Collaborations by Design: CDFIs, Capital Absorption, and the Creation of Community Investment Systems

by Erin Shackelford
Initiative for
Responsible Investment
HKS

Rebuilding disinvested communities takes more than money. Rather, as research done by the Initiative for Responsible Investment (IRI) at the Harvard Kennedy School has shown, places that have been starved of resources for extended periods of time often lack the policies, practices, or relationships they need to effectively leverage existing or new resources.

IRI's capital absorption framework not only recognizes that there is a complex system that governs how resources flow into communities, it also provides a way to think beyond individual transactions to identify changes at a system level so that investment is used more effectively to achieve community goals. Potential system-level interventions can include bringing new partners to the table, identifying new resources that can be provided by existing partners, creating different ways of doing business, and changing the policies and relationships that determine the allocation of money and other resources.

Many of these approaches are central to strategies used in collaborative initiatives carried out by Community Development Financial Institutions (CDFIs) that have been funded by JPMorgan Chase & Co.'s PRO Neighborhoods program. The growing collaboration among CDFIs—which can be banks, credit unions, or other financial institutions that have a primary mission to provide access to financial services in low-income communities—have included the development of joint products and services, efforts to share risk and expertise, jointly developed new technologies, and the development of larger scale projects which could attract additional investors.

A new case study, which uses this "capital absorption" framework to examine many of the collaborative efforts funded by the PRO Neighborhoods initiative, finds that the funding spurred three types of collaborations that together increased the CDFIs' ability to respond more effectively to key needs and concerns. In particular, the grants helped:

1. Spur internal institutional change within CDFIs: Within institutions, flexible support to enter into new areas of lending, as provided by the PRO Neighborhoods grants, is tied to the ability to devote resources to strategic development and organizational learning. These are scarce resources for CDFIs, which, by necessity, tend to have a transactional focus. These resources can prove crucial for CDFIs seeking to expand their geographic and/or sectoral range, and those hoping to deepen engagement with the communities they serve.
   
2. Foster collaboration among CDFIs: PRO Neighborhoods awards enabled CDFIs to share best practices, support collaborators with challenges, and closely observe (and learn from) each other's practices. The structured collaborations and regular exchanges that came with project execution shed light on new practices and built relationships that are likely to endure well beyond the grant cycle. These connections are critically important because finding the time and space to learn from peer institutions is a crucial aspect of organizational development.
   
3. Expand CDFIs' connections with broader "Community Investment Systems": The benefits of collaboration came not just from the interchange among and between CDFIs, but also through the CDFIs' engagement with the larger "community investment systems" in the neighborhoods served by the various CDFIs. This occurred because the focus on innovation and collaboration led CDFI practitioners to engage with a variety of key actors in the broader ecosystem, including leaders of community advocacy groups, elected and appointed officials, representatives of local trade associations, and representatives of firms that provide collateral and financial services.

These conclusions suggest two key lessons for funders who want to effectively structure grant programs aimed at encouraging collaboration. These are:

1. Collaboration takes a big incentive. Creating the time and space to establish an ongoing collaboration is challenging for organizations where time, staffing, and funding are constrained. The significant funding provided by the PRO Neighborhoods program offered a critical incentive for CDFIs to establish ongoing collaborations.
   
2. Collaboration can take many forms, shaped by different systemic challenges. From a nationwide, spoke-and-wheel collaboration focused on addressing food deserts, to the collaboration of place-based actors to support the specific needs of their community, PRO Neighborhoods collaboratives are unique and varied in scope, shape, and sector. The funder's flexibility gave leaders of the CDFI collaboratives the time and space they needed to understand, identify, and address the different systemic challenges that existed in their unique sectors and places.

The capital absorption framework points to the importance of considering not just the transactions in question, but the broader system of community investment in which CDFIs operate. Funders and other actors in the community investment system can benefit from the observation and lessons that emerge as CDFIs collaboratively develop innovative practices to help revitalized disinvested communities.

CDFI Collaboration Enables New Lending to Nonprofit Community Organizations in Minneapolis and Cincinnati

by Alexander von Hoffman
Senior Research Fellow

In the United States, nonprofit organizations provide a wide range of vital services to low-income people, but are often hampered by their inability to buy or upgrade the buildings where they operate. Because of the unconventional or irregular nature of many nonprofits' finances, banks are usually reluctant to give them traditional mortgage loans. Moreover, other pillars of support for non profits - public-sector funders, philanthropic foundations, and individual donors - generally prefer to underwrite programs, not facilities.

