How To Do Affordable Housing When Your Government Is Being A Jerk

We’ve written about municipalities and states going at it alone when federal funding was scarce, but there is promising news from some groups that are working on innovative financing mechanisms—and some that shift the focus from development to acquisition, which is often a stumbling block.

City building modelsThe “proposed” cuts to federal spending on affordable housing programs have become promises in the weeks since preliminary FY18 budgets were presented in March. HUD’s budget—with its promised cuts to public housing and Housing Choice vouchers, and the elimination of CDBG funds and the HOME program—harms those most in need of stable and safe housing, and was both shocking and unsurprising. But even before Donald Trump, our eyes were open to the downward trend.

We’ve written about municipalities and states going at it alone when federal funding was scarce, but there is promising news from some groups that are working on innovative financing mechanisms—and some that shift the focus from development to acquisition, which is often a stumbling block.

GO Bonds to Fuel Economic Opportunity

Just last month, LISC announced that it is issuing $100 million in general obligation bonds to amplify its economic opportunity work and help drive impact investment capital into urban and rural areas in need. The bonds will have no geographic or programmatic restrictions. Different from the existing CDFI Bond Guarantee Program, this a self-issued bond offering with an S&P rating based on LISC’s good balance sheet. And though LISC is the first CDFI to venture independently into the bond market, we understand that a few other groups have also sought out S&P ratings and will be going this route, too.

Giving Nonperforming Loans a Second Chance

Local to Shelterforce, another CFDI has begun to work on an FHA bid it won this past March. New Jersey Community Capital’s (NJCC) ReStart offshoot will close this month on a set of 158 nonperforming home loans for properties in New York and New Jersey, Fannie Mae’s sixth Community Impact Pool. The unpaid principal balance on the group of loans totals about $26 million, and as part of its work since 2012, ReStart works with those owners—whose next step would otherwise be foreclosure—to refinance their mortgages with them and stay in the homes. This pool adds to the already hundreds of mortgages ReStart has purchased, and for the homes whose owners cannot or do not want to remain in, NJCC redevelops these properties into affordable housing. New Jersey Community Capital is unique in the CDFI space because it was the first nonprofit to buy such a pool of loans—without any special consideration for its nonprofit status. It also raised the funds for the bid in a very short time—five weeks—from private sources.

Detroit’s Mortgage Bridge

Detroit’s real estate crisis—though not yet over—is the stuff of legend, and we’re hopeful that its equitable turnaround will be too. As we know, revitalization doesn’t happen overnight, and despite its comeback, Detroit is still struggling to build its homeowner population. Especially in those areas outside of the downtown, popular neighborhoods because appraised home values simply don’t meet the loan amounts homebuyers need to purchase homes and make them livable. Detroit Mayor Mike Duggan—with the help of the Obama administration’s Detroit Federal Working Group—brought together investment from a coalition of organizations from the private sector to create the Detroit Home Mortgage.

Announced last year, it is designed to bridge the appraisal gap to get homes mortgaged and families moving back in to Detroit neighborhoods. Several banks, the Kresge and Ford foundations, and the Michigan State Housing Development Authority have each invested in the program, which competitively finances second mortgages up to $75,000 to cover the cost over a home’s appraised value. Qualified borrowers complete a home buyers course, and the Kresge Foundation has provided funds to support borrowers in extreme situations if they fall behind on their mortgage repayment.

CDCs Are Taking Tips From Capital Markets

For gentrifying neighborhoods, displacement of lower-income populations over time is a common occurrence, and renters are always the first to fall. Market-rate units are of course susceptible to impossibly high rent increases, but gentrification’s effects are devastating when subsidized units with affordability restrictions expire, effectively barring lower-income households from staying. To guard against this, a nationwide group of CDCs and housing organizations took some tips from capital markets and established a Real Estate Investment Trust (REIT) called the Housing Partnership Equity Trust (HPET).

Like a mutual fund, HPET’s portfolio of multifamily rental properties—typically located in gentrifying neighborhoods—and their access to opportunity provides investors long-term capital appreciation and a regular income stream. HPET’s structure allows it to bid as competitively as for-profit buyers without relying on cobbled-together, and often complex, financing. It is also just the second mission-driven and nonprofit sponsored and controlled REIT. Though it isn’t brand new (HPET is in its fourth year) it currently owns over 2,700 units, from California to Maryland, all of which have standard rents that are affordable to households earning 60 to 80 percent of area median income, or AMI.

Nonprofit Developers to Fight Fire with Fire

Though the phrase “scalable affordable housing in San Francisco” may best be described as oxymoronic, there are some folks who haven’t given up yet. Citi Community Development announced that it has partnered with the city to fund the San Francisco Housing Accelerator Fund.  Citi acknowledged that efforts to address the unaffordability problem at scale are repeatedly thwarted by the city’s cash-rich and fast-moving development machine, which moves too quickly for the long lead times that public subsidy requires. Rare opportunities to develop affordable housing are lost time after time.

Described as a “one-stop” shop, the fund will source and deploy new capital for affordable housing. Citi Community Development’s Bob Annibale said, “By assembling and aggregating capital from more and broader sources of funding, affordable housing developers will have access to a streamlined, market-reactive lending model that will enable them to acquire properties quickly. In addition, it will bring forward new and existing public funds as bridge financing for projects the city wishes to support over the long term through subsidies, which can take years to materialize. And because the future affordable housing pipeline will depend on investments made today, the fund will build equity to allow for sustainable strategic site acquisition into the city’s future.”

Annibale added that the fund, which has been initially funded with nearly $50 million in municipal, philanthropic, and private investment, has a goal of producing and preserving over 1,500 affordable housing units in its first five years, and will not require any additional public funding. Loans to affordable housing developers will begin soon.

This is just a sampling of what’s out there, and we’re hearing about new programs all the time. If you have information about financing initiatives, let us know about them or send us a link. While none of these programs in any way let government off the hook, it is interesting to see what happens when smart thinking and collaboration with the private sector is applied to the puzzle of affordable housing financing.

(Image credit: Racineur, via flickr, CC-BY)

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