CDFIs Collaborate to Send More Capital to Low-Income Communities

by Matthew Arck
Research Associate

This post is the second in a series about the results of the Partnerships for Raising Opportunity in Neighborhoods program (PRO Neighborhoods), a grant program of JPMorgan Chase & Co. that provides grants to support collaboration among groups of community development financial institutions (CDFIs). See previous post and our recently released progress report.

Early results of the PRO Neighborhoods program suggest that new ways of deploying capital can help improve the lives of Americans who live in low-income communities.

For more than two decades, community development financial institutions (CDFIs) have been lending money to improve social conditions in America’s disadvantaged neighborhoods. Despite their growing importance, however, CDFIs generally have been unable to raise enough capital to meet the potential demand in their underserved markets. The small size of most CDFIs (the average loan fund holds only $7 million in assets) and the risky appearance of their loans (due to the nature of their borrowers and locations) often scare off large institutional lenders and capital market buyers.

To encourage CDFIs to expand their lending capacity through collaborations, in 2014 JPMorgan Chase initiated the PRO Neighborhoods program. In the first year, JPMorgan Chase awarded $33 million to seven groups made up of 26 CDFIs with less than $75 million in net assets. In a new progress report, we found that awardees devised a variety of creative strategies to meet their need for additional capital.

Some of the awardees increased funding to community development projects through leverage or partnerships. In the Adelante Phoenix! collaboration, Raza Development Fund (RDF), committed its own funds to finance the riskiest portion of redevelopment projects (including site acquisition and predevelopment for multifamily housing and commercial space in industrial South Phoenix). By taking the riskiest position, RDF set the stage for other lenders (including traditional lenders) to fund the less risky phases of redevelopment. Several of RDF’s community redevelopment projects would not have been built if RDF had not provided the early financing.

The Expanding Resident Owned Communities collaboration helps residents of mobile-home parks to buy the land they live on. Through this collaboration, ROC USA expanded their community outreach to new areas, and combined their lending power with Mercy Loan Fund and Leviticus Fund. By collaborating on these large and unique loans, the group is able to make more loans while reducing the risk to each group member, thus increasing their ability to preserve this often overlooked source of affordable housing.

The Woodlands Community, where ROC USA helped residents to organize and provided financing for them to buy the land under their homes.

One way to raise capital is to sell loans on the secondary market – a method employed by many financial institutions. As a part of the NALCAB Network collaboration, Affordable Homes of South Texas shared its first-mortgage product and its secondary market buyer with its partner Colorado Housing Enterprises (CHE). Now that it can sell mortgages, CHE has increased the velocity and volume with which it acquires capital and makes loans.

Another collaboration executes a more direct means of raising capital. The Calvert Foundation, one of the emerging Small and Medium Enterprises (SME) partners, sells a bond-like debt security directly to investors and uses the proceeds to fund loans to other CDFIs. Calvert markets these “Community Investment Notes” as a way to get competitive returns while supporting community development and social enterprises. The current interest rate on Calvert’s 10-year note is comparable to current rates for investment-grade corporate bonds. So far, Calvert has raised $3.8 million for its SME partners through the sale of Community Investment Notes.

Kevin Edgmon, owner of Roadskulls V-Twin Performance in Denver, worked as a Harley-Davidson service manager for seven years before opening his own shop in 2014, aided by a loan from Community Reinvestment Fund, an SME partner.

The SME lending partners also obtain capital by selling portions of their loans on the secondary market. They are able to do so in part because they make Small Business Administration (SBA) loans, which are partially guaranteed by the federal government. By selling the guaranteed portions of the SBA loans, the SME partners obtain new capital that they can lend to low- and moderate-income income borrowers. In addition, the SME partners have shortened the time it takes to originate SBA loans by adopting a shared technology platform for SBA loan compliance and origination.