All of which makes the Midwest Nonprofit Lenders Alliance (MNLA), the subject of a Joint Center case study, noteworthy. This consortium of three community development financial institutions (CDFIs) came together specifically to provide facility loans to nonprofit organizations serving low-income residents of the Minneapolis-St. Paul, Cincinnati, and Dayton metropolitan areas. Catalyzed by a $3 million award from the JPMorgan Chase & Co. Partnerships for Raising Opportunities in Neighborhoods (PRO Neighborhoods) program, MNLA builds on the unique strengths of its three members: IFF (originally named the Illinois Facilities Fund), which acts as lender, real estate consultant, and developer throughout the Midwest; the Nonprofits Assistance Fund (NAF), which provides loans, financial training, and management advice to its nonprofit clients; and the Cincinnati Development Fund (CDF), which has specialized in loans to develop housing and rehabilitate commercial buildings in low-income neighborhoods in Cincinnati and nearby Kentucky. By sharing capital, underwriting expertise, and knowledge of local markets, the three entities have provided more than $13 million to 14 nonprofit entities looking to purchase or upgrade their facilities.

Community Matters, a Cincinnati nonprofit, opened the Wishing Well Laundromat in Cincinnati's Lower Price Hill Neighborhood using a loan from MNLA partner Cincinnati Development Fund.

Four important lessons emerge from this work:

1. Know your markets. This means not only identifying and reaching potential borrowers, but also learning about the competition for those borrowers. According to Kate Barr, chief executive officer of NAF, MNLA's leaders initially thought they could target nonprofits that fell just short of traditional banks' credit standards. But in the first year of the partnership, they discovered "that strata doesn't exist." Instead, the partners found clients who needed funding for unique (but financially viable) transactions that traditional banks would not finance, like converting an abandoned grocery store into a community space. Armed with this knowledge, MNLA aimed an intensive outreach campaign at community organizations and professional networks and created a viable market niche.
   
2. Some worthy nonprofits require non-standard loans. Underwriting these types of loans requires a deep knowledge of the prospective borrowers' finances, operations, and goals, which allows lenders to match the needs and financial resources of their customers. Making a loan to Cincinnati's Bi-Okoto Drum and Dance Theater, recalls CDF president and CEO Jeanne Golliher, "took a lot of sitting down, rolling up sleeves, and getting comfortable with the realities behind their financial statements." Although such personalized loans are time consuming, they provide needed credit to agencies that otherwise might now have been able to receive it.
   
3. CDFIs may find fruitful collaborations with unexpected partners. Different areas of expertise may offer the possibility of complementary business lines. Although CDF's small staff regularly approved loans for affordable housing projects built by nonprofit entities, the expertise and familiarity needed to make facility loans was, Golliher observes, "beyond our capacity." Within the MNLA umbrella, however, the lead organization, IFF, not only provided training in underwriting such loans, but also the capital to fund them.
   
4. Partner organizations should seek common understanding of key terms, concepts, and practices. Lending practices are complex, and lending practitioners use shorthand to refer to different aspects of their work. So it is that key officials in organizations, even in CDFIs with similar missions, often use different language, approaches, and practices when crafting loan packages. Therefore, groups working together need to make sure that they agree on the meaning of the many terms and actions involved in the lending process. Particularly in the early stages of a collaborative venture like MNLA, explains Joe Neri, CEO of IFF, "you really cannot overdo" the time and attention paid to defining terms and practices.

Cincinnati Event Focuses on Lessons from the PRO Neighborhoods Initiative

by Matthew Arck
Associate Analyst

The challenges—and the unexpected benefits—of collaboration among community development financial institutions (CDFIs) were the subject of a recent gathering in Cincinnati that focused on the experiences of CDFIs that have received funding from the Partnerships for Raising Opportunities in Neighborhoods (PRO Neighborhoods) program, a five-year, $125 million competitive initiative funded by JPMorgan Chase.

Kicking off the event, Karen Keogh, Head of Global Philanthropy at JPMorgan Chase, welcomed civic and non-profit leaders, along with the directors of the award-winning CDFIs to a renovated union hall in Cincinnati’s Over-the-Rhine neighborhood, commenting that the neighborhood, which many of the attendees had a personal hand in revitalizing, was “like Brooklyn, but cooler.” In her remarks, Keogh described JPMorgan Chase’s philanthropic efforts, focused on workforce readiness, small business growth, consumer financial health, and supporting communities and neighborhoods. Part of this last area of focus, the PRO Neighborhoods initiative encourages CDFIs to take on specific community development challenges.

