Another Approach to Affordable Housing
Joe Cortright writes on the subject of a "third way" to build affordable housing—in addition to the traditional approaches of supply-side economics and public investment in affordable housing through subsidies and inclusionary zoning.
While acknowledging the importance of both methods of adding and preserving affordable housing, Cortright is amplifying news of a third way that doesn't conform to either of those approaches while acknowledging their shortcomings.
[Washington, D.C. developer Rob] Stewart and his firm are working with the Federal City Council in Washington DC on a proposal they call the Washington Housing Initiative (WHI), which aims to create more affordable housing units, more quickly, in neighborhoods that are on the cusp of change. The essential idea is to use a combination of private investment and public funds to acquire existing housing, and maintain its availability for low and moderate income households. Buying existing housing units is dramatically less expensive that building new units, and can be done much more quickly.
WHI aims to have a lower cost of capital and lower operating cost that traditional affordable housing approaches. A key economy comes from taking a “fund” approach rather than a “project” approach to structuring financing. In most affordable housing projects, funding is arranged on a project-by-project basis, with each project consisting of a different set of actors, and funding sources, and with the added complexity of construction financing and site-specific risk. The WHI would be structured as a pooled fund, with financing not tied to individual projects, but spread across many projects. Because the fund is buying existing buildings, construction lending isn’t needed and other risk factors (approval or construction delays) are minimized. A fund, especially one led by private management, could be quick and nimble, and minimize overhead costs of acquiring properties.
There's a white paper that shares detail insights into the development as a potential model for projects in other locations.