A New Approach to Solving the US Housing Crisis

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Four ways nonprofits and social enterprises can use market-based solutions to help meet millennial demand for affordable housing.

That rents are sky high in many major US cities should come as no surprise. In San Francisco, the average cost of a two-bedroom apartment is a staggering $5,043 per month, and even with one of the nation’s highest average median incomes of $96,677, the astronomical rents make the city unaffordable for a lot of people. In Boston, the average cost of a two-bedroom apartment is less, at $2,821 per month, but despite residents having high average median incomes of $75,300, the city remains unaffordable for a large population, including recent college graduates who make up a substantial part of the city’s workforce.

Figures like these mean that millennials will spend $92,600 on rent—or approximately 45 percent of their accrued income—by the time they turn 30. What’s more, saving money becomes increasingly difficult when the cost of living is so high: More than 67 percent of people aged 25 to 34 report less than $1,000 in savings.

So it’s hardly surprising that a recent Freddie Mac study reveals that most millennials haven’t yet purchased a home. The percentage of people 35 and under who are homeowners dropped from 42 percent a decade ago to just one third today. Millennials face many barriers to savings and home ownership—including underemployment, large student debt, and slow wage growth—but in order to achieve financial success, a safe and reasonably affordable place to live is a first step.

A Boston resident her whole life, this young artist now attends college in Boston while living at home. But when her degree is completed, it’s unlikely she’ll be able to afford to live on her own in the city where she’ll have the best chances of pursuing her chosen career. (Photo by New Sky Productions)

There are around 83 million millennials, and in 2019 they will overtake baby boomers to become the country’s largest generation. Where will they live when they are ready to purchase their first homes, and how will they afford it?

Here’s a look at four ways the social sector is using market-based solutions to meet demand:

1. A collaborative approach. Housing Partnership Network (HPN) is a business collaborative of 100 of the nation’s affordable housing and community development nonprofits. Since its inception, HPN and its entrepreneurial nonprofit member organizations have been developing a new way of creating social change, combining mission with market-based solutions to create housing solutions suited to addressing the challenges millennials face.

When people hear “affordable housing,” they often think of government-funded, low-income housing. But the picture is much broader; individuals with steady jobs and salaries too high to qualify for housing assistance are also being priced out of opportunity areas across the United States. Given the scope of the problem, we need organizations to join together to address the cost of living in cities across America where recent graduates and young families are looking to live and work. We also need to take action to create more affordable housing and preserve existing naturally occurring affordable housing before the market drives up prices and pushes these properties out of reach for middle-income buyers as well.

2. New impact investing vehicles. This month, HPN convened in San Francisco as a lead-up to the launch of our latest venture, the Build Opportunity Fund. This new impact investing vehicle is designed to provide organizational-level, as opposed to project-based, capital to our members, allowing them to deploy solutions at scale. It stands to have exponential impact, freeing up the organization to think innovatively and act more nimbly. As a blended capital vehicle, the Build Opportunity Fund seeks to provide capital at the enterprise level so that high-performing nonprofit developers can significantly increase their capacity to develop long-term affordable housing and other community assets. The fund intends to enhance the system of funding for affordable housing by demonstrating the creditworthiness and investment potential of nonprofit developers. One would never expect blue-chip companies in the tech industry to be financed one product at a time, and HPN members are the blue-chip companies of the nonprofit affordable housing industry. If we can finance nonprofit developers like tech, with the expectation of innovation, we can unlock transformational impact.

3. Support for organizations that create affordable housing. Another opportunity is to offer greater support for organizations like MidPen Housing, one of the nation’s leading nonprofit developers, and the owners and managers of high-quality affordable housing. MidPen has developed or rehabbed more than 8,000 affordable homes in San Francisco, with an additional 2,572 affordable homes currently in construction, entitlement, or pre-development. MidPen manages 103 properties with a total of 7,207 units, providing homes for more than 16,600 northern California residents. It also invests $6.3 million annually in resident services and partners with nearly 200 service providers.

4. Social enterprises that preserve naturally occurring affordable housing. Five years ago, HPN launched Housing Partnership Equity Trust (HPET), the first-ever nonprofit-owned real estate investment trust (REIT). Fourteen of HPN’s members were able to develop this social-purpose REIT with an investment of $100 million from Citibank, Morgan Stanley, Prudential Financial Inc., the John D. and Catherine T. MacArthur Foundation, and the Ford Foundation. Today, HPET can quickly acquire multifamily properties that provide quality homes for families, seniors, and others with modest incomes throughout the United States. As HPET reaches its fifth anniversary with a portfolio of more than 2,900 units, it is not only preserving affordable housing, but also demonstrating to investors that it can have a long-term impact on communities and address social challenges while getting good risk-adjusted returns.

Scaling the solution

This May alone, nearly three million students are graduating from college and entering the workforce, and in turn seeking housing. The problem is both immediate and longer-term. If millennials struggle to buy properties and choose to rent instead, where does that put the next generation of young people looking to move out of their college dorms or parents’ homes?

The good news is that we’re seeing organizations across the United States implement new solutions—building and rehabbing single-family homes with affordable mortgage products and successfully competing in the housing market with commercial developers for naturally occurring affordable housing properties. Efforts like these stand to have a huge impact on the housing market and, in turn, the financial stability of generations to come.

Rebecca Regan has been at Housing Partnership Network (@HPN_Network) since April 2011, developing and managing the network's capital market relationships and overseeing its philanthropic equity, CDFI, and external communications work. Regan previously served as president of Boston Community Loan Fund, and prior to that held executive, real estate lending, and management positions with Bank of America, Fleet Bank, Bank of Boston, and BayBank.