Taken together, the PRO Neighborhoods collaborations demonstrate a wide range of strategies to increase the flow of capital to underserved communities. The early results of their efforts offer promising evidence that collaboration can help CDFIs access capital, expand their lending, and do more to support low-income communities and their residents.

Read PRO Neighborhoods Progress Report 2016

The New Urban Agenda, HABITAT III, and the Celebration of a Multinational Agreement on Cities

by Jessica Jean-Francois
Harvard Graduate
School of Design

A few weeks ago, I was one of the approximately 50,000 people who came to Quito, Ecuador for the third UN-HABITAT conference (HABITAT III). The conference served as a celebration of the adoption of the New Urban Agenda, a multinational agreement that aims to “help to end poverty and hunger in all its forms and dimensions, reduce inequalities, promote sustained, inclusive, and sustainable economic growth, achieve gender equality and the empowerment of all women and girls, in order to fully harness their vital contribution to sustainable development, improve human health and well-being, as well as foster resilience and protect the environment.”

Excerpt from New Urban Agenda display

Having signed up for the newsletter over a year in advance, I had grown increasingly excited as I read about the research being done in anticipation of HABITAT III and the many meetings and events held to prepare for it as well. It was clear that this would be an incredible event and that I would have a unique opportunity to observe as key actors in city planning and urban policy came together, to hear about new approaches and practices, while also getting to know a new city.

HUD Secretary Julian Castro speaks 

Once there, I had plenty of activities to choose from. Main events included special sessions on public space, urban resilience and municipal finance. There were also networking and side events hosted by government agencies, nonprofit organizations and research institutions. There were roundtable discussions that brought together mayors, trade union leaders, businessmen and women, farmers and other key stakeholders. There were plenary meetings and many more events covering a wide range of topics, all happening simultaneously every day. On top of that, there was a six-hall exhibition zone with over 150 booths showcasing important ideas and activities related to urbanization.

For many people, all of this was overwhelming. Quito was completely transformed as much of the area surrounding the conference center could only be accessed via security checkpoints. Long lines, limited bathrooms and technical issues sometimes frustrated attendees.

Large lines formed at the event

Now that I’ve returned and debriefed with classmates, friends, and others who attended the gathering, I am left with many questions. What were the intended takeaways? What was the point of such a large expensive conference? Who benefited, who lost? Also, could the conference’s goals have been achieved in a better way? While we celebrate that HABITAT III was open and free to all those who wished to attend, people still had to travel to Quito and pay for accommodations, food, and, if they wanted to highlight their work, for exhibition booths that cost $4,000 or more. Moreover, the selection process for hosting a side or networking event seemed arbitrary. While the New Urban Agenda clearly indicated that issues such as energy and transportation, land tenure, safety and security, disaster risk management and inclusion in spatial planning were concerns, particularly for those living in informal settlements and slums, this was not clearly aligned with the schedule of events on informal settlements, which primarily focused on the UN Participatory Slum Upgrading Program (PSUP) and data collection tools.

Despite these questions and concerns, I still believe the conference was valuable. While in Quito, I primarily attended events addressing informal settlements, which was a focus of MIT’s Special Interest Group in Urban Settlement (SIGUS), the group that I traveled with to the conference. I also attended sessions that focused on Small Island Developing States, tourism, economic development and finance to inform my master’s thesis at Harvard’s Graduate School of Design. Scheduling conflicts and long lines were at times a barrier to my hopes, but even these offered some interesting surprises. The long lines became an unintended networking opportunity and equalizer where people with different backgrounds and positions were able to meet, share ideas and connect. The exhibition halls were a hotbed of activity as people who sought a place to rest often became consumed in unplanned conversations and experiences.

Jessica at MIT's SIGUS booth

That is how I got to know the Slum Dwellers International (SDI). Although I had previously been in contact with the group, on the last day of the conference, I heard an SDI celebration that featured singing and chanting. The participants were celebrating the launch of Know Your City a website featuring data collected by residents of informal settlements. SDI uses the data collection process to identify needs and encourage community-funded solutions. It also shares the data with policy members of their communities in an attempt to prevent evictions and prevent poor, top-down approaches to planning.