At the event, Alexander von Hoffman, a Joint Center Senior Research Fellow who is examining the initiative’s methods and achievements, and Colleen Briggs, Executive Director of Community Innovation at JPMorgan Chase, discussed findings of the Joint Center’s research on the work of the PRO Neighborhoods recipients. Dr. von Hoffman noted that, according to a Progress Report released last fall, the entities funded by the first seven PRO Neighborhood awards have made $240 million in loans and leveraged another $350 million in additional funding. This funding has helped create 2,400 jobs and produced or preserved 1,600 units of affordable housing. 

These efforts, von Hoffman said, spanned a wide array of programs, partnerships, and places. They ranged from groups like ROC USA, which took its model of helping the residents of manufactured houses purchase their mobile-home parks into new states, to collaborations between diverse programs in specific areas, such as PRO Oakland, which makes loans to small businesses, nonprofit groups, and low-income housing developers along International Boulevard and in downtown Oakland, California. Carrying out complex collaborations in diverse locales, von Hoffman explained, has taught the PRO Neighborhoods group leaders that to succeed they must be flexible, sensitive to markets, and communicate regularly with their partners.

L-R: Charlie Corrigan (Vice President, JPMorgan Chase) moderates as Joe Neri (CEO, IFF) and Jeanne Golliher (CEO, Cincinnati Development Fund) discuss lessons from their CDFI collaboration, the Midwest Nonprofit Lenders Alliance. 

Successful partnerships require strong relationships, added Jeanne Golliher and Joe Neri, the CEOs of Cincinnati Development Fund (CDF) and IFF, two CDFIs that were part of the Midwest Nonprofit Lenders Alliance (MNLA), one of seven entities funded in 2014 via a pilot program that became the PRO Neighborhoods initiative. They explained that MNLA, which is the subject of a recent Joint Center case study, brought together CDF’s local knowledge and IFF’s underwriting expertise to provide long-term facility loans to nonprofits in the Cincinnati and Dayton, Ohio, metro areas. (These included several projects in the Over-the-Rhine neighborhood.) Recounting the “courtship” that led to the CDF and IFF collaboration, Neri and Golliher described how clear communication and commitment to shared values and social goals turned “love at first sight” into a strong and fruitful “marriage.” Neri, for example, noted that Golliher’s passion for the people of Cincinnati ultimately led IFF to provide funding for a homeless shelter that was outside their organizations’ planned collaboration.

In formal and informal discussions at the event, leaders of other entities that have been funded by the PRO Neighborhoods program echoed Golliher and Neri’s remarks. Several participants noted that getting on the same page and hashing out details at the beginning of a collaboration can easily take a full year. This means that potential partners must be patient and probably should build “ramp-up” time into their plans. Extending the relationship metaphor that Neri and Golliher had used, several people also cautioned against “shotgun marriages” between CDFIs who come together only to secure funding from grants. While such partnerships may initially seem like a good idea, poorly thought out collaborations often end in heartbreak, they warned. On the other hand, some participants noted, well-thought out collaborations often go beyond their original scope and foster a sense of commonality and common purpose that led to better engagement with local officials and civic leaders. 

What Can We Learn from Attempts to Reduce the Cost of Affordable Housing?

by Sam LaTronica
Gramlich Fellow

Midwestern CDCs trying to build affordable homes that do not require development subsidies have identified three potentially promising strategies: building smaller homes, utilizing factory-built homes, and creatively designing houses to get more out of them. In a new working paper that grows out my work as an Edward M. Gramlich Fellow in Community and Economic Development I conclude that while each technique presents opportunities for cost savings, each also comes with its own set of challenges.

The fellowship, which is co-sponsored by the Joint Center for Housing Studies and NeighborWorks^® America, also expanded my horizons because for years, my conception of new “affordable housing” had been limited to the standard multifamily properties developed in larger urban areas. This was the type of affordable housing I had seen since moving to the Boston area, as well as working for an affordable advocacy organization in the San Francisco Bay Area prior to attending the Harvard Graduate School of Design.

