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Mixed-Income Housing: The East Lake Experience
Testimony of Thomas G. Cousins before the Millennial Housing Commission

Thomas G. Cousins

[The developer of the East Lake Golf and Housing project in Atlanta explains why for-profit developers would be interested in repeating the "golf and public housing" model in cities like New Orleans... and how to encourage them to do so. Cousins, himself a golfer, had family ties to the East Lake Golf Club and bought the once-hallowed course in 1993 after its membership dwindled and its aging facilities fell into disrepair. The businessman spent more than $24 million buying and restoring the golf course and its old clubhouse, and then, in 1995, launched the East Lake Foundation to assemble money, plans and government help for the redeveloping the adjoining public housing complex.]

My intent today is to offer thoughts and suggestions on how to improve HUD's program of mixed-income housing. I hope the Commission will remember this testimony for three simple points. First, mixed-income housing works. It is certainly the best method I know of to transform devastated housing "projects" into truly safe and healthy "neighborhoods". Second, for the program to work on a large scale, it must be simplified and made more profitable for the private, for-profit developers that are essential to the program's success. And third, HUD must provide funding for effective social services that we believe are an essential part of every mixed-income development.

These suggestions are based on our experience in developing The Villages of East Lake, a mixed-income rental community that replaced East Lake Meadows, one of Atlanta's most violent, drug-infested and impoverished public housing projects. To put our suggestions in context, let me take a moment to describe The Villages of East Lake and the overall East Lake revitalization effort.

The East Lake Experience

Some of you may know that I have been in the real estate business over 40 years and am chairman of the board of Cousins Properties Incorporated, a real estate investment trust traded on the New York Stock Exchange. My involvement in East Lake is not related to Cousins Properties, however. The East Lake effort was initiated by my family foundation as a way to show that solutions do exist to the seemingly intractable problems of public housing and the inner-city.

So in 1995 we formed the East Lake Community Foundation, a public charitable foundation, to spearhead the revitalization of the East Lake neighborhood here in Atlanta. We set about developing a comprehensive plan to address the variety of social ills in the community. Our goal was nothing less than achieving total community health: a neighborhood with the highest quality affordable housing; full employment; little or no crime; great public schools; meaningful jobs and after-school programs for young adults; quality pre-schools; and recreational amenities.

The centerpiece of the East Lake effort is The Villages of East Lake, a mixed-income housing development that replaced the community's failed public housing project. The Villages of East Lake includes 542 units of garden apartments, townhouses and duplexes. Fifty percent of the units are reserved for public housing residents and 50% are set aside for market rate residents. All units are of the highest quality and market rate rents begin at $795 per month for a one bedroom unit and go up to over $1200 for a four bedroom unit.

In partnership with the Atlanta Housing Authority, the East Lake Community Foundation serves as the developer and operator of The Villages. While the Foundation is a not-for-profit, we operate the development with a for-profit mentality, as it is the profits of the project that help fund a number of critical social services provided by the Foundation.

The Villages are a part of a planned 200 acre community that includes a number of amenities and facilities. These include an 18 hole public golf course around which the housing is built (The Charlie Yates Golf Course), a new K-8 charter school building, a new YMCA, and a Sheltering Arms child development center. Both the Yates Course and Drew Charter School are owned and operated by the East Lake Community Foundation. The Foundation raised the money to build the facilities for the new YMCA and child development center.

In addition to the physical improvements to the neighborhood, the Foundation has implemented or sponsored a number of supportive services to meet social needs. At the top of the list is the new Drew Charter School, the City's first and only charter school. Drew not only has brought truly first class public education to the neighborhood's low-income residents for the first time, it has also attracted middle-income families back to the City. Drew complements The Villages perfectly, acting as a way to ensure the apartment community's market rate units are in demand.

Equally important is a self-sufficiency program that helps low-income residents move from welfare to work. All public housing residents, except the elderly or disabled, must either hold a job or actively participate in the self-sufficiency program run by The Villages management company and closely supervised by the Foundation.

