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Downtown Indy is booming. But is something holding the housing market back?

Brian Eason
brian.eason@indystar.com
A home near the annual Cottage Home block party, Indianapolis, Saturday, Oct. 15, 2016. The area, just east of Downtown, has seen higher demand lately for homes.

The housing market in and around Downtown Indianapolis today is a study in contradictions.

On some streets, $300,000 homes are selling at or above sticker price as fast as they can be put on the market.

On others — sometimes mere blocks away — run-down homes with collapsing roofs and weed-choked yards trade hands for as little as $10,000.

Still, the state of the housing market in and near Downtown is as good as it’s been in more than a decade, real estate agents say. And there’s evidence to suggest that the supply of quality homes is only scratching the surface of the demand for urban living in Indy.

In May, IndyStar reported that sales were up 6.4 percent in the county, to 2,628 homes sold, in the first quarter of 2016, according to the MIBOR Realtor Association. The median sales price was up nearly 6 percent, to $117,500.

And that growth has shown no signs of slowing. In the second quarter of 2016, home sales continued to climb, up 10 percent to 4,261 vs. the same period a year ago. The median sales price inched up as well, to $129,900.

Yet listings were down 5.7 percent, which begs the question: Why aren’t more homes being built and rehabbed if consumers clearly crave Downtown living?

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'Market demand'

Ask three real estate professionals that same question and you might get three different answers.

But to Steve Lains, the CEO of the Builders Association of Greater Indianapolis, the simplest explanation might also be the best one.

"There’s a two-word answer to your question, and it’s 'market demand,' " Lains said. "In those areas where you don’t see redevelop and rehabilitation of the housing stock occurring, those markets aren’t attractive yet for the consumer."

Others contacted by IndyStar don't disagree. But they suggest the market could be moving faster if it weren't for a few challenges unique to urban areas.

Central Indiana's housing market has long been dominated by greenfield development: think, the suburban subdivision built new on what used to be a cornfield.

Urban, infill redevelopment, whether it's building from scratch on an empty lot here and there, or rehabbing an existing home, requires a different skill set and a different business model to turn a profit at any sort of scale.

"If you’ve got a house that’s 100 years old, 9 times out of 10, it’s got a structural issue," said Mary Jo Showley, a real estate agent with Carpenter Realtors who markets homes in Downtown neighborhoods. "That’s a big red flag for probably 9 out of 10 builders who are used to just putting something up.

And with historic homes, there's also red tape: The city's historic preservation commission gets a say in what sorts of materials are used and how the home is restored.

"Really what it is is know-how," Showley said. "...Bottom line: It costs more to restore a property than it does to build something new, period."

Jeff Bennett, deputy mayor of community development for the city, said there's an unfilled niche in Indy for a developer that can navigate the challenges of urban redevelopment, but do it at scale, rather than a home or two at a time.

"I’m optimistic that we’ll see that approach really take off in 2017, just given what I’m hearing in the development community," Bennett said.

Rob and Erin Till repainted the exterior of their 1,889-square-foot home in the 1200 block of East 10th Street in the Cottage Home neighborhood.

Waiting for urban pioneers

Among the biggest success stories for the market today are places such as Fletcher Place, Cottage Home and Holy Cross.

And city leaders expect to add St. Clair Place on the east side to that list within the next year or two. Just east of Tech High School, St. Clair Place was the beneficiary of the Super Bowl Legacy project, a public-private partnership that leveraged grant dollars, public infrastructure investments and private donations to rebuild 10th Street and rehab the surrounding neighborhood.

The housing work has been spearheaded by Near East Area Renewal, a nonprofit community development corporation that has built or rehabbed 90 homes in the neighborhood since 2010. All but a handful have been sold to low-income buyers with federal subsidies.

When NEAR holds an open house, executive director John Hay says, it's clear people want to live in the neighborhood. He has to turn away as many as 80 percent of prospective buyers because they make too much household income to qualify for affordable housing.

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So why haven't private developers taken an interest before now? There has long been a gap between what NEAR has been selling the homes for in the neighborhood — typically $80,000 to $135,000 — and what it costs to rebuild an aging, run-down home.

Earlier this year, NEAR sold one home at market rate for $193,000 — but even that's not enough. Hay said he barely covered his rehab costs.

"They (developers) need to see more than that," Hay said. "They need to see more of a market."

Lains says private developers often follow where the government and nonprofit sectors lead. The work of NEAR and that of other community development corporations like it "attract urban pioneers," he said, that plant the seeds for a stable neighborhood years down the line.

“On the near eastside, I think you see some of that and you're starting to move that direction," he said. "You’re seeing a supplementing of public interest and dollars with private-sector interest and dollars."

