Going down at the Crossroads

Why is the federal housing department sponsoring Eastside gentrification and displacement?

It's not enought that the federal Department of Housing and Urban Development backed a notorious low-interest loan for the Nordstrom redevelopment, ostensibly to combat urban blight. HUD, which was founded largely to encourage affordable housing, is participating in projects that actually hurt affordable housing.

For years, the 396-unit Pacific Village Apartments has been a fixture in Bellevue's polyglot Crossroads section, attracting immigrants from Russia, Vietnam, Mexico, and elsewhere. It offered what were probably the cheapest rents of a whole string of low-end apartment complexes lining the western side of Crossroads Shopping Center, from $485 for a studio to $875 for a three-bedroom apartment.

No more. "A metamorphosis is taking place," reads a pamphlet distributed to tenants last year, explaining that the complex was about to begin "a new and improved exciting life" under a new owner and a new name, "Colony Woods." And under the new and improved exciting rent schedule, a studio will cost $615 and a three-bedroom $1,075—enough to drive most Pacific Villagers from their homes.

This de facto evictionis underwritten by HUD, which helped the owner—Cleveland-based Forest City Development—get $20.9 million worth of financing to buy and renovate the property by insuring a mortgage through its Federal Housing Administration (FHA) program. While the mortgage itself is handled separately by a mortgage company, the government's backing affords Forest City various favorable terms, including up to $2 million off the down payment and a 40-year (rather than the standard 20- to 25-year) repayment term.

All tenants had to leave for several months during the phased-in renovation, but were promised they could return with a modicum of assistance from the landlord. Low-income residents who have lived there for more than two years get a one-year phase-in of the rent increase, and seniors have a two-year phase-in. But first they must apply for their apartments all over again. Some, like janitor and single mom Maria de Dios, are finding their re-applications denied. De Dios was told her family could not return because of late payments she made when she couldn't work because of a job-related injury.

That process, along with rent hikes that are steep even with the breaks for existing tenants, has been responsible for the departure of about 110 of the 160 tenants who have been squeezed our so far.

EVEN WHEN THE RENTS seemed affordable, families squeezed into undersized apartments to meet expenses. Mexican natives Rogelio and Margarita Sepulveda, for example, shared a two-bedroom apartment with their four children, two of whom slept in the same room as their parents. Now the Sepulvedas have been told not only that rent will be higher, but that under new occupancy standards they must rent a three-bedroom apartment. To qualify for a smaller apartment, they are considering sending their 16-month-old daughter, Andrea, back home to live with her grandmother in Mexico. "I feel stupid, but I don't have a choice," says Rogelio Sepulveda, looking across the dining room table at his bubbly ponytailed daughter bouncing on her mother's lap. Already holding down two jobs as a landscaper and auto mechanic, he thinks his rental limit is $750—far below the old rent for a three-bedroom unit, let alone the new rent of more than $1,000.

HUD's role in such gentrification seems "outrageous" to John Fox, coordinator of the the Seattle Displacement Coalition: "HUD's charter is primarily to serve the needs of low-income people. This obviously runs counter to that. I would be extremely concerned if this were a common practice."

Local HUD officials say they can't recall participating in any other project that displaced large numbers of people. But, pointing out that no taxpayer subsidies are at issue, they insist there's nothing unusual about it. "The first thing you have to understand is that FHA mortgage insurance is just one of a number of different programs that the agency offers," says Bob Arbios, acting chief of the multifamily branch of HUD's Seattle office. While other programs encourage low-income housing, Arbios says, FHA is "designed for market-rate housing," with no restrictions on who can apply or the ultimate cost to consumers.

SOME LOW-INCOME ADVOCATES back Arbios up. Art Sullivan, program manager for A Regional Coalition for Housing, a partnership of Eastside cities, stresses that FHA has served a vital purpose for private homeowners and developers ever since it virtually invented the mortgage in the mid-'30s, decades before it came under the auspices of HUD, when homeownership was collapsing. "FHA saved this country," Sullivan says.

And Helen Dunlap, president of the nonprofit Low Income Housing Coalition in Washington, DC, and a former manager in HUD's Seattle office, argues that FHA helps multifamily housing construction in markets where it would otherwise seem too risky to finance. She also notes that such market-rate programs make money and subsidize HUD's affordable-housing programs.

Yet as HUD's own literature makes clear, FHA has always operated under the guise of providing affordable housing, even if it was technically market-rate. As one pamphlet recounts, "Historically, FHA has offered the first rung of the homeownership ladder to families not fully served by the private sector—minorities, urban residents, first-time home buyers." One way FHA targets this constituency is by setting a cap on the value of properties it insures.

In spite of HUD's insistence that it will insure anyone, no questions asked, the agency feels the need to justify its decision to participate in the Crossroads project in terms of social needs. HUD's Arbios says Pacific Village had become dilapidated and gang-ridden under a previous owner who had defaulted on its mortgage. "We're moving from an almost uninhabitable type of apartments to decent, safe, and sanitary housing." HUD supervisor Philip Head further maintains that the agency is committed not only to generating affordable housing but also to "building better neighborhoods."

But Pacific Village was never as bad as HUD makes out, as shown by its own inspection report. This noted that 46 units were too rundown to rent, but the remaining 350 were "generally attractive and offer[ed] a reasonably good living environment."

Is HUD helping build a better neighborhood at Crossroads? The new neighborhood will certainly have fewer poor people. With rents rising all around, many of the displaced tenants from Pacific Village have reluctantly pulled their children out of school and headed for cheaper digs in Kent, Renton, and elsewhere.

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