Helping the Homeless, One
Sales Contract at a Time
Supreme Court Ruling Expands
Eminent Domain
Architect Works Graveyard
Shift
A Second Life for Old Latex
Paint
Housing Market Soars,
Affordability Declines, Says Harvard Study
By adding a "transfer fee" to the
price of each new home, Lennar Corp. funds shelters for
California's homeless
When families in Orange County, Calif., buy homes in a Lennar
Corp. development, they're also helping to provide shelter for
the area's homeless. Starting with a few Southern California
markets, Lennar has added an innovative fund-raising device to
its existing charitable work: Wrapped into each new-home sales
contract is a small fee paid by the buyer, with the proceeds
dedicated to projects that help homeless people in the same
market area.
Lennar already donates 1 percent of its after-tax profits to
helping the homeless, via the Lennar Charitable Housing
Foundation (www.lennarcares.com). However, funds from
the new transfer fee are earmarked for direct support of
construction projects — they can't be used to cover any
of the foundation's administrative costs. To ensure future
donations, the transfer fee is written into the home's deed and
title; when the house is resold, the fee is paid again.
The amount per house is relatively small: 0.05 percent of the
sales price (just $50 per $100,000 of home value). But with a
production builder like Lennar, that few hundred dollars per
house is multiplied by thousands of houses a year.
"In the big picture," says Scott Larson, an executive with
HomeAid of Orange County (www.homeaidoc.org), "it adds up to a very
significant source of funds." Larson — whose organization
works with home builders to build transitional shelters for
people who are temporarily homeless — credits Irvine,
Calif., attorney Scott Jackson and Lennar regional executive
Jeff Roos with pioneering the idea of using a sales fee to
support the charity's work. Lennar is now rolling the policy
out to other communities in California, and may eventually
bundle the fee into home sales agreements nationwide.
Lennar Corp. acted as "builder captain"
on construction of a five-unit apartment building (left) and a
single-family home (middle) at San Miguel Residence, a Mercy
Homes project in Orange County, Calif. Lennar carpenters raise
a wall (right) at the Hillview Acres halfway house for teenage
mothers, funded in part by a transfer fee on new-home
sales.
Funds raised by the new technique are spent locally, and for
HomeAid of Orange County the program has been a major boon.
"Our mission is to add beds in the community," Larson says. "We
build for social service groups who work with many types of
people — pregnant women, runaway youth, single men,
families, victims of domestic violence. We act as their
developer, helping them find property, and design and construct
their building. We help them raise money, and we help reduce
the cost of the project by bringing in resources from the
building industry. Typically, we are lowering the cost of a
project by 40 percent to 60 percent."
The idea hasn't been completely without controversy. In an
April news story, the San Diego Union Tribune noted
reservations on the part of several area builders about any
increase in home prices for any reason and questions about how
the future assessment of the fee would be enforced. Realtors in
California have also raised objections, fearing that when a
deal is on the line, it might be the real estate agent who ends
up paying the transfer fee.
But with home prices appreciating at 7 percent to 10 percent a
year in the California market, a $250 fee on a $500,000 house
is dwarfed by annual capital gains in the tens of thousands of
dollars. Says Larson, "There is a lot of hope that other
builders will do this as well — and there is an
opportunity here for the housing industry to provide a serious
amount of funds to help deal with the issues of affordable
housing and homelessness." — Ted Cushman
California workers' comp rates have dropped by
nearly 30 percent since Jan. 1, 2004, according to an
article in the June 30 Sacramento Bee. The decrease follows
extensive workers' comp legislation passed by the state over
the last two years. When presented on June 29 with another
workers' comp bill — this one passed by the Senate to
create a commission to set rates — the Assembly insurance
committee voted against it, deciding more time was needed for
the earlier legislation to have its full impact. The bill's
author, Sen. Richard Alarcón, plans to reintroduce the
bill next year, arguing that small businesses are still paying
too much.