As a Gramlich Fellow in the summer of 2015, I was exposed to a new region and new approach to affordable housing. The Midwestern CDCs, which were part of NeighborWorks^® America’s national network, often had in-house general contractors and focused on building and selling affordable single-family homes, in both urban and rural areas. Given the dearth of housing subsidies, particularly subsidies for affordable housing in rural areas, these CDCs were trying to find cost-saving construction techniques that would allow them to build affordable housing without development subsidies.

The Rambler, a single-family home constructed by the Southwest Minnesota Housing Partnership. The home is 1,092 square feet on the main floor with another 1,092 square feet of unfinished basement space that can be converted into living space or more bedrooms at a later date. This home was constructed in 2014 with an asking price of $153,900.

Through reading popular literature on home construction, analyzing building trends, conducting interviews with CDC leaders, and visiting new developments in the Midwest, it became clear that CDCs were interested in pursuing three potential cost saving techniques: building smaller homes, using factory-built homes, and creatively designing houses to get more out of them.

Smaller homes are theoretically cheaper to build because they simply require fewer materials and less construction time. Once occupied, these houses not only can be cheaper to heat or cool but also will cost less to maintain. Smaller footprints also make it possible to build these homes on smaller or irregularly shaped lots, which helps expand the options for CDCs.

However, cost savings are not always realized when buildings are smaller. Once land and other development costs are factored in, it is possible that building smaller homes will be only slightly cheaper than building larger homes on the same lot. Moreover, the marginal cost of constructing a few hundred more square feet might allow the CDC to sell the house for more money while still keeping it affordable. Some CDC leaders also worry that producing affordable homes that are much smaller than new market-rate homes would create obvious distinctions between income levels and stigmatize the people living in the new, smaller homes. Finally, while building smaller can be smart for a number of reasons, most people still want bigger homes as evidenced by the fact that average house sizes have been increasing and have recently surpassed pre-recession levels. This suggests that without a shift in the overall market, smaller homes may not be a particularly appealing option for CDCs trying to build affordable housing.

While factory-built construction techniques are not necessarily new, they are new to many CDCs. Many Midwestern CDCs are currently experimenting with (or exploring the possibility of using) both modular homes and homes made from structural insulated panels (SIPs). Factory-built homes have the benefit of being produced mostly indoors and using assembly line techniques, which can significantly reduce onsite construction time and protect against weather delays, theft, vandalism, etc. Moreover, homes built in factory-controlled settings can be tighter and more energy efficient and make more efficient usage of building materials (which should reduce their cost).

Like building smaller, however, the cost savings that are touted in popular literature are harder to realize in practice. If CDCs, architects, contractors, and subcontractors do not have enough experience working with factory-built housing, then the development process can hit major roadblocks that negate the hypothetical cost savings that would result from a shorter construction period and lower production costs. In fact, some CDCs that experimented with these techniques ended up with homes that cost far more than they would have cost using traditional stick-built techniques.

Finally, creatively designing houses can supplement the previous construction types to get the most out of new homes. This can come in many forms. Designing attached accessory dwelling units will add more units to the housing stock and can supplement the primary tenant’s income.  Co-housing development can utilize scale and reduce the per-owner development costs. Open floor plans can make smaller homes more palatable and unfinished buildouts can reduce costs while allowing families to later customize their home to meet their particular needs.

In the end, there is no silver bullet that can be used to build affordable single-family homes without a development subsidy. However, there are many techniques that, when combined, could produce significant cost savings. CDC leaders interested in pursuing these approaches should remember that the benefits of these techniques, as described in popular literature, do not always materialize in practice. Therefore, CDC leaders should learn from others who have already experimented with them. They should also establish strong relationships with architects and contractors who have experience with these techniques, so that they reduce the likelihood of delays that would drive up costs. Hopefully, by persevering and learning from others, the CDCs can increase the production of affordable homes.

Sam LaTronica, who graduated from the Harvard Graduate School of Design in 2016, was a 2015 recipient of the TheEdward M. Gramlich Fellowship in Community and Economic Development, which is co-sponsored by NeighborWorks®America and the Joint Center for Housing Studies.

CDFI Cluster Demonstration Project

Alexander Von Hoffman
Senior Research Fellow

In December 2013 the JPMorgan Chase Global Philanthropy Foundation issued a call for proposals for groups of Community Development Financial Institutions (CDFIs) to coordinate financial programs to alleviate problems facing low- and moderate-income communities, small businesses, and individuals. In January 2014 the foundation announced awards, totaling $33 million over a three-year period, to seven CDFI collaboratives. At the request of JPMorgan Chase Global Philanthropy, Alexander von Hoffman profiled the characteristics, objectives, methods, and achievements of each of the CDFI collaboratives in the first phases of their work. 

