The creation and maintenance of affordable housing has become more and more difficult to finance, especially in California. The demise of redevelopment agencies eliminated a significant source of funding, and the Great Recession has left many municipalities bereft of funds to finance low- and moderate-income housing. In the absence of government funding, private capital is beginning to fill the void.
Alternative financing structures, from public-private partnerships to private-only ventures, are coalescing to preserve affordability and keep communities intact, especially areas facing development (read: gentrification) pressures.
Here in California, there are a number of legislative efforts in the works to restock the financing toolbox, including AB 243 (Dickinson), SB 1 (Steinberg), SB 33 (Wolk), and the Governor’s Trailer Bill for IFDs. However, for all the proposed legislation, only AB 471 (Atkins) has been enacted.
The Housing Partnership Network, a coalition of housing non-profits, took a cue from Wall Street and began crafting offerings to woo investors. The coalition formed the Housing Partnership Equity Trust (HPET), a real estate investment trust (REIT) where investors pool funds to buy property and collect dividends. Instead of focusing solely on financial returns, the network also appealed to investors’ desire for social returns – in this case a desire to preserve affordable housing. With $100 million from the likes of Citi, Prudential Financial, Morgan Stanley, Citibank, the MacArthur Foundation and the Ford Foundation, HPET has purchased low-income housing properties in Norfolk, VA, Fairfield, CA, and Aurora, IL. The Housing Partnership Network has announced plans to scale up its social enterprise model and raise another $500 million over the next two years.
Similar to the REIT, another financing model known as community ownership has been co-opted for the purpose of preserving affordable housing. Cooperatives – housing co-ops, food co-ops, and the like – are probably the most widely known form of community ownership.
This citizen-empowering structure could work to keep low-income communities intact, and has been floated as a possible model to help finance the redevelopment of Jordan Downs. The housing project recently lost out on a $30 million federal grant, which it was hoping to leverage to refurbish and rebuild the aging community. Now, project advocates are investigating the option of a public-private partnership to accomplish the same objectives. Under a traditional scenario of grants and loans, the tenants would remain just that – tenants. Under a community ownership scenario, the existing residents would become owners and investors in the buildings. Because an outright sale can be cost prohibitive for the area’s low-income residents, the buildings would be severed from the land on which they sit. The land would be owned by a Community Land Trust and leased to the residents. The residents, through a combination of financing and sweat equity, would own their existing, refurbished building. Successful precedents include Galen Terrace in Washington DC and Market Creek Plaza in San Diego.
These alternative models for affordability are not limited to housing.
In the NYC hipster borough of Brooklyn, a public-private partnership has carved out an affordable haven for businesses along the high-cost East River waterfront. The non-profit Brooklyn Navy Yard Development Corporation (BNYDC) manages a 300-acre industrial park that houses over 330 business and 5,800 employees in film, media, arts and culture, architecture, design, and more. Formed in 1981, the non-profit and the facility it managed languished until the City began kicking in sustained funding in 1996. While the infusion of public funds has certainly been essential, in recent years, the bulk of the funding has come from private sources. According to a study by the Pratt Center for Community Development, since 1996 the BNYDC has leveraged approximately $250 million from the City and raised over $500 million in private investment. The study sites a number of the Industrial Yard’s successful components, including: (1) a mission-driven, on-the-ground non-profit relatively free of the inefficiencies of government bureaucracy, (2) the organization’s independence from outside political pressure, (3) retaining publicly-owned property that ensures long-term security for companies to invest, and (4) consistent City capital that allows for comprehensive planning and redevelopment.
By co-opting and tweaking mechanisms of private capital markets, advocates of affordable housing and businesses have found creative ways to continue pursuing their missions despite the loss of traditional funding sources. By tapping into investors’ interest in social returns for housing, and by creating new opportunities for low-income residents to own the structures in which they live, these financial entrepreneurs may be fostering the beginnings of a new cultural mindset.