As I learned about this grassroots movement and about cases in Liberia, Zambia and South Africa, I thought about the many challenges that will hinder the effective implementation of the New Urban Agenda and the fact that many of the solutions to these barriers are present (but often hidden) in the communities it is supposed to serve. As we struggle to identify ways to make certain areas livable, it’s often forgotten that many people have already been forced to craft solutions in order to survive while only dreaming of gaining access to the resources needed to innovate on a larger scale. I am hopeful that many of the ideas and innovative approaches that were discussed and disseminated in Quito will help city dwellers take even more control of their own futures.

Jessica Jean-Francois, a second-year Master in Urban Planning student at the Harvard Graduate School of Design, was a Joint Center student research assistant in 2015-2016. Her trip was funded in part by Harvard’s David Rockefeller Center for Latin American Studies (DRCLAS) and the Joint Center for Housing Studies.

From the Archives: When New York’s Legendary “Power Broker” Spoke at the Joint Center

by David Luberoff
Senor Associate Director

Fifty years ago today, Robert Moses, the legendary “power broker” who reshaped New York City in the mid 20th century, gave a lunchtime talk at the Joint Center for Urban Studies of MIT and Harvard. Thanks to Adam Tanaka, a 2015 Joint Center Meyer Doctoral Fellow who was doing research for his thesis on the construction of large-scale, middle-income housing in New York City, the Joint Center recently received a copy of his speech.

Given today’s debates about housing, transportation, and other issues related to urban development and urban policy more generally, it’s instructive to look back at Moses’ remarks, which were given at the predecessor of today’s Harvard Joint Center for Housing Studies. Moses, whose language was florid and at times supercilious, asserted that most major municipal problems could be solved “by genuine courage as distinguished from braggadocio, empty millennial problems, buck passing to Washington and yielding to every obstructionist group, every Johnny-Come-Lately planning expert, every editorial pundit, and every racial, religious and sectional minority. Water supply, sewage and waste disposal, roads, parking, schools, hospitals and health, all are the same category of works requiring an honest, factual, fearless approach and attack by officials with at least a thirst for martyrdom and an instinct for the jugular.”

Robert Moses

The remarks and the harsh judgments are particularly striking because Moses – whose importance is sometimes compared to Baron Georges-Eugène Haussmann’s impact on 19th century Paris – was a singularly important figure in New York specifically and American cities generally. Working from a series of appointed state and city positions (many of which he held at the same time), Moses oversaw the construction of 13 bridges (starting with the Triborough Bridge, now known as the Robert F. Kennedy Bridge), 416 miles of highways (including the Long Island and Cross-Bronx Expressways), 658 playgrounds and parks (including Jones Beach State Park), key cultural and non-profit institutions (including Lincoln Center and the United Nations), and 150,000 mainly high-rise housing units for the city’s low- and moderate-income residents (including Trump Village, a 3,800 unit complex in Coney Island built by Donald Trump’s father). These changes not only transformed New York, they also provided a template for redevelopment and highway projects throughout the country.

Image by Hassan Tahir (Own work) [CC BY-SA 4.0 ], via Wikimedia Commons

However, such changes came at a huge human cost. In The Power Broker, a critical and seminal biography of Moses that won the Pulitzer Prize in 1974, Robert Caro estimated that taken together, Moses’ road, bridge, housing, and urban renewal projects displaced about 250,000 people, most of them poor and many of them blacks and Puerto Ricans. Moreover, Moses strongly supported policies that did not allow blacks to move into many of the new housing projects, such as Stuyvesant Town in Manhattan – a private moderate-income housing development built on land cleared by a city entity that Moses oversaw.

