HUD Announces Nearly $25 Million in "Sweat Equity" Grants to Help Families Build Their Own American Dream

More Than 1,500 Affordable Homes To Be Built with SHOP Grants

Press release

By: United States Department of Housing and Urban Development

Date: February 23, 2006

Source: United States Department of Housing and Urban Development. "HUD Announces Nearly $25 Million in 'Sweat Equity' Grants to Help Families Build Their Own American Dream." February 23, 2006 <http://www.hud.gov/news/release.cfm?content=pr06 -021.cfm> (accessed May 28, 2006).

About the Author: The U.S. Department of Housing and Urban Development (HUD) is the primary government agency responsible for ensuring equal access to housing and for improving the quality of affordable housing in the United States.

INTRODUCTION

The practice of creating low-income housing got its start with the U.S. Housing Act of 1937. The need for affordable housing, however, has always far outstripped its availability. Although the commercial housing market has grown exponentially since the 1930s, the price of real estate has kept pace with its growth, making it progressively more difficult for people living on the fringes of poverty to acquire safe and affordable housing. Interest rates for mortgages have waxed and waned through the years, but the guidelines for creditworthiness have become more stringent along with increases in home and property costs, making it progressively harder for people who are marginalized by class, culture, or socioeconomic status to achieve successful homeownership.

Affordable housing is intended to be accessible and financially manageable for people who earn a low or very low income. Although the poverty line for an individual varies somewhat from year to year, it is typically somewhere around ten thousand dollars in annual income. While those in the upper socioeconomic classes experience rising incomes and increasing financial security corresponding to positive changes in the economy, that is not the case for those living in poverty. According to HUD data, the most impoverished one-fifth of the population has not gained substantially in income during the last three decades, despite enormous economic growth in the United States. A concomitant problem for the poorest citizens of the nation is the cost of housing, particularly of rental units. In order to secure dwellings that are comparatively safe and that are located in relatively convenient areas (within possible commuting distance, whether by public or private means of transportation), the very poor often must dedicate a significant portion of their earnings to the cost of rent—sometimes more than 50 percent of take-home pay. This places an enormous financial burden upon those who are already marginalized and who are leading extremely stressful and difficult lives. Often, furniture, proper clothing, food, and medical care are sacrificed in order to meet the cost of rent.

The creation of safe and affordable housing for those with the lowest incomes makes it possible for them to move out of dangerous, high-crime areas, to provide stability for their families, to improve the level of education within the household, and to generally enhance the quality of life. One potential problem with affordable housing is that it is only accessible to those who have the means of securing commercial funding. For those who are not considered creditworthy, "sweat equity" homes can provide a safety net.

PRIMARY SOURCE

New Orleans— More than 1,500 families will realize their American Dream with a little elbow grease and $24.8 million in grants announced today by Housing and Urban Development Assistant Secretary Pamela Patenaude. HUD is awarding these so-called "sweat equity grants" to four national and regional organizations through the Department's Self-Help Homeownership Opportunity Program (SHOP).

Patenaude made the announcement as she joined Habitat for Humanity volunteers constructing 15 affordable homes in Covington, Louisiana. First constructed in Rockefeller Center in New York, Jackson, Mississippi, and as far away as Los Angeles, these homes are being reassembled throughout the Gulf Coast region and will eventually provide affordable homes for hurricane evacuees.

"This funding not only helps families to purchase their first home, but taps into their own sweat equity to make them feel more invested in their new neighborhood," said Patenaude. "With a little investment and elbow grease, great things can happen and our SHOP program is proof of that."

HUD Assistant Secretary presented a check for $10 million to Mayor of Covington, LA Candace Watkins and Habitat for Humanity Vice President Paul Rodgers to support "sweat equity" programs like Habitat that assist lower income families [to] realize the American Dream of homeownership. The presentation was made at the site of 15 new homes being constructed for hurricane evacuee families.

The following nonprofit organizations were awarded SHOP grants…:

Recipient Amount

ACORN Housing Corporation $572,000

Community Frameworks $4,500,000

Housing Assistance Council $9,000,000

Habitat for Humanity International $10,773,000

Total $24,800,000

SHOP grants are provided to national and regional nonprofit organizations that have experience in providing self-help housing. These funds are used to purchase land and make improvements on infrastructure, which together may not exceed an average investment of $15,000 per dwelling. These non-profit organizations propose to distribute SHOP funds to several hundred local affiliates that will acquire the land, select homebuyers, coordinate the homebuyer and volunteer efforts for sweat equity, and assist in the arrangement of interim and permanent financing for the homebuyers.

Homebuyers contribute a minimum of 100 hours of sweat equity on the construction of their homes and/or the homes of other homebuyers participating in the local self-help housing program. Self-help housing or sweat equity involves the homebuyer's participation in the construction of the housing, which can include, but is not limited to, assisting in the painting, carpentry, trim work, drywall, roofing and siding for the housing.