Supreme Court Ruling
Expands Eminent Domain
In a June 23 decision, the U.S. Supreme Court ruled 5-4 that
the city of New London, Conn., could take the land of Susette
Kelo and eight other property owners through the power of
eminent domain (see In the News, December 2004). Unlike eminent
domain cases where land is procured for highways, schools, and
other projects that are clearly going to be used by the public,
economically depressed New London is developing the land into
privately held residential, retail, office, and other
commercial space. The city claims its plan will provide an
overall economic benefit to the public through increased tax
revenue, revitalization, and additional jobs.
The provision of the U.S. Constitution debated
in the case is a clause in the Fifth Amendment, called the
Takings Clause, that reads, "… nor shall private
property be taken for public use, without just
compensation."
Writing for the majority, Justice John Paul Stevens stated
that the issue to be decided was whether economic benefit to
the community from private redevelopment could be considered
"public use" in the context of the Constitution. In past
rulings on the practice of eminent domain, the Supreme Court
has upheld state interpretations of "public use" that extend
the meaning of the phrase to include greater good or "public
purpose." Argued Justice Stevens, "Promoting economic
development is a traditional and long-accepted function of
government" and thus qualifies as "public purpose."
Justice Sandra Day O'Connor disagreed, contending that every
word in the Constitution is there for a reason and the phrase
"public use" was intended by the founders to be a safeguard
against government abuse of private property. In her dissenting
opinion, she wrote, "Under the banner of economic development,
all private property is now vulnerable to being taken and
transferred to another private owner." She further wrote, "For
who among us can say she already makes the most productive or
attractive possible use of her property? … Nothing is to
prevent the State from replacing any Motel 6 with a
Ritz-Carlton, any home with a shopping mall, or any farm with a
factory."
The decision specifically emphasizes that states can restrict
what constitutes "public use"; many states already do have such
laws prohibiting the use of eminent domain for the purpose of
economic development. It remains to be seen whether in the wake
of this decision there will be a flurry of legislative
activity, as states respond to public fears and pass laws
limiting the use of eminent domain — or if there will be
a rush by municipalities to implement economic development
plans. — Laurie Elden
Architect Works
Graveyard Shift
With the help of a former employee, architect Emil L. Larson
continued to work even from the grave. John Pavlovich, a
draftsman for Larson some 30-plus years ago, allegedly renewed
the architect's license and used Larson's seal and designs to
get approval for 28 building projects between 1996 and 2001,
according to a May 3 article in the Chicago Tribune.
When regulators from the Illinois Department of Financial and
Professional Regulation first tried to reach the ostensibly
104-year-old Larson during a 2001 probe of licenses of older
architects, Pavlovich told them Larson was on vacation —
though the architect had in fact passed away in 1993 at the age
of 96. On the department's second attempt to contact the
architect, Pavlovich told investigators Larson was in Mexico,
thinking about retirement.
In August 2003, Pavlovich was ordered to stop his unlicensed
practice of architecture; in March 2005, he was fined $250,000
by the state of Illinois for "impersonating an architect who
was dead." However, his attorney is challenging the fine,
claiming that because the buildings have been determined to be
safe and there was no harm done, the fine is excessive. —
Laurie Elden
A Second Life for Old
Latex Paint
In keeping with the construction industry's ongoing quest to
recycle and reuse, a small number of companies are decreasing
the flow of leftover paint into landfills by consolidating or
reprocessing it for commercial and consumer use.
No one knows exactly how much paint is sitting around in
basements and garages, but the California Integrated Waste
Management Board's Web site estimates that the average U.S.
household stockpiles 1 to 3 gallons of waste paint. Multiplied
by 110 million households, that's a lot of waste.
AEI's crew sorts paint by color and
quality (left) before draining it into barrels
(right).
