Home Improvement Financing - HUD User

[Pages:186]u.s. Department of Housing and Urban Development

Office of Policy Development and Research

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Home Improvement Financing

HOME IMPROVEMENT FINANCING

Prepared by Arthur D. Little, Inc.

under Contract Number H-25ll

Office of Policy Development and Research U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Washington, D.C. 20410

September 1977

FOREWORD

Preserving and improving our existing housing has become a key element of our national effort to provide American families with sound housing in good neighborhoods. This report on home improvement financing brings together a wide range of information on how homeowners acquire fund~ to repair and renovate their homes.

A major topic addressed is how HUD's Title I Property Improvement, Loan Program fits into the overall home improvement financing complex. The Title I ,program was created in 1934 both to increase employment in the building industry and to improve the nation's housing. The program has been responsible for helping to make home improvement lending a part of the ordinary business of financial institutions. Since 1934 over thirty-one million loans have been insured under the program.

Home improvement expenditures have doubled since 1970. In 1976 alone, $29 billion were spent on p}'ojects ranging from"paint-up and fix-up" to substantial renovation. In fact, home improvement lending has become such good business that a wide range of institutions are now actively providing families with financing--usually without need for either Federal or private loan insurance.

This report, which provides ,us with some of the fundamental information needed to bolster home improvement activity, was supervised by John Maxim and Howard Sumka of HUD's Division of Community Conservation Research in the Office of Policy Development and Research.

Donna E. Shalala Assistant Secretary for Policy Development and Research

ACKNOWLEDGEMENTS

This project was directed by Harry G. Foden. Principal authors of this report, in addition to Mr. Foden, were Robert Dubinsky and? Dorothea Hass. Other team members included: Robert Calef, Sherry Gordon, Robert Kvall, Gary Marple, Ellen Metcalf, Joseph Modica, Herman Prescott, John Reed, Blair Shick, Allan ploan, Thomas Stack (Opinion Research Corpora tion), Sonya Strong, and Charles Williams.

The views, conclusions and recommendations in this report are those of the contractor, who is sole~y responsible for the accuracy and complete ness of all information herein. The contents of , this report do not reflect nec~ssarily the offical views and policies, expressed or implied, of the Department of Housing and Urban Development or the United States Government.

ii

TABLE OF CONTENTS

EXECUTIVE SUMMARY

I. THE HOME IMPROVEMENT MARKET

26

A. DEFINITION OF HOME IMPROVEMENTS

26

B. HOW HOME IMPROVEMENTS ARE CARRIED OUT

27

C. HOMEOWNER ATTITUDES AND MOTIVATIONS FOR UNDERTAKING IMPROVEMENTS 29

D. FACTORS INFLUENCING THE DECISION TO MAKE HOME IMPROVEMENTS

32

II. FINANCING HOME IMPROVEMENTS

40

A. PERSONAL EXPENDITURES' B. INSTALLMENT LENDING .

C. HOME IMPROVEMENT LENDING D. OTHER FORMS OF HOME IMPROVEMENT FINANCING E. CREDIT STANDARD IN CONSUMER LENDING

40 44

45 48 51

III. THE ROLE OF THE TITLE' I PROPERTY IMPROVEMENT LOAN PROGRAM

57

A. ORIGINAL PROVISIONS AND OBJECTIVES OF TITLE I

57

B. ACTUAL HISTORICAL ROLE OF TITLE I

65

C. THE ROLE OF PRIVATE INVESTORS

85

D. TITLE I AS A MODEL FOR OTHER GOVERNMENT HOUSING PROGRAMS

88

IV. ABILITY OF LOWER-INCOME HOMEOWNERS TO MAINTAIN THEIR PROPERTY

90

A. THE COST OF MAINTENANCE AND CYCLICAL IMPROVEMENTS

90

B. IMPROVEMENT EXPENDITURES BY LOWER-INCOME HOMEOWNERS

93

C. CREDIT-WORTHINESS OF LOWER-INCOME HOUSEHOLDS

95

D. CHARACTERISTICS OF LOWER-:INCOME HOMEOWNERS

97

E. HOMEOWN'ERS' WHO LACK,THE TECHNICAL cAPAinLITY AND ENERGY TO

UNDERTAKE OR SUPE~VISEHOME IMPROVEMENTS

101

F .. THE PROBLEMS OF THE ELDERLY HOMEOWNER

104

.