In addition, the Foundation sponsors after-school programs for more than 275 children in the community; a junior golf academy for 100 children that offers professional instruction and playing time at the Yates Course; a caddie program that employs more than 200 middle school, high school and college students year round; a college scholarship program; and a home ownership program.

Finally, in an effort to make this a special community in which residents are actively involved in the life of their neighbor, the Foundation has recruited faith-motivated people to live in market rate units. Recognizing that in our society people from different economic backgrounds rarely interact, the Foundation offers partial rent reductions to "strategic neighbors" who run special programs designed to bring public housing and middle-income neighbors into healthy relationship. Twelve current strategic neighbors run recreation-oriented after-school programs, publish a community newsletter, hold senior tea-times, and run informal mentoring programs and other activities.

The first units of The Villages were occupied in March, 1998 and the last of the 542 units were completed last month (February, 2001). The success of the development has been remarkable. A few highlights include the following:

1. We have consistently maintained close to 100% occupancy in both the market rate and public housing units.

2. Since the effort started, crime in The Villages is down 96% compared to old East Lake Meadows, and crime in the surrounding neighborhood is down 66%.

3. Employment among public housing residents at The Villages averages between 80-90% compared to 10% at old East Lake Meadows.

4. Just over 50% of public housing residents at The Villages earn more than $15,000 per year. In Atlanta Housing Authority properties system-wide only 12% of residents earn $15,000 per year.

5. Property values in the neighborhood surrounding The Villages have increased more than 20% each year since 1995.

6. Drew Charter School is showing early results, too. After just six months of operation, reading scores for grades 1-5 nearly doubled (from 19% of children reading at or above grade level to 34% reading at or above grade level).

As you can see, our experience at The Villages of East Lake demonstrates the incredible potential of mixed-income developments. I am absolutely convinced that mixed-income communities, combined with a comprehensive program of supportive services, can be an effective long-term solution to the disaster that has been public housing.

Three Recommendations

Our experience at East Lake has not been perfect, however. There have been and continue to be many challenges, if not outright obstacles. So I would like to share our thoughts on ways to make HUD's mixed-income program more attractive to private developers and more effective for all.

As I mentioned at the outset, we have three broad recommendations. First, the process for planning and developing mixed-income projects must be simplified and made easier for private, for-profit developers. Second, HUD's policies must make it more profitable for private developers to participate in the program. Third, HUD must provide funding to make it possible to make comprehensive supportive services a part of every mixed-income development.

A Simplified Planning Process

As a starting point, HUD and others involved in public housing must recognize the critical importance of private developers to the mixed-income housing program. For-profits developers have the experience and ability to create quality housing that will attract middle-income families to the mixed-income developments. Without middle-income families, the entire concept of mixed-income housing fails.

To attract for-profits developers to the mixed-income arena, HUD must simplify the entire planning and development process. Most importantly, developers must not be required to participate in the tenant negotiation process.

The process at East Lake involved eleven months of (at least) weekly meetings with the political leadership of the public housing tenant's association and its lawyers. Despite our willingness to compromise on every major issue, the process was typically contentious and many times focused on completely irrational issues. Because of our broader, charitable purpose, we stuck it out in spite of the process. But HUD simply cannot expect very many, if any, for-profit developers to do the same. There are too many other attractive real estate deals to pursue that do not have the complications of the mixed-income planning process.

Higher Profitability for Developers

HUD must recognize that as currently structured mixed-income developments do not provide significant profits to developers. And what profits do exist are further minimized in light of the high risks associated with mixed-income housing.

Our experience at East Lake is one of extremely tight operating margins. While we are confident we will achieve sustained profitability in the long run, we do not project to make profits until 2002, fully four years into the development. Moreover, it is unlikely we will ever net more than 5-10% on revenues after debt service. As a non-profit foundation we can justify these returns; at Cousins Properties we would never even consider involvement in such a deal. Because of this low profitability, those currently interested in pursuing mixed-income deals are either non-profit organizations, civic-minded developers, or lower quality, less experienced companies. To succeed, the mixed-income program must consistently attract high quality developers.

