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Exploring Affordable Housing Finance

Updated: Oct 9, 2020

As we continue our journey to find sustainable solutions to college homelessness, we build on our previous conversation on Generational Wealth. In order to have a truly sustainable solution to college homelessness, we understand that affordable housing will likely play a sizable role. Thus, crucial to establishing that affordable housing is having the financing to do so. Without the necessary funding, all potential projects remain just that: untapped potential. Therefore, to conclude our spring and summer series of One Talk Away, the team thought it most definitely fitting to explore the realm of affordable housing financing.

Yet, we must not get too far ahead of ourselves. Before jumping head-first into the content from this week, it is imperative that we return to a central piece of this project’s foundation: a personal meaning of homelessness. Ever since our champion Que Glenn shared his personal story with us, the way that we have defined homelessness has been forever transformed: homelessness is not just the lack of a roof over your head; instead, it is also the absence of a real, committed support system. After Mr. Glenn brought this insight to our attention, we have thought it crucial to reiterate at every one of our forums. Inasmuch as we want to help solve college homelessness, we must remember the real needs, the real stories, and the real people we are solving for.

Kicking off the discussion our presenter James McGee with Chesed Development Group, provided an insightful, informative, and experienced breadth of knowledge on financing. Mr. McGee provided the group with bountiful resources and ample wisdom—spurring great conversation and a plethora of interesting ideas. Ranging from the Community Development Financial Institutions Fund to the Social Impact Private Equity Fund, Mr. McGee graced us with his knowledge, offering insights and suggestions for how different projects might be able to receive funding.

We discussed different incentives, districts, and ordinances that each have their own nuanced implications on funding. One unique insight was how community banks have different “fortes,” so to speak, when it comes to funding different projects. We often group banks into one category, missing completely the capacity of smaller regional banks. With a focus on serving a specific geographic area, community banks are often more aware of community specific needs and might be willing to take the risk with non-traditional projects.

Understanding the steps in getting funding is also a crucial element. Most projects undergo a reviewing process, often requiring a committee to assess the risk and approve or deny a loan. A reviewing committee may not always be fluent in the type of projects presented and is subject to personal bias, which can lead to the denial of projects with economic potential. It is worth assessing the capacity of local banks to identify what they specialize in and what they would be comfortable in funding. One example is State Bank of Texas, a community bank in Dallas that specializes in financing hotel development.

Incentives play a key role in building capital and mitigating risk. While they might not pay for the project outright, they can offer long term cost savings or infrastructural upgrades that can support the project. Whether they be historic tax credits, empowerment zones, or tax incremental financing, these incentives can help make a better pitch to obtain funding. In an example shared, James highlighted how his group identified $57 million in incentives for a $60 million abandoned school redevelopment, leaving his group to work between multiple resources to finance the remaining $3 million. This real-world scenario stresses the complexity of raising capital for a housing project. Aside from incentives, funding is often shared between multiple sources. No one institution is going to fund the totality of project, thus requiring a plethora of contacts and resources to complete.

To introduce one of our guiding questions for the evening, Mr. McGee took a minute to analyze, What is a good intersection of profitability and impact? One of the largest misconceptions pertaining to affordable housing is that affordable housing projects aren’t profitable. Rebuking this idea, Mr. McGee noted that affordable housing projects can most definitely be profitable; the reality is that the profitability of different projects simply depends on the respective margins. In terms of the exact intersection between profitability and impact, that discussion still remains open. On one hand, we must remember that developers ought to be compensated, and as we learned from our forum on Social Enterprises a few weeks ago, profit is NOT a bad thing in itself. Instead, social enterprises can both be profitable and impactful.

Yet, on the other hand, we must remember the people who we are designing for. All too often, in an effort to maximize profitability, “minor” corners are cut, lower quality products are installed, and the structure in which we design is basic. In fact, we even justify our decisions by rationalizing that those using affordable housing wouldn’t be able to afford superior design. Reflecting on the rising cost of housing, we ask if profit should be the sole metric of determining a project success? Would we be willing to reduce the profit margin to ensure long term economic and social impact? What might it look like to balance the profitability of the projects that we undertake? What might it look like to gather a group of developers to designate one project that is simply pro bono? These are questions that we must start (and continue) considering as we design spaces for our communities.

Given the complexity of developing capital for a project, we asked if there is a central resource of information for someone not familiar to get insights into funding real estate projects. There are multiple resources from the Urban Land Institute; however, most of the insights are usually gained by leveraging connections in the industry. Reaching out to those making a presence, whether on stage or online, can help identify local projects and unique ideas to overcoming funding and regulatory challenges. This does require a certain bandwidth to accomplish, which for someone completely unfamiliar may be difficult to accomplish.

To expand on this idea a little bit more, we return to another insight from our Social Enterprise forum a few weeks ago: the Social Enterprise Marketplace. The idea focused around a central gathering place for various social enterprises to connect, help one another, and leverage networks. The idea even extended to align customers to social enterprises that address causes they support. Now, as we discuss the variety of incentives and sources of funding for projects (many of which are unknown to the basic citizen), the importance of having a collective of resources for social innovators, designers, and entrepreneurs manifests itself again. As a result of continued appearances, this idea of a Social Enterprise Marketplace will surely be one that is explored in greater detail as we consider how to best create solutions towards this challenge.