I

'.;. ".'

~'

V. ASSISTA~CE 'TO LOW-INCOME HOMEOWNERS

107

A. OTHER FEDERAL HOME IMPROVEMENT ASSISTANCE

107

B. STATE AND LOCAL GOVERNMENT ASSISTANCE

109

C. PROGRAM CONCEPTS TO IMPROVE HOME IMPROVEMENT FINANCING

114

D. THE CONTEXT OF HOME IMPROVEMENT FINANCING

117

VI. RECOMMENDED ADDITIONAL RESEARCH

118

A. CRITERIA FOR ESTABLISHING PRIORITIES OF ADDITIONAL RESEARCH

118

B. SPECIFIC RESEARCH PROJECTS

119

iii

TABLE OF CONTENTS (Continued)

APPENDIX A - PANEL DISCUSSIONS APPENDIX B - DETAILED DESCRIPTION OF FIELD RECONNAISSANCE APPENDIX C - STATE AND LOCAL IMPROVEMENT PROGRAMS APPENDIX D - BIBLIOGRAPHY

Page 127 130 161 174

iv

LIST OF TABLES

Table No.

Page

1

Home Improvement Expenditures by Type of Improvement

28

2

Average Cost of Most Common Home Improvements in 1975

30

3

Homeowner and Renter Attitudes toward Housing' Structure

and Neighborhood

4

Average Expenditure for Owner-Occupied One-Unit Dwellings

by Year Moved into Structure, 19i6

5

Top Five Home Improvements in Dollar Value

....

41

6

Average Rates of Home Maintenance and Improvement Work by

Owner-Occupants of One-Family Homes in Central Cities and

Suburbs, 1974-1976

42

7

Percent of Home Maintenance and Improvement Work which was

Financed in Central Cities and Suburbs: 1974-1976

43

8

Home Improvement Expenditures Financed through Home

Improvement Loans 1967-1976

49

9

Distribution of Travel and Entertainment Credit Cards

53

10

Distribution of Department Store Credit Cards

54?

11

Distribution of Bank Credit Cards

55

12

Uses of Title I Home Improvement Loans

66

13

Percentage of Home Improvement Loan Volume Insured by

Title I

68

14

Title I Loan Activity by Region and State (1975)

72

15" Institutional Participation in Title I

73

16

Title I Institutional Activity by Dollar Amount and Region

75

17

Types of Institutions Originating Title I Loans

76

18

Average Installment Dollar Losses for Banks

78

19

Changes in Principal Features of Title I Home, Improvement

Loans, 1934-74

82

20

Expenditures and Average Expenditur~s Per Property for

Maintenance Repairs and Construction Improvements by

Income of Household

91

v

LIST OF TABLES (Continued)

Table No.

21

Annual Repairs and Cyclical Improvements: Boston Area

Triple-Deckers, 1974

92

22

Expenditures for Maintenance and Repairs and Construction

Improvements by Income of Household and Value of Property,

1976

94

23

Average Rates of Home Maintenance and Improvement Work by

Owner-Occupants of One-Family Homes in Central Cities and

Suburbs, 1974-1976

96

24

Incomes of Owner-Occupants, 1970

98

25

Age of Housing Occupied by Homeowners with Incomes Less

than $5000

99

26

Distribution of Housing Built Earlier than 1940 by Family

Income

100

27

Percentage of Household Heads Over 65 by Income

102

28

Percentage of Households which Moved Before 1950

103

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