Council Discusses How to Use $300,000 for Rental Conversions in Chesterfield Hills

East Lansing’s City Council on Tuesday discussed approaches that could be used in the Chesterfield Hills neighborhood to convert a handful of older houses with rental licenses to owner-occupied houses. 

The City’s Director of Planning, Building and Development Tom Fehrenbach discussed possibly using whatever is learned from this experience in other near-university neighborhoods in the future, particularly where homeowners want to see student-rental houses converted to owner-occupied houses.

Due to the outcome of a development agreement and Brownfield tax plan which resulted in a developer effectively paying the City a settlement sum, a total of $300,000 is now available for use “as a revolving fund to acquire, rehabilitate, and deed restrict remaining Class III and IV Rental Properties in the neighborhood,” according to a staff memo. 

The program — being developed collaboratively by the Capital Area Housing Partnership (CAHP) and City staff — could ultimately empower CAHP to spend that money to get rental licenses relinquished and to sell the houses to new owners with owner-occupancy deed restrictions (that is, restrictions requiring owner-occupancy). Such deed restrictions could be instituted for some specific period of years or in perpetuity. 

Counting up Class III and IV rental licenses in the designated project area shows there are 19 potential properties that could be converted. They are shown in light blue and yellow on the map below:

In his presentation to Council on Tuesday, CAHP Executive Director Rawley Van Fossen outlined three goals for the program: increasing homeownership opportunities in Chesterfield Hills, preserving the integrity of the historic neighborhood and, given the location next to campus, “protect[ing] the balance between temporary off-campus living for students and long-term permanent residents of the city.”

Van Fossen outlined four concepts to achieve the conversions:

• Concept 1-A: A CAHP “program partner” would buy a house from a landlord, relinquish the rental license to the City, and put the house on the market with an owner-occupancy deed restriction.
• Concept 1-B: Similar to 1-A, this idea involves a CAHP program partner buying the property after a pre-purchase assessment of the property and then doing critical repairs prior to selling the house to new owners who will occupy the property with a deed restriction. 
• Concept 2: Landlords would be offered “cash incentives” for relinquishing rental licenses. In essence, this involves appraising and buying licenses from landlords. Landlords would then presumably sell the houses, which would no longer have rental licenses.
• Concept 3: An individual or family seeking to buy and occupy a house in the area would obtain down payment assistance in exchange for relinquishing the rental license and accepting an owner-occupancy deed restriction.

Mayor Pro Tem Jessy Gregg asked Van Fossen if he was looking for Council to instruct him and City staff to hone in on one preferred approach, or whether he wanted Council to offer feedback on each one with the assumption CAHP might use any of them to do rental conversions. 

Van Fossen explained that, particularly at this stage of the planning process, “keeping flexibility on the table is good.”

As next steps, Van Fossen said, CAHP staff will begin to reach out to landlords in the neighborhood, as well as other property owners, to gauge interest in the program options. He said that there will also have to be discussions with the Historic District Commission, as the houses under consideration fall within a designated historic district.

Van Fossen and members of Council also discussed the reality that Concept 3 (offering down payment assistance) may not be effective. The cost of houses in Chesterfield Hills (including property taxes) is simply too high for programs aimed at helping people with incomes below the area median to purchase houses.

Van Fossen said on Tuesday that it has been more than six months since CAHP has been able to assist a home buyer through their down payment assistance program. 

Van Fossen also noted that for the funds set aside were not earmarked for an affordable-housing program. The funds are specifically for converting rental properties to owner-occupied housing in the Chesterfield Hills Neighborhood. 

Council member Ron Bacon asked if the funds could be used elsewhere. But Fehrenbach pointed out that is not allowed under the legal agreements attached to the funds. 

Near the end of the discussion, Council member Dana Watson disclosed (as she has before) that she is on the CAHP Board of Directors and has herself been a financial beneficiary of one of the organization’s programs. She asked Van Fossen to make that disclosure for her in the future when he or a CAHP program is before Council.

Following Council’s feedback, Van Fossen will begin the outreach he discussed on Tuesday and, according to Fehrenbach, the more-developed plan for the program will come back before Council.