Cleveland Home Prices Tell Story of Unequal Coronavirus Economic Recovery - Bloomberg

Cleveland Home Prices Tell Story of Unequal Coronavirus Economic Recovery - Bloomberg

Two Cleveland Houses Tell a Story of
America’s Unequal Recovery

An eviction notice on Clarebird Avenue and rising home
prices on Daleview Drive reflect how the pandemic is reinforcing racial
inequality.

Calais Gathings was forced to move out of her home on
Clarebird Avenue in the Mount Pleasant neighborhood of Cleveland (left); Nathan
Hodge and Erica Schulstad paid more than the asking price for their home on
Daleview Drive in the suburb of Lakewood (right). PHOTOGRAPHER: DA’SHAUNAE

By October 6, 2020, 9:00 AM GMT+1

From the outside, 11410 Clarebird Ave. looks like many homes
in Cleveland’s Mount Pleasant neighborhood. The fading yellow siding and creaky
front porch point to mild neglect. The grass in the front yard needs a trim. But
on a street of aging, single-family homes in an area that for decades has been
fighting a losing battle against economic decline, the three-bedroom house has
a new story to tell: Calais Gathings, a nursing assistant who lost her job in
the pandemic and fell behind on rent, has moved out.

A 23-minute drive away, in the leafy western suburb of
Lakewood, Ohio, 17527 Daleview Drive tells a different story. Built in 1927,
two years after the Clarebird home, the four-bedroom brick house with a gabled
roof and neatly landscaped grounds was sold in August to newlyweds Nathan Hodge
and Erica Schulstad for $319,500, more than the asking price.

The two Cleveland houses paint a stark picture of how the
pandemic—and the recovery from the economic crisis it precipitated—are not only
reinforcing but widening America’s inequalities. On the east side of town, in mostly Black neighborhoods with a high
percentage of rental properties, tenants struggling with their rent are facing
the prospect of eviction. On the west side, in wealthier and whiter
neighborhoods filled with homeowners, housing prices are soaring.

The disparities are a legacy of decades of housing
discrimination and the Great Migration of 6 million Black Americans from the
South to then-thriving northern industrial cities. Cleveland, which went into
the pandemic as the poorest of the 100 largest U.S. cities, is still reeling
from the last financial crisis. It left a physical imprint in the vacant lots
that turned some communities into checkerboards and a less visible one in the
speculative churn that brought seven owners to the Clarebird house in a little
more than two years.

Now a new crisis is widening the gap, and not just in
Cleveland. Cities across the U.S. have been bracing for a wave of evictions as
the pandemic disproportionately affects lower-wage workers. Politics are
playing a role, too, with President Donald Trump promising to keep low-income
housing out of the suburbs as he courts a constituency that polls show he is
losing.

In an economic recovery that looks increasingly uneven, home
ownership is a dividing line. When the U.S. Census Bureau asked 9.8 million
people living in rented homes in September how likely they were to move out in
the next two months because of an eviction, almost half, 45%, said they were
somewhat or very likely to face that fate. A similar survey of 8.7 million
people in owner-occupied homes found that fewer than 20% were worried about
having to move as a result of foreclosure.

In Cleveland, as elsewhere, essential workers in the
leisure, hospitality, and health-care industries bore the brunt of the
pandemic—both the virus itself and its economic consequences. What’s also
becoming clear is that the tentative recovery is exacerbating the race-linked
inequalities that divide the two sides of the city. “The Cuyahoga River is like
our Berlin Wall,” says Eric Morse, chief executive officer of the Centers for
Families and Children, a Cleveland nonprofit that provides early education,
employment training, and free health care to some of the city’s most vulnerable
communities. The current crisis, he says, “is definitely accelerating
inequality.”

Cleveland’s Housing Divide

Change in median home price from July 2019 to July 2020 in
the city and surrounding suburbs

Data: Redfin

Even if the $2 trillion federal Cares Act softened the
economic blow for many Americans, the expiration of several key features has
meant that the full impact of the crisis is only now materializing for the most
vulnerable.  After a dip over the summer,
the Cleveland Food Bank has started to see an increase in the number of cars
lining up for weekly food distributions. It’s now feeding more than 2,000
households a week, 30% more than before the pandemic. At Morse’s nonprofit,
social distancing guidelines have forced it to reduce the number of slots for
children in the Head Start early education program by 40%.

But it is evictions that most worry people such as Morse.
Housing plays a role in everything from wealth creation to health and education
outcomes. A Case Western Reserve University study of almost 20,000 evictions in
Cleveland from 2013 to 2016 found that they resulted not only in higher rates
of housing instability but also in children missing more school and being
tested less often for lead poisoning, a persistent problem in Cleveland
associated with its aging housing stock. If a new wave of evictions washes over
the city, it could unwind decades of work.