Purpose and Problems of CDFIs

In working- and lower-class neighborhoods in the United States, stability, let alone opportunity, is hard to come by. It can be difficult to get a loan on fair terms to buy a house or expand a business, particularly where African Americans, Hispanic Americans, and immigrants live. In such areas, there is often no transportation to school, jobs, and shops. In some places a store with the necessity of life – food – is nowhere to be found.

Yet conventional banks are often reluctant to make loans for such specialized and sometimes risky purposes. Fortunately, in recent years, federally funded nonprofit lending organizations – known officially as community development financial institutions or CDFIs – have moved in to fill the gap in credit for these needs.

CDFIs are engaged in a demanding business. Their customers may be inexperienced in formal banking or have challenging circumstances – such as a recent home foreclosure, the launch of a new and untested business venture, or even the lack of legal citizenship status.

To provide credit in such situations requires that CDFI officers learn about their clients’ situation and craft appropriate solutions. They might have to customize a loan product or provide personal technical assistance. In more extreme cases, CDFI officers may have to seek out and educate people about the benefits of proper credit.

Given the nature of CDFIs’ business, many of them find it difficult to provide credit on a scale large enough to make a visible impact on low-income communities. Low balance-sheets, lack of operating capital, and insufficient revenue streams can prevent CDFIs from increasing lending activities or expanding their service areas geographically.

Successful CDFIs have found that one of the best ways to overcome these obstacles is to collaborate with other CDFIs.

The First Round of PRO Neighborhoods Awards

To jumpstart collaborations among CDFIs, in January 2014 JP Morgan Chase Global Philanthropy Foundation awarded seven CDFI collaborative clusters, including twenty-seven CDFIs doing widely different work in diverse locales. In the first phase of the foundation’s PRO Neighborhoods program (Partnerships for Raising Opportunity in Neighborhoods) these grants totaled $33 million over a three-year period.

Although the grant period has more than a year to run, our initial evaluation shows the awards have had a striking effect both on the ground and on the CDFIs themselves.

The award capital and its leveraged investment have helped CDFIs strengthen their balance sheets immensely. The seven collaborative clusters have so far raised more than $226 million, or almost seven times the original amount, to carry out their community development programs.

CDFI members of the clusters have ramped up scale of production and expanded their reach across new geographies and types of customers. They have also devised new methods of communication and lending practices suited to the oft-neglected needs of low-income clients.

The CDFI clusters have undertaken a remarkably wide variety of endeavors, including lending to small businesses that are minority-owned or in low-income neighborhoods, helping mobile-home owners purchase and manage their communities, increasing the provision of fresh healthy food, aiding and financing the minority and immigrant owners of low-rent apartment buildings in Chicago, and generating equitable transit-oriented development in the poor and working-class Latino neighborhoods of Phoenix.

The process of collaborating itself helped boost the participating CDFIs. By meeting, discussing, and coordinating with one another, leaders and staff members learned about obstacles in the field, ways to mesh business cultures, and best practices to achieve their desired results.

Having made a great impact on low-income communities and numerous CDFIs that serve such communities, the first round of the PRO Neighborhoods awards has demonstrated that funding CDFI collaborations can be an effective way to support a wide array of underserved populations. Furthermore, the awards is project has helped to lay the foundations for the growth of these CDFIs that will allow them to expand their programs into the future.

With More than 2 Million Units at Risk, How Can the U.S. Preserve its Affordable Rental Housing Stock?

by Irene Lew
Research Assistant

As our most recent State of the Nation’s Housing report confirms, the renter affordability crisis shows no signs of abating, with more than one in four renters spending over 50 percent of their income on housing in 2012. With the Great Recession pushing up the number of very low-income households that qualified for rental assistance by 3.3 million between 2007 and 2011 (a 21 percent increase), the number of available subsidized rental units has not kept pace—the share of eligible households able to secure aid dropped from 27 percent to 24 percent over this period.

Given the growing demand for subsidized rental housing, preserving the existing stock of affordable housing has become critical. In our report, we analyzed data from the National Housing Preservation Database to determine what types of federally subsidized units with assistance tied to them are particularly vulnerable to loss over the next decade, due to expiring contract or affordable-use restrictions. (The other two primary forms of assisted housing are public housing developments and units rented in the private market using Housing Choice Vouchers.)