Labor contributed by volunteers also helps buyers who are unable to perform their sweat equity tasks due to disabilities or other reasons. Frequently persons with disabilities are able to substitute tasks by performing administrative tasks. The sweat equity and labor contributions by the homebuyers and volunteers significantly reduce the cost of the housing.…

SIGNIFICANCE

Because affordable housing is, by definition, less expensive than the typical commercial home, it holds significantly less appeal for contractors and real estate agents, as the profit margins are much slimmer. Generally speaking, commercial developers pursue projects with the intention of making a profit, dealing with a relatively safe market, and obtaining funding easily. Many developers look for housing projects with a limited number of models to choose from, with the home buyer able to choose from a number of extras that can be added in order to appreciably increase the cost. In contrast, affordable housing is typically fairly basic, is unlikely to be embellished by the purchaser, and has a low cost-to-profit margin. Similarly, affordable rental units must be priced within a much smaller range than typical commercial rental properties. In order to make the concept of creating affordable housing somewhat more attractive to financers and developers, the federal government has created a number of programs to provide incentives for developing a range of affordable dwellings. In addition, many states have laws mandating that each new housing area contain a minimum percentage of housing that is considered affordable for the region.

A few of the better-known means of creating affordable housing are rental subsidies (often called Section 8 programs), various types of down-payment and credit or debt management assistance programs, and low-income housing tax credits. However, perhaps the best known, at least within the media and popular press, are the sweat-equity grants. A sweat-equity grant is one in which the potential homeowner must devote a minimum number of hours toward direct participation in the actual construction or rehabilitation of the home or housing unit before it can be purchased. For those persons who are physically unable to be involved in the actual construction process, it is often possible to substitute hands-on labor with administrative time on an hour-for-hour basis.

HUD targets a significant amount of its federal funding toward the creation of affordable-ownership housing (low-income home ownership programs) by nonprofit and community-based organizations. Those groups create packages in which they put together land parcels, providers of low-cost but high-quality materials, and developers or contractors to construct the dwellings. They often work with numerous city, county, and state funding sources, as well as private investors and donors, philanthropists, and, of course, federal granting agencies, in order to create a diverse financial framework to allow them to build affordable housing that is intermingled with market-cost dwellings in heterogeneous neighborhoods. Nonprofits are able to hold down their administrative and operating costs, further adding to the affordability of the housing. Two of the largest nationwide nonprofits that act as developers of low-income or affordable housing through the use of sweat equity are the Housing Assistance Council and Habitat for Humanity International (HFHI). The federal funding that is earmarked for sweat-equity grants typically comes from HUD's Self-Help Homeownership Opportunity Program (SHOP). SHOP brings together volunteer workers, artisans and tradespersons, and the future homeowners, in order to construct each dwelling.

Habitat for Humanity International, the most recognized nonprofit name for sweat-equity home-ownership programs, is a faith-based community organization. It has built more than a quarter of a million homes around the globe. The cost of an individual home varies with the region, with homes constructed in third-world countries averaging well under one hundred American dollars, and homes in the United States averaging just over fifty thousand dollars. In addition to keeping down the cost of labor by using significant amounts of low-cost or donated materials, HFHI uses volunteer labor, including a minimum of two hundred hours of direct labor or service by the future homeowner. The homes are sold with no profit margins. They are not donated to the new owners, but financing is often accomplished at zero interest rates. The mortgages paid by the new owners are funneled directly back into HFHI for use in international construction projects, further empowering the new homeowner, who is also making a contribution to the betterment of the world community.

Giving people the opportunity to change their circumstances, to move up from impoverished and often crime-ridden areas to diverse neighborhoods, allows people to become empowered, to raise their standard of living and that of future generations, and to create both financial and sweat equity in the ownership of a home.

FURTHER RESOURCES

Books

Chandler, Mittie Olion. Urban Homesteading: Programs and Policies. New York: Greenwood Press, 1988.

Dehavenon, Anna Lou, ed. There's No Place Like Home: Anthropological Perspectives on Housing and Homelessnessin the United States. Westport, Conn.: Bergin & Garvey, 1999.

von Hassell, Malve. Homesteading in New York City, 1978–1993: The Divided Heart of Loisaida. Westport, Conn.: Bergin & Garvey, 1996.

Periodicals

Lerner, Michele. "'Sweat Equity' Works People into Houses." The Washington Times (March 14, 2003): F01.

Web sites

United States Department of Housing and Urban Development. "HUD's Mission and History." October 3, 2003 <http://www.hud.gov/library/bookshelf12/hudmission. cfm> (accessed May 29, 2006).