Land also plays a factor in affordability. Location can determine the price tag—often creating incentive to develop in communities with lower property values, many of which are often outside central areas. Connecting people also plays a key part in the strategy. In an example, James shared how he found an intersection of community needs and local expertise that brought in resources to help develop a grocery store in South Dallas.

The map's color coding indicates state-law friendliness to inclusionary housing. (Credit: Grounded Solutions Network)

We learn the community can play multiple roles in the development of an affordable housing project. If there is a passion from community members to address affordability, then organizing a collective voice to support affordable housing projects can highlight the priority for local city council members. This can help influence incentive programs or help modify zoning ordinances to allow greater capacity on existing land. This does require identifying the current incentives available and determining what is being used. We explore Inclusionary Zoning, a strategy which uses zoning ordinances to require a set percentage of affordable housing units for a piece of land. Although it is rumored to not be allowed in Texas, there are ways community members can use local ordinances and tool-kits to create incentive for affordable housing projects. A deeper search through the Grounded Solutions Network revealed how Inclusionary Zones take different approaches in the incentives they offer to encourage affordable housing and their utilization throughout the United States.

Concluding our journey into the world of finance, we take a few precious moments to absorb the new ideas we discovered and think over potential solutions. As everybody in the group takes a seat at the table to discuss Pat Alva Kraker kicks us off with the following question; What opportunities do you see that can be used to fund affordable housing projects for college students? .

As one of Mr. McGee’s main points was digging into incentives, one of the most practical takeaways is to develop a shared resource to clearly identify incentives and funding mechanisms that exist in Fort Worth that support affordable housing projects. On the same vein, additional research could be conducted on community banks, to identify which ones in Fort Worth have financed affordable housing projects before.

Reflecting on the unique model offered by the Taste Project, we throw up the idea of “Pay What You Can Housing.” This is an interesting idea that could offer a no-guilt platform to help families overcome rent burdens when times get challenging or when there are unexpected needs. It does raise questions on how to create stable and predictable income for housing projects, but looking deeper in Taste Project’s model, they have been successful in subsidizing the cost of meals for low income families through generous payments from more affluent families. From a housing angle, our research came up short in finding any reputable housing projects that currently exist based on a “Pay What You Can” model. As we ponder on this idea, we consider the value in reaching out to other businesses using the "Pay What You Can" model to evaluate the strengths, weaknesses, opportunities, and threats with such an approach. Moreover, this concept could be coupled with other incentives, hopefully lowering the amount that would needed to subsidize rent.

On the topic of personal connections, a second major idea from the open discussion was having college students themselves start building relationships with financial institutions in Fort Worth. This idea serves two purposes. On one hand, as college students start participating in the meetings with various financial institutions, an element of reality will take hold. As college students share their personal experiences and personal needs, the conversations with banks and government entities will no longer simply be just about credit rates, loans, and numbers on a screen, but they will have an element of pathos. On the other hand, it should go without being said that these conversations themselves will be crucial in helping our college students develop professionally. As they start engaging in these conversations, they will learn more about the business world, negotiations, finance, and personal networking. Not only will they benefit by hopefully garnering more support from financial institutions, but they will also gather important business acumen.

Employment rises as the another key reoccurring topic. In addition to providing people a place to live, we also must consider what it might look like to give students a stable place to earn income. One example shared by James utilized a car wash, which are surprisingly profitable, built into the housing project to provide employment options. The profits earned through the car wash are used to maintain the affordability of the housing. Similar, the Fannie Mae Sustainable Communities Innovation Challenge also reveals, a core tenant to a lasting affordable housing solution must be integrated with employment, wellness, and education. Instead of just isolating affordable housing projects to the construction of buildings, we must think, ideate, and solve holistically.

One unique way of possibly fusing the two together would be combining both of CoACT’s projects: College Homelessness & Grow Southeast. Might it be possible to establish affordable housing units while also creating alignments to employment at local urban farms? Might it be possible to give people a place to live, a place to work, and a place to develop community?

We identify a common trend of NIMBYism or Not In My Back Yard. This mindset, often fueled by inherit fears towards homelessness, poverty, people of color, or just the perceived negatives of dense housing, can bring neighborhood associations with their pitchforks to contest any new project that could provide affordable units. This is a major hurdle and can kill a project early; moreover, it is not just subject to affluent communities. Recently, communities in SE Fort Worth are rejecting affordable housing projects. Some of this may be due to the abundance of affordable housing projects in this area often perceived as a “dumping effect” for this community. This response does warrant additional exploration. What about our current affordable housing projects are making them unattractive? Perhaps these projects are only focusing on one small component of housing insecurity: the building itself. If the focus is on constructing more units that occupy space, instead of understanding the community, the problem, and the solution robustly, it might partially explain why affordable housing projects are rejected. The question becomes how do we engage neighborhoods hesitant to change to be an active part of the solution? What actions would help make them champions?

As the last forum of the summer comes to a close, we continue to explore these questions. As we reflect on our previous forums we recognize the magnitude of questions we have collected surpasses the answers. There is value in these questions, as they challenge us to look holistically at any solutions we might develop, pushing to look ever deeper into the underlying causes of college homelessness and the complexities of affordable housing. We appreciate the opportunities they bring to engage in new conversations and explore new ideas. In light of that reality, although the forums are taking a brief hiatus, the purpose of them remains the same: we are always One Talk Away from generating lasting solutions.



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