.”