The US Treasury recently made available almost $100 million for affordable housing through their “CDFI Fund.” The Community Development Financial Institution Fund makes money available through community financial institutions in combination with private money. This stimulates growth in distressed communities nationwide. “92 million dollars” sounds like a great deal of money, but two questions loom large. Is it enough money, and are we addressing the correct challenges?
We’ve written previously about the problems finding affordable housing across the country, as well as the problems with housing affordabilty. More Americans than ever are severely cost-burdened by their housing. This new money will go a long way towards developing affordable housing in cities that most need it. Is it enough? No, for myriad reasons.
Where Does The Money Go, And Is It Enough?
The money will go to just 23 financial institutions and nine non-profit groups. Thirty-seven states and the District of Columbia will benefit from the money, impacting thousands of lives. Any recipient of the money is required to leverage $10 of investment for every dollar of federal funds. Nearly a billion dollars will be invested based on this federal money. The funds are a part of a federal program supporting affordable housing. Money can be spent on a variety of related tasks such as preservation, rehabilitation, and development. Money can also be allocated for related economic and community service development.
Is it enough for the government to fund low-income development, and leave the rest to the free market? No. The availability of this new money is good for almost everyone. Those who invest are likely to make money. Low-income families get safer and more secure housing as well as benefits such as day-care centers and clinics within the communities. But as Andrew Kadish of CAPREIT pointed out in a recent edition of Multi-Housing News, serious gaps remain.
Where Are Developers Focused, And Is It Enough To Solve America’s Housing Affordability Problem?
Currently, most of the large REITs and developers are focusing on construction of what’s called “Class A” rental housing. These are the luxury communities that you see springing up nearly everywhere recently. Class A development requires significant investment, but also generates significant return on investment. MHN quotes Kadish as saying that,
The competition for our country’s highest earners, however, has left many without opportunities to secure clean, safe, and affordable housing for their families. Most egregious is that our nation’s protectors and caregivers – our firefighters, police officers, nurses, and teachers – are unable to find rental housing in the locales in which they provide their care. For these folks, there is a dearth of workforce housing.
There is a great deal of money to be made directly from Class A development. There is also money to be made from tax credits and other subsidies in low-income development. Is it enough to focus on the extreme edges of the housing market? No, because the available profit in these sectors often eclipses what can be made from a working-class Class B community. Dollar for dollar, and year over year, the ROI on these Class B communities can be lower.
That doesn’t mean someone shouldn’t build them, or that profits can’t be made. Teachers, firefighters, and police officers have trouble securing safe and affordable housing in the areas they serve. This creates voids in the community at large. Public servants shouldn’t be forced to live elsewhere and commute into the neighborhoods they serve. Nor should the community at large be deprived of the benefits from those public servants living in and engaging with the community. Studies have shown that crime decreases when police officers live in the communities they serve. A lack of affordable and decent housing makes that easy crime-prevention tactic impossible.
The CDFI fund is a well-designed government program that requires additional investment from the recipients of the funds. There are many more programs pouring money into low-income development, and many developers pouring money into luxury Class A communities. That’s not all we need to do, however. Few companies are rehabilitating or building the sort of rental housing that is needed by the working class. Without a healthy working class in a community, the community suffers.
One area where this can be clearly seen is the suburbs surrounding our nation’s capital. In suburban Maryland and suburban Virginia, safe and affordable housing can be difficult to find. Single-family residences are often sold to developers for far more than they would be worth as a home, further reducing housing stock. Some firms have found success in the middle-class market, however.
Can Developers Make Money Serving The People That Hold Communities Together?
One company that successfully owns and operates housing appropriate for and affordable to the guardians of our cities is The Donaldson Group. With well-managed and well-maintained communities in places like Silver Spring, MD, Glen Burnie, MD, and Fredericksburg, VA, The Donaldson Group works to make sure that those people who hold our cities together have the safe, comfortable, and affordable housing they deserve.
The Donaldson Group has partnered with Effective Coverage to offer residents the protection of Virginia Renters Insurance and Maryland Renters Insurance, as well. Just another way the firm believes in keeping residents safe and secure.
Housing affordability is a national problem that impacts the full spectrum of our citizens. Focusing on the edges, low-income and luxury housing, is not going to solve the problem, though it will make money in the short-term. The government and developers alike need to create new and efficient solutions for middle-class housing that is and will remain affordable, safe, and comfortable for those people on whom America depends.