By the time that Moses spoke at the Joint Center, his power had begun to wane largely because of increasingly intense disputes about his aggressive approaches to urban development and growing feuds with key elected officials, particularly then New York Governor Nelson Rockefeller. His opponents, who included Jane Jacobs, author of The Life and Death of American Cities, had stymied his efforts to radically transform lower Manhattan via the construction of an elevated expressway from the Hudson River to the East River and to use urban renewal powers to clear parts of Greenwich Village for high-rise middle-income housing developments. As a result, by the time he gave his Joint Center talk in 1966, Moses, who once simultaneously held 12 separate city and state positions, had only one official post, chairman of the Triborough Bridge and Tunnel Authority, a self-financed public entity that he had chaired since he had led the effort to create it in the 1930s. When Moses spoke at the Joint Center, the authority owned and operated nine bridges and tunnels, including the Verrazano-Narrows, Throgs Neck, and Bronx-Whitestone bridges as well as the Brooklyn-Battery and Queens-Midtown tunnels.

In his remarks, Moses – who was fond of the French aphorism (sometimes mistakenly attributed to Joseph Stalin) that “you can’t make an omelette without breaking eggs” – made it clear that his recent defeats had not changed his views. He began by hailing the approach to urban problems taken by Daniel Patrick Moynihan, who headed the Joint Center from 1966 to 1969 and who went on to several prominent posts, including serving as one of New York’s U.S. Senators from 1976 until 2000. “I like Mr. Moynihan’s approach to our municipal problems,” Moses said, “because it is honest and forthright at a time when solutions are mainly the province of demagogues screaming for perfection, smooth politicians with new catchwords and slogans appealing to every racial, religious, sectional and economic faction and minority, image makers, fanatics, self-appointed wowsers, reformers with direct links to Higher Regions, far-out critics with long claws and venomous serpent’s tongues, ponderous editors, computer analysts, and just plain nuts.”

Moses went on to endorse his support for what had become a common, but inaccurate reading of “The Negro Family: The Case for National Action,” the controversial report Moynihan had prepared in 1965 while working in the Johnson Administration. Moses began by restating – and expanding – the report’s best-known assertion. “If I understand him,” Moses said, “Mr. Moynihan says, and quite rightly I believe, that family, church, and other ancient responsibilities and disciplines must be restored if we hope to meet the problem of negro, Puerto Rican, and other slums and ghettos.”

However, like many conservatives who embraced Moynihan’s assessment of the state of black families, Moses did not repeat Moynihan’s assertion that the problems were largely caused by “three centuries of unimaginable mistreatment” of blacks by whites. Nor did Moses support Moynihan’s proposals to address those problems via large-scale government programs focused on strengthening black families. Instead, Moses asserted that responsibilities to family, church and other institutions had to “come first, ahead of improved housing, schools, recreation, the Four Freedoms, integration and even human rights.” He added, “But our political and opinion-making leaders don’t go for such simple and sane reasoning because it represents restraint and, like charity, begins at home.”

Moses, who was forced out of the TBTA in 1968 when the agency became part of the newly formed Metropolitan Transportation Authority which used some of the TBTA’s revenues to subsidize the region’s subways and commuter rail lines, concluded with a somber assessment of the then-current urban policy landscape. “Almost no one in high office wants to be told that a motorized civilization is bound to glut the roads and that the best we can do will not meet the problem short of approaching much more drastic regulation which will require sacrifice,” he said. Then he returned to some familiar critiques of others’ ideas, asserting, “Careless experts say we shall meet the demands by preferring rails to rubber, substituting regionalism for states, master planning, super duper departments run by administrative giants of an elite corps of experts who are also seagreen incorruptibles, trained to be public tycoons, more business in government, the repeal of Parkinson’s Law, rebuilding everything without hurting or discommoding anybody, and combining immediate, uncompromising slum clearance with revolutionary social objectives.”

