Unlocking the power of sweat equity to mitigate the housing crunch

Bloomberg News

A couple of days ago I noticed a hole in my roof. It was pretty hard not to notice, since I put it there.

Here's the backstory: Several years ago during the pandemic my family bought a little cottage in the woods in West Virginia, next door to the property my parents bought in the 1970s and where I grew up tramping around, pushing down dead trees and shooting Pepsi cans with my BB gun. 

The man who built the cottage was a friend of mine, a kind of auxiliary dad who cracked black walnuts with a hammer and let me ride around in his pickup truck with his dog, Nash. He was a kind man, and he took a shine to me. He died of cancer when I was a teenager, and a couple of decades later his widow decided to part with the place. Having spent much of our vacation time up there over the course of 2020, my wife and I embraced the serendipity and decided to buy it. 

Fast forward to last year, when it became evident that a corner of the roof had been rotting — unbeknownst to me, and evidently the property inspector — for a decade or more. Then fast forward again to last week, when I decided I was done putting it off and went up to fix the roof myself. So I took a couple of days off, took some trips to Lowe's and got to work.

The dirty little secret about building and repairing stuff is that while it can be intimidating, it really isn't that hard, and almost every mistake can be fixed — mistakes like, in my case, stepping in the wrong place and putting your foot through the ceiling. 

The other dirty little secret is that it is actually quite challenging and expensive to schedule a reputable contractor to fix it for you. I never actually got a quote from a contractor for this job, but if I had, I would have been amazed if I could find someone to do it for less than $2,500. By contrast, my out-of-pocket expenses — including materials, trips to the dump, even food and gas — was maybe $600. 

Think about that: In this case, something like 75% of the cost of this home repair is from labor. Not all projects are the same, but the general rule of thumb in home maintenance is that 33% of costs go to materials, 33% go to labor and 33% is profit (from which contractors pay their overhead costs). But by doing this job myself, I cut out the labor and profit costs to myself considerably. 

This got me thinking about something that I have already spent a lot of time thinking about: How can market forces transform the vast inventory of vacant houses into a vast inventory of affordable houses? And is there a way for the government to offer a mortgage product that includes not only the sale price of a home, but also the costs associated with rehabilitating that home into the kind of place where someone would want to live?

Turns out there is such a way: a Federal Housing Administration 203(k) mortgage. Also known as a rehab loan, FHA 203(k) loans allow a borrower to roll the costs of acquiring a property and rehabbing it into a single 30- or 15-year mortgage which is then guaranteed by FHA. There are, of course, some restrictions. You can't use a rehab loan to install a hot tub or 10-car garage; you have to put down 3.5% of the total loan at closing, depending on your credit score; you can't use it for buildings with more than four units, though you can use it to convert a single unit into up to four units or a multi-unit home into a single unit. 

But there are some other restrictions that make less sense. For example, repairs have to be under contract within 30 days of closing and have to be completed within six months. That may be fine for homes that need new gutters or a nicer patio, but as anyone who has ever dealt with contractors can tell you, that's a prohibitively tight timeline for rehabbing a property that really needs extensive work. 

More to the point, repairs made as part of a 203(k) loan cannot be completed by the homeowner — unless the homeowner is a licensed contractor. That makes sense because the FHA doesn't want a bunch of homeowners putting their feet through their roofs. 

John Heltman

But if it is an objective of this administration to create more affordable housing, and if mortgage rates are at a 20-year highs and if there are fewer and fewer homes available for sale, something somewhere has to give in order for prospective buyers to afford a place to live. I'm not advocating that ordinary people start rerouting gas lines or installing their own electrical panels, but if 203(k) lenders — of which, incidentally, there are relatively few — were empowered to allow borrowers to do the same kinds of things that Home Depot customers do every day, you could go a very long way toward improving the housing inventory, bringing down costs and potentially reinvigorating underserved communities all at the same time. 

Are those homespun repairs top-of-the-line? Probably not — I know my roof isn't. But it works, I did it myself, and I have to live with it. That's the last dirty secret about DIY home repairs: When you're done, you feel a sense of accomplishment, but when you look at it all you see are the mistakes.