Using the database, we determined that contracts or affordable-use restrictions for more than 2 million federally assisted rental units will expire between 2014 and 2024. This amounts to 43 percent of federally subsidized units. Rental units subsidized through two programs—the Low-Income Housing Tax Credit (LIHTC) program and HUD-funded project-based rental assistance—represent 85 percent of housing with expiring contracts or affordability restrictions (see Figure 33). Project-based rental assistance includes Project-based Section 8, as well as Project Rental Assistance Contracts (PRACs) that provide rental assistance to low-income older adults and those with disabilities. 

Over half (57 percent) of the units with expiring restrictions in the coming decade are subsidized through the LIHTC program, while those with project-based rental assistance account for 28 percent. Units in properties supported by HOME funding and those subsidized with USDA Section 515 Rural Rental Housing Loans represent 9 percent, while another four percent are in properties with FHA mortgage insurance, and the remaining 3 percent are subsidized through older HUD programs.

Units in properties subsidized with project-based rental assistance are vulnerable to being removed from the affordable stock because these programs are subject to annual Congressional appropriations, which have continued to decline. The Senate Appropriations Committee’s recent approval of the Fiscal Year 2015 Transportation-HUD Appropriations Bill included a $200 million reduction in project-based rental assistance from the Fiscal Year 2014 enacted level. These budget cutbacks come on the heels of sequestration, which reduced the amount of available funding for project-based rental assistance contracts and forced HUD to short-fund thousands of contracts in 2013 to prevent them from expiring. Short-funding refers to the practice of partially funding renewals in the form of yearly contracts, thereby deferring ongoing costs to future fiscal year budgets in order achieve cost savings today. However, this practice creates uncertainty for owners by adding more complexity to ongoing property financing and operations.

With short-funding becoming so common for the project-based assistance program, over half of the 596,000 units with contracts expiring over the next decade will come up for renewal in 2014 and 2015 alone.  As federal funding becomes more uncertain and HUD struggles to fund existing project-based contracts, fewer owners who are eligible for contract renewals may decide that it is feasible to continue to rent to low-income households, increasing the likelihood that these properties may leave the affordable rental housing stock. And should budget shortfalls continue, HUD may have no choice but to allow some project-based rental assistance contracts to expire even if the owners want to remain in the program.

Meanwhile, units in properties subsidized through the LIHTC program are less vulnerable to removal from the affordable stock, although they represent the lion’s share of units with affordability periods expiring over the next decade. Between 2014 and 2024, approximately 1.2 million LIHTC units will reach the end of their 15- or 30-year mandatory affordability period and are eligible to leave the program. Owners of these properties have three options: apply for another round of tax credits, maintain the property as affordable housing without new subsidies, or convert the property to market-rate housing. For the most part, according to a 2012 HUD report, LIHTC properties that reached the end of their required 15-year affordability period continue to operate as affordable housing without new subsidies. These properties remain affordable without new subsidies for several reasons: they obtain a nonprofit sponsor with a long-term commitment to continuing affordability, they have project-based subsidies such as Section 8 that the owner does not want to give up, and/or the LIHTC rents vary little from market rents. Properties at higher risk for conversion to market-rate housing tend to be owned by for-profit owners in high-cost markets.  While the LIHTC program is not subject to annual appropriations, it could be endangered by comprehensive tax reform that would take a close look at these types of tax expenditures. But given the importance of the LIHTC program in both new production and preservation of affordable rental housing, it does have broad political support.

Given the gap between the demand for rental assistance and the number of assisted units available, there is a clear need for greater efforts to both preserve and expand affordable rental housing developments. Preservation initiatives such as HUD’s Rental Assistance Demonstration (RAD) help ensure that approximately 16,100 rental units in privately-owned properties subsidized through older project-based assistance programs (Rent Supplement and Rental Assistance Payment) remain affordable even after their nonrenewable contracts expire. Yet, RAD only addresses a small part of the growing need for preserving such housing.