Worse, more is being generated daily. David Darling, director
of environmental affairs for the National Paint and Coatings
Association, calculates that "500 million gallons of
architectural latex paint are sold in the United States each
year and at least 2 percent of it — 10 million gallons
— is left over." Other industry sources put the number
even higher, at 5 percent, or 25 million gallons per
year.
One company to take advantage of the underutilized supply of
old paint is Amazon Environmental Inc.
(www.nvo.com/amazon/). In business since
1992, AEI collects paint from all over the country and
processes it at plants in California, Ohio, and Minnesota.
Recently, JLC visited AEI's Whittier, Calif., plant to see just
how old paint is transformed into new. Here's what we
discovered.
According to
Fred Bauer, general manager of AEI, the Whittier plant receives
more than 1 million gallons of paint per year. Paint cans are
delivered to the plant in large boxes, semitrailers, and
40-yard roll-off dumpsters.
"The first and most important step," Bauer says, "is to sort
the paint by color and condition." The best-looking paint is
sorted and drained into barrels by color — whites,
beiges, reds, blues, and so on. Lesser-quality material is
divided into dark and light colors and poured into another set
of barrels. The dregs — skins, paint that's gone sour,
and exceptionally chunky material — are drained into
still other barrels.
A technician pumps paint out of a barrel
through filters (left) and into a 500-gallon vat (left). Then a
giant mixer blends the paint with pigment and
additives.
"A significant portion of the cans contain paint that has
turned into dried-up hockey pucks," says Bauer, "and most paint
recyclers can't do anything with them." AEI uses a patented
process to turn the dried material and liquid dregs into
processed latex pigment (PLP), a powderlike material that's
used in the manufacture of Portland cement. Says Bauer, "This
process allows us to recycle 100 percent of the paint we
receive."
Once a barrel is filled with paint, it is closed, labeled by
contents, and stored for later processing. The empty metal cans
are flattened and sent to a steel company that uses them to
make rebar. AEI has yet to come up with a way to recycle
plastic paint containers, so they're the one item that still
goes to the landfill.
Industrial grade. The
lesser-quality liquid paint is pumped through a coarse filter
to remove the largest chunks and then through a series of
successively finer filters until it's fine enough to be applied
with a paint sprayer. The strained paint is pumped into a
500-gallon vat and blended with a machine that looks like a
giant kitchen mixer. Dark colors mix to become a cocoa brown;
light ones form a nondescript shade of gray.
The resulting material is packaged in 5-gallon pails and
55-gallon drums and either sold or donated for use as
industrial-grade paint. The gray is typically used to paint
over graffiti on concrete, for low-cost housing rehabs, and on
institutional walls. The brown might be used to paint municipal
utility structures.
Consumer grade. The best
material is reprocessed to become one of about a dozen standard
colors that are sold as Amazon Select paint, or private-labeled
and sold under a number of different brands. Large-volume
buyers can get it custom tinted. A green builder might buy the
paint for its recycled content; others are simply attracted by
the price — typically half that of virgin paint.
According to Bauer, AEI's reprocessed paint is comparable in
quality to virgin paint. The color, however, is less consistent
from batch to batch, because, unlike paint manufacturers, AEI
is never quite sure what the base material contains.
The reprocessed paint is pumped through a series of filters and
blended in a vat. Technicians sample the blended paint and test
it for viscosity, pH, sheen, and color. If the paint is too
thick, they add water; if it's too thin, cellulose. Because
paint's pH tends to drop over time, AEI's technicians bring the
blended material back up to the specified pH by adding amines
or ammonia to the vat. Additives can be used to increase the
usually flat sheen of blended paint to eggshell or
semigloss.
The reprocessed paint is analyzed in an
on-site lab (left); when up to spec, it's packaged in 5-gallon
pails (left) or 55-gallon drums.