“It’s not if they come and collect, it’s when they come and
collect”

That hasn’t happened yet, thanks largely to an $18 million
countywide rental-assistance program that has received applications from more
than 6,000 tenants but is running out of money. The original funds came from
the Cares Act; without further federal help for cities such as Cleveland, which
have seen local tax revenues collapse during the crisis, the prospects for
replenishing the program look dim. “I’m not sure that we are going to get
through the end of the year with what we have available,” says Kevin Nowak,
executive director of CHN Housing Partners, the nonprofit that runs the
program.

A national moratorium on evictions announced Sept. 2 by the
Centers for Disease Control and Prevention has had little effect in Cleveland,
partly because the initiative is so new but also because there’s no money
behind it. By the end of September, only a dozen evictions in the city had been
delayed because of the moratorium, according to the Cleveland Housing Court.

To Judge W. Moná Scott, who this year became both the first
Black person and first woman to preside over the housing court, the pause on
evictions ordered by the CDC just adds to the confusing, mixed messages that
characterize the federal government’s pandemic response. The moratorium does
nothing to help tenants resolve existing debts to landlords—or to stop those
debts from mounting. “It’s not if they come and collect, it’s when they come
and collect,” Scott says.

Scott is doing what she can to avoid or at least slow
evictions, which are down substantially this year, largely because of the
rental-assistance program. Of the 437 cases filed in August, only 164 resulted
in eviction orders. The rest ended in some kind of mediation.

That’s what happened when Gathings showed up for a hearing
on Sept. 4. It took place via a Zoom call, and she didn’t have a lawyer
representing her. Still, just making an appearance was unusual. Even since
hearings went online during the pandemic, only about 40% of tenants have argued
their cases. Those who do often lack lawyers, despite a “right to counsel” rule
Cleveland adopted in July that provides free legal help to tenants from
households with minors.

Gathings didn’t seem to know she was entitled to a lawyer,
or even that there was a moratorium, when questioned by Magistrate Mark
Wiseman.

“Where would you go if you were evicted?” Wiseman asked.

“A shelter? I have nowhere to go. That’s why I need a couple
of weeks to find somewhere to go,” Gathings answered.

Gathings had fallen behind on the rent after losing her job
at a nursing home. Then her mother moved out, leaving her responsible for the
full $900 a month. Gathings was back at work at the nursing home but earning
less money than before and unable to pay her landlord. “I just can’t keep up
with it,” Gathings told the magistrate. “It’s too much on my own.”

The landlord, identified only as BL US1 LLC, had a lawyer on
the Zoom call who argued that Gathings wasn’t eligible for the CDC moratorium,
which would have kept her in her home at least until January. He said she
hadn’t applied for government help or rental assistance. Wiseman agreed. It was
all over in 4 minutes and 45 seconds. To avoid a forced eviction, which would
have led to bailiffs piling her belongings on the curb, Gathings later agreed
to move out by Sept. 25.

What no one said that day was that when BL US1 bought 11410
Clarebird for $65,150 a year ago, the Ohio-registered company became its 13th
owner since 1975. The house had sold for $93,000 in 2004 and bounced around
among home flippers after the subprime mortgage crisis. In one 28-day stretch
last year culminating with the Sept. 17, 2019, sale to BL US1, ownership
changed four times, all among limited liability companies, according to
property records. BL US1 bought the house from another LLC, Immobilier
Cleveland, that purchased it earlier the same day for $49,000 and recorded a
32% gain in a matter of hours.

Both Immobilier Cleveland and BL US1 are linked to Thibaut
Gueant, whose Aventura, Fla,-based property firm, Invest US, caters to French
investors looking to buy Cleveland real estate. The Clarebird house, Gueant
says, was one of about 150 his firm sold over the past 18 months to individuals
drawn by Cleveland’s low prices and high rental returns. Immobilier Cleveland
was his company, and BL US1 belonged to a French client he declines to
identify. The gap between the sales prices last September was meant to cover
the cost to his firm of a one-year guarantee on rent and repairs that he offers
to investors. The $900 a month Gathings paid to live in the Clarebird house
provides a gross annual return in line with the 15% to 17% typical of his other
Cleveland properties. “It’s pretty nice,” he says.

Zach Germaniuk, a housing lawyer at a nonprofit in Slavic
Village, a neighborhood near Mount Pleasant, says investor-driven churn in
deprived communities has perpetuated both the decline of some neighborhoods and
Cleveland’s race-based economic inequality. “We’re one of the most heavily
segregated cities in the country,” Germaniuk says. “Real estate is really the
centerpiece of that tragic history.”

Ten days before Gathings got on the Zoom call that would
decide her fate, Hodge and Schulstad closed on their house at 17527 Daleview
Drive. The two tech company employees—he’s a software architect, she’s an
engineer—met at work and were married in July. They toured the house for the
first time three hours after the listing went online and found it had almost
everything they were looking for, including a front porch that could house the
swinging couch they had been hankering for since Reese Witherspoon posted
pictures of hers on Instagram in 2019.

