Catalytic Philanthropic Capital Can Supercharge Affordable Housing Nonprofits

The housing crisis in the United States is getting worse. What was already a challenging situation has been compounded by the increasing frequency of severe weather events like hurricanes Harvey and Irma, as well as by proposed federal budget cuts for fiscal 2018 that would slash HUD programs by $6.2 billion. These and other factors are putting great strain on the insufficient resources set aside to help low-income people maintain an adequate standard of living.

This crisis cannot be solved by the public, private, or government sectors alone. A problem of this scale requires innovative, multisector solutions designed to preserve affordable housing, drive system change, and create economic opportunity for those who need it most.

Rising real estate prices and job growth are not signs of housing stability

Rising real estate prices aren't a solution to the problem; if anything, they're exacerbating it. According to a 2017 report by the Urban Institute, the market provides only twenty-one adequate, affordable, and available (AAA) units for every hundred renter households with income at or below 30 percent of the area median income.

Even in places where job opportunities are improving, the housing crisis is worsening. One-third of all U.S. households are paying more than 30 percent of their income on housing, yet between 2005 and 2015 the number of rental units costing less than $800 per month declined by 2 percent, while the number of units costing more than $2,000 increased 97 percent. Cities like Boston have witnessed a booming job market, leading to a population spike, followed by a development boom. Investors are buying land and sitting on it, waiting for values to rise even higher and leaving little to no property for affordable housing. Naturally occurring affordable housing — housing that is affordable without public subsidy — is at risk for acquisition and flipping, resulting in higher risk of eviction for people already living on the edge.

This scenario is playing out all across the country. Naturally occurring affordable housing is being lost at an alarming rate to developers with deep pockets who acquire the properties with plans to raise rents.

I see firsthand the many innovative organizations across the country that are working to narrow the gap between housing needs and access. But financial constraints often affect an organization's ability to operate at full capacity. The restrictions placed on nonprofits' use of funds can be overwhelming, and nonprofits spend too much time navigating the complex maze of funding restrictions that could be better spent delivering and improving on services. If organizations were not confined by these strict rules and mandated to spend funds on specific tasks, they could respond more quickly and effectively.

Nonprofit housing solutions

Entrepreneurial nonprofit housing organizations are nimble, deploy large amounts of capital, and have an enormous impact on the lives of the individuals and families they serve. When equipped with the necessary resources — specifically, access to enterprise-level capital — magic happens and organizations with tried-and-true solutions achieve even deeper impact and change lives. The Housing Partnership Network (HPN) creates vehicles to aggregate capital for its members; with flexible, longer-term, lower-cost capital, our members are able to deploy that capital at scale and in an accelerated fashion.

One standout example is the Housing Partnership Equity Trust (HPET). This first-of-its-kind social benefit real estate investment trust (REIT) was founded by and invested in by HPN members to compete against for-profit, market-rate buyers with easy access to cash who are buying up multi-family properties that provide homes for residents typically earning 50 percent to 80 percent of area median income — that is, working poor and middle-income people.

Because our nonprofit members are prohibited from raising equity on their balance sheets, in the past they needed months, sometimes years, to raise the funds needed to purchase properties. HPET provides entrepreneurial nonprofit housing organizations with the capital needed to compete in the market, purchase properties, and preserve housing affordability. HPET's members include well-known community development organizations and change makers like Aeon in Minnesota and Eden Housing in California, organizations whose established relationships make them the preferred "go-to" partners in their communities.

What is the solution? Capital.

While we've found ways to create positive impact during the ongoing housing crisis, the challenge we now face is replicating those solutions at scale. And the solution to this challenge is capital, enterprise capital, in the form of investments in high-performing organizations.

Vehicles like HPET work. But they are limited by a lack of capital. Impact can be unlocked through structures that bring together investors seeking stable returns, surety of deployment, and long-term housing solutions for hard-working families seeking access to good schools, affordable transportation options, and financial peace of mind. The good news, as HPET demonstrates, is that capital can be deployed on a significant scale and in ways that meet institutional investors' needs. And that is where real impact happens.

The beneficiaries of those investments are the home health aides and teachers who live in our housing, contribute to our communities, and make up the fabric of our neighborhoods. The track record of our members and of HPET — nearly five years after its launch — is evidence of our commitment to the long-term preservation of affordable housing in America. Stable housing is a springboard to economic opportunity and success for residents and their communities. By providing high-performing entrepreneurial nonprofits with unrestricted capital, we reduce their dependence on federal programs and better position them for sustainability regardless of future changes in federal policy.

While private philanthropy is pivotal to the future of affordable housing, it can only do so much. Yes, it can provide enterprise-level funding, but its real value lies in its ability to seed initiatives that bring private capital to bear in the form of debt and equity (rather than grants). Philanthropic dollars can have catalytic impact as well. The Ford Foundation is evidence of this; by allocating $1 billion of its endowment to mission-related investments over the next ten years, Ford is betting it can both broaden and deepen its impact. If other foundations follow Ford's lead, they, too, can position themselves to harness the full power of their endowments and expertise — and help shape the real estate market in ways that will benefit millions of low- and middle-income Americans.

We are at a crossroads. We have seen innovative nonprofits across the country develop truly impressive solutions to the nation's housing crisis. But without access to enterprise-level capital, it will be difficult for them to bring their solutions to scale. The time to act is now.

Rebecca Regan is executive vice president at the Housing Partnership Network, a Boston-based business collaborative of one hundred of the nation’s leading affordable housing and community development nonprofits.