Meanwhile, promising large-scale initiatives such as the National Housing Trust Fund have stalled due to lack of funding. Signed into law in 2008 as part of the Housing and Economic Recovery Act, the fund is a permanent program not subject to annual appropriations and has the potential to preserve a substantial share of federally assisted rental housing while also adding new affordable units. The fund was also the first new production program targeted to households with extremely low incomes since the creation of the Section 8 program in 1974. Unfortunately, the program remains unfunded to this day. Initially, it was to be financed with contributions from the GSEs, but these contributions were suspended indefinitely once Fannie Mae and Freddie Mac were taken over by FHFA in 2008. Most proposals for GSE reform, including the Johnson-Crapo bill making its way through the Senate, include some provision to fund affordable housing, but it remains unclear when Congressional action will occur, and what form, if any, the final legislation will provide for affordable rental housing.    

Nonprofits Play Key Role in Repairing U.S. Homes

by Abbe Will
Research Analyst

Private sector spending on improvements and repairs to U.S. homes is approximately $300 billion a year. Yet as a new Joint Center working paper shows, each year nonprofit organizations and public agencies are also investing resources into the rehabilitation and repair of the homes of America’s most vulnerable households—including the elderly, disabled, and those with low-incomes—who might not otherwise be physically or financially able to undertake critical home remodeling and repair projects themselves. Major nonprofits such as Rebuilding Together, Habitat for Humanity, Enterprise Community Partners, the Local Initiatives Support Corporation, and NeighborWorks America, as well as thousands of local community development organizations across the country, are filling a significant and growing need, largely unmet by the private sector, by investing considerable resources—financial, technical, and direct provision of services—to make homes safer, healthier, more energy efficient, and more accessible for disadvantaged households.

The recent foreclosure crisis and sluggish economy undermined years of efforts to stabilize and improve distressed neighborhoods in cities across the country, only adding to the need for nonprofit and public sector involvement. Until this past cycle, housing inadequacy—a measure of the physical condition of housing units—had been on the decline in the United States, largely due to the success of govern­ment housing policies and the growing affluence of the pop­ulation. Since the housing market bust, however, this trend has reversed with the number of moderately or severely inadequate homes increasing by 7% between 2007 and 2011 to 2.4 million units. Certainly the severe housing and economic downturn had a measurable impact on the quality of the nation’s housing.

While a comprehensive data source of home rehabilitation and repair activity by nonprofits and public agencies does not exist, this new Joint Center working paper provides some insight into the topic. Rebuilding Together, one of the nonprofits in the study, provides critical home rehabilitation and modification services to low-income homeowners through its extensive network of local affiliates. A member of the Joint Center’s Remodeling Futures Steering Committee, the organization provided support for an affiliate and homeowner survey that collected data on the various types of projects undertaken by their affiliates, as well as demographic and socioeconomic information about the homeowners served and their experience partnering with Rebuilding Together.

Recent spending on home repairs and replacements, as reported by participating households, suggests that many of the homes worked on by Rebuilding Together have seen significant under-investment over the years. While the average American homeowner spent $3,000 on home improvements and repairs in 2011, according to Joint Center analysis of the American Housing Survey, almost two-thirds of Rebuilding Together program participants reported having spent less than $500 on average in the past year—fully 80% less than the typical homeowner in the U.S. Indeed, according to estimates developed by Rebuilding Together affiliates and the Joint Center’s Remodeling Futures Program, the homes serviced by Rebuilding Together were so in need after years of deferred maintenance, that the average value of the rehabilitation and repair projects undertaken by Rebuilding Together was in excess of $6,000 per home, or twice the annual amount spent by the typical homeowner in the U.S.

Home improvement expenditures under the Rebuilding Together program in 2011 were heavily oriented toward exterior replacements and kitchen and bath improvements—projects that would produce the greatest gains in key program objectives such as health and safety concerns, accessibility, and savings in energy use. Typical projects included additions or replacements of steps, ramps, railings, grab bars, windows and doors, roofing, insulation, energy-saving appliances, as well as painting and plumbing and electrical repairs. In the end, Rebuilding Together participants reported significant improvements in health and safety concerns, improvements in accessibility, and energy use savings as a result of nonprofit involvement.

Source: 2011 Harvard JCHS-Rebuilding Together Household Survey

While a more precise estimate is unavailable, hundreds of millions of dollars are spent each year by nonprofits such as Rebuilding Together, community organizations, and public agencies. Their contributions not only improve conditions for residents, they also help preserve badly-needed affordable housing opportunities, stabilize and revitalize deteriorating neighborhoods—of special importance in recent years—and encourage neighborhood stability by helping long-term residents of the community to remain safely in their homes.