We have two recommendations to make the program more attractive to quality developers.

Far and away the best method for improving profitability is to lower the public housing component of the unit mix. At East Lake, with 50% public housing units, we cannot make money on half of the units we manage. A 30% mix would make our development truly viable and compensate for the risks involved. Notably, as important as the impact on profits, from a social standpoint a lower mix of public housing units will result in a stronger and more stable community, one that is easier to manage, and one that better achieves HUD's goal of integrating public housing and middle-income families in a seamless and mutually beneficial neighborhood. At a 50-50 mix we have found that the problems inherent in a low-income environment can easily overpower the strengths of a middle-income community.

Second, HUD must recognize that public housing can present difficult challenges with respect to security. Market rate residents simply will not move into a community with perceived security issues, especially drug dealing. At East Lake we have security guards at every entrance from 6 p.m. to 6 a.m. seven days per week. The security is both absolutely essential to the success of the project and extremely expensive (around $191,000 per year). Even though this cost is 100% a result of the public housing component of our community, under the current HUD program the Atlanta Housing Authority only pays 50% of the cost. We believe the local housing authority should pay all security costs, a policy that would help the profitability of the for-profit developer and shift the economic burden to the more appropriate party.

Comprehensive Social Services

If the intent of mixed-income housing is to break permanently the cycle of poverty, we believe it is absolutely essential that every development include a comprehensive program of supportive services. Quality housing alone -- even in a development that includes a healthy mix of middle-income families -- will not solve the deeply rooted problems faced by families that have experienced long-term poverty. Based on our experience at East Lake, we believe four programs are essential. First is a self-sufficiency program that actively works with residents to obtain and keep meaningful jobs. Our management company has gone to extraordinary lengths to work with residents on self-sufficiency, and while the number fluctuates, we have achieved close to 90% employment at The Villages. As good as this experience is, we have also found, unfortunately, that a small number of people simply are unwilling to put forth the effort to seek employment or stay employed. These families tend to be the ones that create the most problems in the community. For mixed-income housing to work, management must be able to terminate the leases of people who choose not to participate in the self-sufficiency program. The present system of legal protections for residents -- and frankly the unwillingness of judges to enforce the lease provision regarding employment -- make it too difficult to remove these residents. Therefore, not only must mixed-income developments provide funding for effective self-sufficiency programs, the rules must be changed to make it easier to remove those families who choose not to participate.

Second, a healthy neighborhood requires a good public school. Too often we have built public schools solely to accommodate children from a specific public housing project, and typically these schools are the worst in the system. Statistically, children of low-income families are those farthest behind academically and the most likely to drop out of school. We found this to be true at East Lake where only 19% of the children in our new charter school started this year reading at grade level. For the children of public housing families to have any chance to succeed -- to rise above the limitations inherent in their situation -- we must create great public schools. We strongly advocate the formation of charter schools to serve the children in all mixed-income developments.

Third, because the public housing families are almost all single parent working families, mixed-income developments need strong after-school programs to ensure kids are in a safe and supervised environment in the hours before their mother comes home from work.

And finally, we have found that quality daycare is also essential for success of the community. Not only do young, working mothers need a convenient daycare facility so they can hold a job, but typically low-income children will enter kindergarten already behind their peers unless they are part of an academic-oriented daycare program.

These four programs are not cheap. At East Lake we have spent $20 million simply building the school and daycare facilities. From an operating standpoint, our after-school program runs nearly $400,000 per year; the self-sufficiency program reduces our potential profit from The Villages by at least $50,000 per year; and both the daycare and school require additional fundraising to operate on a high quality level. We can afford to do all of this only because of great philanthropic support here in Atlanta. But for this program to work elsewhere, all of these services must be funded as part of the overall HUD program.

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