Indeed, the for-profit group Full Circle Development has begun acquiring homes in the neighborhood, and Hay says it plans to use NEAR's pattern book, a sort of blueprint for model homebuilding in the neighborhood.

But while there's a lot to like about where the market is heading, some are wondering whether the public sector should be doing more to help sustain that growth.

Becky Hostetter, who bought a home in the Cottage Home area for about $500 in 1984, sits on a hay bale during the neighborhood block party Saturday, Oct. 15, 2016. The area, just east of Downtown, has seen higher demand for homes lately.

Targeted investments

Daniel Cope, the managing broker at Your Realty Link, points out that the neighborhoods having the most success have one thing in common: walkability.

"People want to be able to easily go to restaurants, have a drink or see a show or something," Cope said. "The east side, it struggles a little bit. ... Once you get to the other side of the interstate, it’s tough to get over."

Still, the east side's proximity to Irvington and the Downtown were pluses for Seth Brooke when he was looking to move earlier this year. Brooke, who sold a home he redeveloped in Irvington, said moving to Eastgate was the perfect fit for him.

"Largely the reason I chose there is the reason I chose Irvington originally: The costs are lower, and you get access to all the cultural amenities. It's so easy."

The median assessed home value of Downtown and its surrounding areas tells the story well. In 2014, the typical Downtown home was worth $180,250, according to IndyVitals, a neighborhood data project maintained by the Polis Center at Indiana University-Purdue University Indianapolis. On the north side, home to places such as the Old Northside and Fall Creek Place, the median home value was $81,200. But head east, west or south of Downtown, and median home values plummeted to below $45,000.

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To Lains, that speaks to a broader discussion that he thinks needs to be had: If Indy wants the Downtown housing boom to continue, should the public and nonprofit sectors be investing in another Virginia Avenue and Cultural Trail? Another Fall Creek Place?

“The irony is what we see happening 15 years after Fall Creek Place is spurring a conversation about 'why aren’t we doing more Fall Creek Places?' " Lains said. "Fifteen years ago, the conversation was 'why is the public sector in this business of subsidizing development?' ”

Twenty years ago, Fall Creek Place was better known by the derisive moniker "Dodge City." Now it's widely viewed as something of a model near-Downtown neighborhood, filled with a diverse mix of young families and longtime residents. Home listings range from $150,000 to upwards of $500,000, according to Zillow.

Today's thriving neighborhood sprang from a public-private partnership to build more than 300 new homes on the north side. More than half had to be for low-to-moderate income families, subsidized by a federal Homeownership Zone grant in the late 1990s.

At $4 million, the grant itself wasn't astronomical. What made Fall Creek Place unusual was how many homes and vacant lots the city was able to cobble together. One property owner owned more than 100 lots, streamlining acquisition.

"When you get into every other neighborhood, it’s a property-by-property basis," Bennett said, each of them with their own headaches, whether it's a clouded property title or environmental issues.

But just because it's hard to replicate the conditions doesn't mean there aren't lessons to be learned, he added. Bennett says there could be a role for the city's nonprofit land bank, Renew Indianapolis, in strategically stockpiling property in areas that are prime to be the next up-and-coming neighborhood. Code enforcement, too, could play a role in pushing absentee property owners to either maintain their homes or sell.

Lains says there needs to be more public-private discussions about whether government investments in housing and infrastructure are spread across too many neighborhoods to make a difference.

"Here’s the question that we always pose when those conversations take place: What scale of targeting those investments is necessary to really make a difference?" Lains said. "Fall Creek Place, it could be argued, the scale was hard to fathom at the time. We don’t see anything even one-tenth of that scope being used in any other targeted fashion" today.

Community leaders see the Great Places 2020 project as the next big targeted investment.

More than 50 partner organizations have already committed $84 million to the cause, which seeks to leverage public, private and nonprofit investments to transform six target neighborhoods by 2020.

It's not quite the Fall Creek Place model, or that of St. Clair Place, though program leaders expect it will incorporate elements of both. The strategy might have the most in common with Fountain Square, a neighborhood that, after 20 years of incremental investments in housing and the business corridor, has finally taken off.

But this time, city and nonprofit leaders are hoping the next great neighborhood won't take nearly as long to turn around as the last few.

"It took 10 years for Fall Creek Place to really go. It took 20 years for Fountain Square, although the last five has just been on steroids. And now five years in St. Clair Place," Bennett said. "Is there a way to push neighborhoods further, faster, given the market conditions that we’re in right now?"

IndyStar reporters Kris Turner and Chris Sikich contributed to this story.

Call IndyStar reporter Brian Eason at (317) 444-6129. Follow him on Twitter:@brianeason.

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