The final step is to tint the paint by adding recycled colored
paint and concentrated pigment. Because they are working with
an unknown base, the technicians must custom color-match each
batch, which they do by drying samples of the paint and running
them through an optical scanner that indicates what colors need
to be added. Once reprocessing is complete, Amazon's paint can
be sprayed, rolled, or brushed on just like any other paint.
— David Frane
DeWalt's Model D55143 Three-Gallon
Hand-Carry Oil-Free Air Compressor is the subject of a June 21
recall by the company and the U.S. Consumer Product Safety
Commission. The 185 recalled compressors use defective wiring
insulation that poses an electric-shock hazard. Affected units
were made in China and have the following date codes on the
rear air tank: 200448, 200453, 200502 through 200505, 200508,
and 200509. Contact DeWalt at 866/397-3228 or at
www.dewalt.com
Housing Market Soars,
Affordability Declines, Says Harvard Study
Fueled by low mortgage rates, an increasing demand for
housing from growing Hispanic and Asian populations, and
general job and income growth, the current housing boom should
remain strong into the next decade. That's the forecast from
the Joint Center for Housing Studies at Harvard University,
detailed in the organization's most recent annual report on the
state of the nation's housing.
In 2004, most housing market indicators set all-time highs.
And, while acknowledging concerns about regional housing price
"bubbles" and recent rises in short-term interest rates, the
Harvard study cites a number of factors that indicate the
robust overall market will continue. For example, housing
starts aren't outpacing demand, as reflected by the near-record
low level of inventory of new homes for sale. And the surge in
house prices is countered by low long-term mortgage rates, a
growing menu of mortgage options — including
adjustable-rate hybrid loans and interest-only loans —
and by the nation's general economic recovery, which the
authors of the report expect will buffer the effects of any
rise in long-term interest rates.
Interestingly, the report points to immigration as one of the
engines driving the hot housing market. New-home sales among
minority households — primarily Hispanic and Asian
— have nearly doubled over the last 12 years, from 13
percent of total sales in 1991 to 24 percent in 2003. In
addition, the children of immigrants who arrived in the 1980s
and '90s now account for 21 percent of the total U.S.
population between the ages of one and 10; they're expected to
out-earn their parents and add significantly to the number of
first-time home buyers in the coming years. In fact,
immigration is expected to account for a third of net household
growth over the next 10 years, helping to create a demand for
up to 20 million units of new housing.
Tempering this outlook is concern about the growing
affordability gap. Ratios of house prices to median household
incomes are at 25-year highs in most metropolitan areas, so
even with low mortgage rates, first-time buyers are struggling
to enter the market. Meanwhile, speculation is becoming another
factor driving up housing prices, as more investors turn to
real estate as an alternative to flat stock and bond markets.
And as most new homes continue to be built in lower-density
areas where land is cheaper and in greater supply, those
seeking relief from high housing costs by moving into these
outlying developments are faced with longer commutes and
significantly higher transportation costs, which often negate
their mortgage savings.
High home prices notwithstanding, low mortgage rates still make
homeownership an attractive enough option that the rental
market has remained flat for the past decade. At the same time,
conditions that discourage the construction of new affordable
rental housing — including cuts in government housing
subsidies, adverse tax laws, and stringent building codes
— have resulted in a rapid decline in the $400/month
units that the 31 percent of rental households earning less
than $16,000 per year can afford.
Much of the affordability problem, the report notes, can be
traced to the high costs of supplying housing and the large
number of low-wage jobs that the economy is producing. Indeed,
as rent, mortgage, property tax, utility, and transportation
costs continue to rise, so does the percentage of households
paying a disproportionate share of their monthly income toward
housing expenses. The authors of the report predict that as
this affordability problem moves up the income ladder to affect
more and more middle-class Americans, political pressure will
build to explore community development and housing programs and
to address ongoing issues that limit new development, such as
land-use regulations, permitting, impact fees, and restrictions
on residential density.
For an online version of the report, go to
www.jchs.harvard.edu/publications/markets/son2005
— Andrew Wormer