Moses, who died in 1981, concluded by noting, “Here endeth the lesson, if I have any to offer, and the beginning of the interrogation which will enable you to get even with me.” While we haven’t yet found a transcript of that discussion we’re sure that, like Moses’ remarks, they not only would be an informative historic artifact but also would highlight many of the urban issues that we are wrestling with today.

Read the speech transcript.

Improving Housing and Neighborhoods in Mexico: Lessons from a New Harvard GSD Report

by David Luberoff
Senior Associate Director

What kinds of planning and design interventions can help improve housing and urban development practice in Mexico? Can housing be a key tool in efforts to redevelop and expand the country’s metropolitan areas in efficient and equitable ways?

In Revitalizing Places: Improving Housing and Neighborhoods from Block to Metropolis, a report released earlier this year, a team headed by Ann Forsyth, a Professor of Urban Planning at Harvard’s Graduate School of Design (GSD), tries to answer these questions. The report, which was part of the larger GSD project "Rethinking Social Housing in Mexico" does so by drawing on international and Mexican experience to identify policies, programs, planning approaches, and tools to help implement an ambitious housing and urban development policy announced by the Mexican government in 2012.

Vivienda Social en Cancun, one of the research case studies

In the report, Forsyth and three research associates who worked on the project – Charles Brennan, Nélida Escobedo Ruiz, and Margaret Scott – identify four key strategies that can help create more sustainable and inclusive communities.

First, they note that those who wish to densify existing metropolitan areas can use a range of policies and programs aimed at increasing development in the urban area as a whole (including the core cities and suburban regions). These include simplifying the infill development process, promoting public acceptance of infill, and promoting accessory apartments. Together these types of strategies promote densification on various levels and also address physical, regulatory, and organizational issues.

Second, they recognize that, in most of the world, accommodating all growth in existing urban areas is difficult, and that better approaches to developing greenfield sites are necessary. Key strategies for doing so include “creating additions to urban areas that are rich in infrastructure and services and using innovative designs to comprehensively develop neighborhoods and new towns.”

City square in Oaxaca, Mexico

Third, they emphasize that strategies to retrofit some areas should respond to concerns about existing developments. They note that “upgrading areas where services and infrastructure are lacking and dealing with abandoned housing are both vitally important.” They further assert that adding mixed-use, multi-functional neighborhood and town centers to developments and providing better job opportunities can better connect people to services and reduce the sense of isolation often found in new developments.

Finally, they observe that a lack of data coordination is a significant barrier to making positive changes in metropolitan areas. The authors note that Building Better Cities, a companion report also produced by the Rethinking Social Housing project, analyzes existing policy and political challenges to coordinate and promote densification strategies in key Mexican metropolitan regions. These challenges, they note, include data coordination, which is needed to develop and share success indicators that not only provide feedback on the process and interim achievements but also help key actors "recalibrate and improve actions."

Taken as a whole, the authors conclude that these policies and programs are not only useful for Mexico but are more broadly applicable in middle and higher income countries trying to meet housing demand while minimizing the negative effects of urban sprawl.

Housing development in Aguascalientes, one of the research case studies

The report was produced as part of a larger project "Rethinking Social Housing in Mexico" headed by Forsyth and Diane Davis, Charles Dyer Norton Professor of Regional Planning and Urbanism and Chair of GSD’s Department of Urban Planning and Design. The report and the larger project were funded by INFONAVIT (Instituto del Fondo Nacional de la Vivienda para los Trabajadores), a major Mexican government-sponsored funder of mortgages for private sector workers that was interested in how its polices could help create a more stable housing market and better towns and cities.

INFONAVIT’s efforts in Oaxaca, which was the one of the areas studied in depth as part of the Rethinking Social Housing project, will be the subject of a panel discussion on “Staying a Step Ahead: Institutional Flexibility in the Rehabilitation Of Social Housing In Oaxaca, Mexico,” that will be held in Gund Hall at the GSD at 6:30 pm on Wednesday, November 9.

