Kim Shea did everything right when she decided two years ago, at age 37, to buy a Bend house.

She took home-buying classes to learn about mortgages and real estate. She learned to save money systematically, despite the pressure of raising three children on the income from her self-employed housekeeping business.

In the all-out drive to save for a house, she even cut off the cable TV.

Still, it wouldn’t have been enough. At least, not without help.

Shea finally found her house last fall in South Village, a 49-home development near the intersection of Murphy and Parrell roads that was specifically designed for first-time, lower-income homebuyers.

Working in concert, private homebuilder Diamond Built Homes LLC and the original landowner, Cascade Community Development Corp., a nonprofit, managed to hold the prices of South Village homes in the $150,000 to $172,000 range – more than 62 percent below the median sales price last year of a typical Bend home.

Similar homes constructed by Diamond Built last year in the Centennial Glen development off Reed Market Road already have sold for $70,000 to $80,000 more.

Everyone had to give a little to make the deal work.

The homeowners signed agreements to stay in their homes for a minimum of five years, or to cede some or all of their profits back to Cascade.

Cascade brought cheap land, purchased several years ago, to the deal. Diamond Built operated below its normal profit margins to build the homes, and COCAAN, the Central Oregon Community Action Agency Network, contributed second mortgages with favorable terms for many of the lower-income buyers.

The net result: 40 of the 49 buyers were first-time homebuyers, said Steve Schlam, managing partner of Diamond Built. Most have family incomes that are at or below $46,240 – 80 percent of the area’s median income of $57,800, at which half earn more and half make less.

Along with Shea, the buyers included a schoolteacher and a librarian, a judge’s son, a painting contractor and two soldiers on active duty in Iraq.

Given that only 143 stand-alone, stick-built homes sold in Bend for less than $180,000 in 2005 – down dramatically from the 580 sold in 2004 and the 747 sold in 2003 – the development played a large role in providing what little affordable housing existed last year.

It was, in fact, one of the largest affordable-housing projects in the state that was not directly subsidized with state or federal money, said Bob Repine, Oregon director of Housing and Community Services.

It also was not nearly enough to fill the demand.

According to a comprehensive survey of Central Oregon housing done in spring 2003, 7,828 Bend households already were spending more than 30 percent of their incomes on housing – enough to warrant the label ”cost-burdened.”

That accounted for nearly 32 percent of all the households in town.

The Central Oregon Regional Housing Authority hopes to update its housing-needs assessment with fresh figures later this spring, Executive Director Cyndy Cook said. But, with the median prices of new homes up 52.3 percent since the beginning of 2003 and median household incomes up about 5.7 percent, there is little doubt that the housing crunch has grown worse for even moderate-income households.

”The income gap and the housing costs have risen to such a point that more people are being priced out of the market every month,” Cook said. ”When $280,000 is your median home price now, those who are making $30,000 to $50,000 a year are really locked out.”

From a practical standpoint, the key to making an affordable home deal work lies in the land, said John MacInnis, executive director of Cascade Community Development.

Cascade bought the six acres it later used for South Village in 2001 with a land bank loan from Oregon Housing and Community Services, a financial agency created by the state to help finance and facilitate affordable-housing developments.

Land prices have since soared in Bend, but Cascade sold its acreage to Diamond Built in 2003 at a steep discount from the market price, on the agreement that Diamond Built would market most of the development’s homes to first-time buyers who make 80 percent or less of the area’s median household income.

The developers used the break on the land price and a no-points, no-payment loan from Bank of the Cascades to create steep discounts in their home prices. MacInnis estimated that the land break alone resulted in a $25,000 to $30,000 discount per lot.

Next, they worked to create easy loan terms for the homebuyers.

Cascade Community Development loaned 5 percent of the sale price in each house, requiring no repayment until the house is sold. That effectively let the homeowners stretch their payments over larger mortgages. In exchange, each buyer agreed to give up all or some of their appreciation if they sell within five years. After that, Cascade gets its money back, but no more.

Along with COCAAN’s second mortgages, the loan arrangements gave qualified buyers the option of getting into their houses with no money down, if that’s what they needed to make their deals work.

The money that comes back to Cascade Community Development will eventually be plowed back into other affordable-housing projects in Central Oregon, MacInnis said. Building more single-family home projects on the scale of South Village in Bend, with its escalating land costs, would be difficult, MacInnis said, but not impossible.

So far, few developers have incorporated affordable housing into their local projects in a systematic way, Cook said. Hayden Homes, a Redmond builder with projects throughout the Northwest, uses its Hayden Giving Fund to build one home in each subdivision for a low-income family, with help from donated materials and time from its suppliers.

Land trust funds also were used in Bend’s NorthWest Crossing development to produce some housing for moderate-income families on the city’s high-priced west side.

MacInnis, whose nonprofit exists to facilitate affordable-housing construction, said large-scale affordable-housing projects in Bend may have to lean toward townhomes or some other high-density option now, because land prices have gone too high. But South Village proved that larger projects can incorporate more lower-cost housing, as long as everyone brings some creativity – and a willingness to accept reduced profits – to the table.

”If you have the incentive to do it, and you can build to capacity, and you know what you are doing, it will work,” he said. ”As long as you keep it very simple and recognize that the market is going to take its toll, no matter what.”

Schlam hopes to try a similar approach in Redmond. Taking a cue from the South Village project, he has initiated a deal to buy 32 acres of land just outside the city’s growth boundaries. If the land is brought inside the city, he’ll structure the deal with the landowner to create favorable terms on five of the 32 acres, which he says he’ll use to create more affordable, first-time buyer housing.

Schlam said he got into the South Village concept because friends of his children, Bend High School graduates, were returning to town from college with no hope of affording a house in their hometown. Trimming his profits in order to turn that situation around, even in a small way, ”has been very rewarding,” he said.

”We’re in business, but it’s not always about the money,” he said. ”It’s a pretty nice feeling when you’re sitting in a restaurant and somebody sees your Diamond Built jacket and comes up and says, ”’I want to thank you for what you did for our kids.’ A lot of people talk about this kind of stuff, but they don’t spend the time to figure out a way to make it work.”

The lack of affordable housing is a national problem.

The National Association of Realtors’ ”affordability index” – the percentage of potential first-time buyers with a median income who are able to buy a median-priced home – fell to 68.4 late last year, down from 80.9 in 2003.

Shea said she’s just happy that someone found a local solution for her, so she could move from her $700-per-month rental in south Bend into a new home without uprooting her kids from school and accepting a long commute to a cheaper area.

The mortgage payment on her $160,000, four-bedroom house – almost $1,050 a month – is a stretch, but scrimping on the luxuries feels good now.

Her daughter and two sons each have their own rooms. She has her own master bath. She also has around $70,000 in equity, at least on paper, now that she’s a homeowner and is able to ride the real estate wave upward.

”If I had not gotten in on this deal, I would have never, ever been able to buy my own home,” Shea said. ”Which is really sad, because I’ve worked since I was 16.”

TO LEARN MORE

For more information on affordable housing or first-time homebuying, including classes on personal finance and homeownership:

* Central Oregon Regional Housing Authority: 923-1018

* Central Oregon Community Action Agency Network (COCAAN): In Bend, 322-9185. In Redmond, 548-2380, ext. 120. In Madras, 475-7017. In Prineville, 447-6835.