They made an offer an hour later and followed up with a
letter pleading their case and saying they would add $10,000 to the asking
price. They won the bidding over a half-dozen other buyers just days before
their wedding and closed on the deal Aug. 25. “We were racing, racing, racing,”
Hodge says. “We didn’t want to miss this opportunity.”

The price of the house was more than double the $143,500 the
previous owner paid in 2011. That’s a testament to the value of suburban
economic stability and of how a recovery fueled by the Federal Reserve and low
interest rates is inflating the price of assets such as suburban homes and the
stock market.

“We are absolutely looking out at a crisis”

The median sales price of homes in Lakewood was up 11% in
July from the previous year, to $227,000, with houses on the market for an
average of 26 days, down from 39 days in July 2019, according to data provided
by property site Redfin. In Gathings’s 44105 ZIP code, the median sales price
in July was also up 11%—though to only $36,000. In other predominantly Black
ZIP codes nearby, prices have tumbled 20% or more over the past year, according
to Redfin.

Julie Weist, a Cleveland real estate agent, says the rapid
drop in mortgage rates this year, driven by the Fed’s response to the
crisis—along with a shortage of properties—has turned the city’s western
suburbs into the hottest seller’s market she has seen in three decades in the
business. “The pandemic really has not slowed anybody down,” she says.

Weist helped tech entrepreneur Mitch Bihuniak sell a
three-bedroom colonial in the suburb of Rocky River in August for $457,500,
almost twice what he and his wife paid for it in 2013. She also helped them
trade up to a five-bedroom, Tudor-style house closer to Lake Erie, bought for
$560,000. One motivation was finding a quieter street for his daughter, who
turns 5 in October. Another was that they were able to get a mortgage at 2.85%.
“It’s insane,” Bihuniak says.

The disparity in house prices on the two sides of the city
reinforces Cleveland’s wealth gap. People such as Bihuniak and the newlyweds
are doing fine. Hodge and Schulstad both work from home, and the pandemic has
had little impact on their professional lives or incomes. “We’re fortunate to
be relatively safe in our work environment,” Hodge says. “It’s weird that the
housing market is so crazy, but people want more space, and interest rates are
so low.”

But for renters on the east side, the pandemic has been
crueler. At least one-third of tenants who inhabit the 900 affordable housing
units managed by the Famicos Foundation in the neighborhoods of Hough and
Glenville are behind on their rent, says John Anoliefo, the nonprofit’s
executive director. Almost two dozen haven’t paid any rent since March, he
says.

That has cast a shadow over long-term efforts to address the
area’s glut of abandoned properties, aging housing stock, and homeownership
rates of only about 30%. It also presents a conundrum for an organization
helping people secure long-term housing. “My goal is to work with my tenants to
avoid even going to court,” Anoliefo says.

Neither the volume of eviction cases nor the number of
people receiving rental assistance reflect the true scale of what’s happening,
says Hazel Remesch, who oversees Legal Aid’s housing team in Cleveland. Remesch
says lack of knowledge and representation are not uncommon. That makes her
worry about what comes next. “We are absolutely looking out at a crisis,” she
says.

For Don Fenderson, a retired guidance counselor who started
investing in rental properties in the east side neighborhoods of Glenville,
Collinwood, and Mount Pleasant in the early 2000s, buying them at sheriff’s
auctions, that crisis is already visible. One-third of his 21 tenants are
behind on the rent, he says, and “one person hasn’t paid for three months.” The
only ones who aren’t behind are those whose rent is paid by the federal
government as part the Section 8 subsidized housing program for low-income
Americans. Even those tenants, Fenderson says, are struggling to come up with
the small amount of rent they contribute, and the houses that he bought two
decades ago are worth less than he paid for them.

“I’m okay for now,” Fenderson says. “But long term, it’s
definitely curtailed some of the way that I am used to living. It was so easy
to buy houses, and I probably jumped in too far.”

Gathings declined to comment when a reporter knocked on the
door of her Clarebird home after her court appearance. She moved out before
the Sept. 25 deadline, which means the eviction won’t be logged on her record
or affect her credit. She later texted to say she found a new place to
live.

On the housing court Zoom call, Gathings made clear she was
hoping for some help and a new start. “I tried for everything,” she said, “and
I wasn’t getting approved for anything. It’s out of control.”

At 11410 Clarebird, the search for a new tenant is already
underway. Gueant says the house is one of about 20 managed by his firm that
have been involved in eviction proceedings this year, a number that increased
as a result of the pandemic. The evictions are taking longer to move through
the courts, he says, but it’s a cost of business his investors are willing to
bear. Finding a new tenant shouldn’t take more than a couple of weeks. “The
market is very dynamic,” he says. “We still have a lot of opportunities there
in Cleveland. It’s just a matter of transitioning back to normal.”

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