When Boundaries Matter: Counties, Census Tracts, and Anti-Poverty Programs

by Sonali Mathur
Research Assistant

Recent discussions about potential federal anti-poverty programs underscore that seemingly mundane choices about geographic units could have important impacts on how available funds are distributed.

In a recent New York Times op-ed, Hillary Clinton asserted that if elected, she would develop an anti-poverty strategy modeled on the “10-20-30” approach put forward by Congressman James Clyburn (D-South Carolina), the number three Democrat in the House.

Initially proposed during the drafting of the American Reinvestment and Recovery Act, the 10-20-30 approach called for 10 percent of funds of federal programs subject to this plan be directed to persistent poverty counties where at least 20 percent of the population has been living in poverty for 30 years.

While this may have worked for the original intent of appropriately directing the rural development funds, the county based approach may not necessarily work across a wider range of programs and may not be the right approach to address extreme poverty.

While most discussion about the anti-poverty proposal has been focused on the money that would be made available, the geographic level used to allocate funds – be it counties, neighborhoods or something else – will significantly affect where the money would be spent and who would benefit from it.

Most notably, basing the selection criteria at the county level would tend to allocate money mostly to rural parts of the United States. Shown below is the map of persistent poverty counties (defined as any county that has had 20 percent or more of its population living in poverty in the 1990, 2000 and 2010 decennial censuses).

Source: JCHS tabulations of decennial census and American Community Survey 2006-2010 
Note: The exact list of eligible counties may vary based on the data source used. The choice of American Community Survey data (ACS) 2006-2010, ACS2007-2011 or Census bureau’s small area estimates results in the difference.

The county-based approach results in a majority of persistent-poverty areas being rural counties spread across 30 states; (85 percent of these counties are in non-metropolitan areas) and this approach excludes many areas of extreme poverty in inner cities of urbanized areas such as Los Angeles (Los Angeles County), Detroit (Wayne County), Chicago (Cook County), Dallas-Fort Worth (Dallas and Tarrant Counties), Newark (Essex County, New Jersey) and the District of Columbia.

In comparison, when applied at the census tract level, which is a much smaller geography than a county, the 20-30 rule yields a much broader array of urban, suburban, and rural communities of extreme poverty with a broader representation across states. At the census tract level, at least one persistent-poverty tract appears in each of the 50 states and in DC. In all, the tract-level application results in a total of 8,472 persistent-poverty tracts, which together are home to 30.7 million people (ACS 2010-2014). Only about 8.5 of these people are in persistent poverty counties. This implies that the county-level application of the 10-20-30 rule would exclude nearly 22.2 million people who live in persistent-poverty census tracts that are not in persistent-poverty counties.

Click image to launch interactive map. Please note: Maps may take a moment to fully render.

Yet another layer of complexity arises when you consider the many areas where at least 40 percent of the population is in poverty but have not had high poverty rates for the last three decades. These areas include 776 census tracts that are home to 2.8 million people, (ACS 2010-2014) that are not persistent-poverty tracts. Moreover, approximately 10.8 million people live in census tracts where at least 40 percent of the population is in poverty but the county is not considered a persistent-poverty area. Including these areas in anti-poverty efforts is important because numerous studies, including Harvard University’s Equality of Opportunity Project, have shown that concentration of poverty amplifies the adverse effects of poverty, as individuals deal not only with their own poverty but of those around them as well.

In short, the application of the 10-20-30 rule at the county level would exclude the vast majority of poor people who live in urban and suburban census tracts that are in persistent poverty. Additionally, focusing on persistent poverty tracts alone would exclude some areas that currently face concentrated poverty but may not fit the definition of persistent poverty.

It should be noted that Clinton’s op-ed used the term 'communities' instead of 'counties' perhaps signaling that her application of the rule might be at a smaller geography than counties. Although, there have been other reports where she has been quoted to show support for Clyburn’s original formula with the use of the term 'counties', and it also appears that the formula has made its way into several congressional proposals, which makes it imperative to discuss the geography of its application.