By Bloomberg Associates’ Namon Freeman and Megan Sheekey
As we anticipate housing 70% of the world’s population in cities by 2050, an increase of roughly 2.5 billion more people, according to the UN, urban centers must attempt to keep pace with the complex housing needs that accompany this growth. In the U.S. alone, the nationwide shortage of affordable housing will require over $2 trillion each year, highlighting the need for creative solutions and partnerships among all sectors.
Fortunately, this is an innovative period in housing finance. A time when housing models, like the people that live within them, are constantly crossing boarders. Models that have proven to be successful in Europe are making their way to North America, and ideas from North America are filtering into Latin America.
During a breakout session at the eleventh Bloomberg CityLab, held last month in Mexico City, we spoke with four urban leaders who specialize in housing affordability. Their experience and insights spotlight cross-sector strategies and structures needed to tackle the affordable housing crisis across the globe.
EXPANDING THE PUBLIC HOUSING MODEL:
In Vienna, Austria, approximately 75% of the population qualify in terms of income for social housing (the limit for a family of four is over 100,000 euros net annually). In the U.S. cities, such as Montgomery County, MD, and Seattle, WA are taking a page from the Viennese model, and exploring creating social housing entities as a more sustainable alternative to historic nationally funded public housing. Expanding eligibility to higher-income households allows social-housing to price rents at-cost for some units reducing the need for demand side subsidies.
Maria Vassilakou served as Vienna’s Vice Mayor from 2010-2019 and advises cities on housing and urban planning:
“There has been a belief that the free market can regulate itself but to effectively address housing affordability, we need to intervene on the national, state, and local level. In Vienna, there is a tax on of 1% of the income that is collected by the national government and then redistributed to states. This is just one example of the kind of interventions and tools that can be enacted to make things happen.” Broad taxes at the national level fund revolving loan funds for social housing at the state/local level.
IMPACT FUNDS:
The creation of affordable housing has long depended on nonprofit entities to facilitate development. Many cities are creating dedicated entities outside of government to make it easier for the private sector to contribute to housing affordability. Los Angeles is currently leading California cities in its creativity to address housing access and the related homelessness crisis; raising private and philanthropic capital that can be more quickly deployed towards development, conversion, and preservation of affordable housing. LA, like other cities including Charlotte NC, Atlanta GA, and Cleveland OH, has worked with non-governmental entities to administer dedicated housing funds for which philanthropy and the private sector have pledged hundreds of millions of dollars.
Sarah Dusseault is the Chief Strategist at LA4LA, a public-private partnership for affordable housing solutions:
“LA Mayor Karen Bass immediately declared an emergency around housing and homelessness, and issued her first executive directive, which expedited the permitting of affordable housing to within 30 days. Bass also pledged to lock arms with state, federal governments and local county government in order to address this crisis. And it quickly became evident that part of ‘locking arms is also unlocking tools,’ in government, tools, philanthropy, and the private sector. So to offer more financial tools, we created a new fund, called LA4LA, and a zero-interest revolving loan fund. But beyond being a fund, it’s a connector to bring together every sector.”
UNLOCKING PRIVATE CAPITAL:
In states like Texas, California, and Florida tax incentives, old and anew, are helping to deploy private capital more efficiently for developing, converting, and preserving affordable and workforce housing. These incentives help private capital to see affordable housing as a viable investment. Vistria group recently closed on the acquisition and conversion of 700 market-rate units to affordable housing in San Mateo county, the largest in California’s history.
Margaret Anadu is Senior Partner at The Vistria Group, based in New York, a private investment firm that seeks to deliver financial returns as well as societal impact:
“A very exciting trend across the U.S. is that more cities and states are providing incentives to take existing market rate housing and convert it to affordable. Funds like ours can comprehensively address the challenge of preserving existing affordable housing, getting existing affordable housing in better condition, and then, adding to the supply. We’ve been able to acquire market rate housing and work municipalities to either convert 100% of it to affordable or do mixed income, and in exchange, negotiate for a property tax abatement. In some cases, we’re saving many years off the timeline and since these are market rate buildings, it can remove the stigma that often comes with affordable housing.”
REGIONAL POLICY:
While there are many universal challenges to housing residents in our expanding cities; limited availability and high cost of land, historic or aging buildings and infrastructure, high cost of capital. All play a defining role in housing strategies. Santiago, Chile built vast amounts of subsidized housing two decades after the end of the Pinochet regime (90s and early 2000s), however, most of it is on the outskirts of the metropolitan area. Santiago, the densely populated center of the metropolitan region, is challenged with decaying public housing and other buildings, which advocates argue should be rehabilitated or replaced with more modern housing. To meet the demand for urban housing the city is exploring concessions or request for proposals on publicly-owned properties to entice private investment.
Jaime Pujol Carabantes heads of the Housing Department, City of Santiago, Chile:
“The City of Santiago has 26 municipalities. A social rental subsidy for housing was created just 10 years ago, and we have many challenges implementing it. For example, Downtown Santiago contains our oldest buildings and cultural sites, and many of the historical buildings are in bad condition. While this area is well located for social housing, the cost of renovating them would be great. To address this, we have to enact active land policies, involving local government and the national government. In historical centers, we must prioritize buildings that are abandoned or not well used.”
ALL HANDS ON DECK:
All four leaders agreed on the need to break down silos and collaborate as well as immediately utilize every tool in our toolbox to address the housing affordability crisis.
Anadu added, “I don’t believe in perfect solutions. We need to do what we’re doing times 10x, and we need all the new ideas as well. Your deficit will only get a lot bigger if you don’t figure out affordable housing, so invest now.”