Historically, purchasing a home had been an important part of the way American families built wealth and defined success. In recent years, though, it has become more of a dream than a reality for too many Americans.
In the wake of the economic downturn, home sellers and financial institutions have become more cautious. That caution has led to higher financial demands—from down payments to closing costs—for prospective home buyers, which squeezes out lower-income families and in turn has created a swell in rentals.
“There is nowhere in this country where someone working a full-time minimum wage job could afford to rent a two-bedroom apartment,” noted the Washington Post in a recent article analyzing a study from the National Low Income Housing Coalition. This development is especially acute in places like Brownsville, one of the poorest cities in the country.
To help offset this trend, the private sector has been taking a more proactive role in change, partnering with governmental entities and public organizations like the HACB to deploy capital needed to help moderate-income families find housing, whether they’re renting or buying.
In Brownsville, Sampayo came face-to-face with the issue when he met families with good credit and the means to meet monthly mortgage payments, but who still couldn’t purchase a home because they didn’t have the necessary down payment or closing costs. These costs are often directly related to the supply of affordable housing—as affordable housing dwindles and the price of homes increases, so does the size of the down payment needed to buy them.
– Patricio Sampayo, chairman of HACB
To address this problem, the HACB partnered with a local nonprofit, the Community Development Corporation of Brownsville (CDCB). The two organizations tapped into innovative tax credits, increasing private investment by more than 20%, in order to make more new affordable homes available.
“The private sector is becoming more familiar with the programs we implement, and we're getting better at implementing them,” said Sampayo. “So the appetite in the private sector to participate in these projects has increased significantly, which allows us to build more and better affordable housing. It’s a virtuous cycle.
“The housing crisis is a very complex problem that requires very creative solutions,” Sampayo adds. “Organizations like ours have to be sophisticated in how we align public and private incentives. And we need sophisticated private-sector investors who are familiar with our programs and have the scale and capabilities to put their capital to good use.”
Across the country, efforts similar to Brownsville’s are taking place. Private lenders and community organizations are partnering with the Federal Housing Authority, as well as state and local governments, to help low-income families who can afford monthly mortgage payments, but don’t have cash for upfront costs.
Financial institutions are also taking a leading role in tackling the crisis. By easing down payment requirements, Bank of America’s Affordable Loan Solution® mortgage is helping borrowers with modest incomes—those who have good credit histories and can afford monthly payments—buy homes. And to help buyers navigate the dizzying array of down payment and closing cost assistance programs, the bank has developed a new online tool, the Down Payment Resource Center, which lets homebuyers identify available programs in their area.
The problem isn’t confined to the home buying-market. When families can’t buy homes, the demand for rentals increases and drives up prices. Unfortunately, wage increases haven’t kept pace, pricing low-income tenants out of the rental market.
In Brownsville, Sampayo recognized the need to ensure that renting was possible for low-income families. With the help of national and local banks, they used tax incentives to finance the purchase or construction of new, affordable rentals—in safe neighborhoods with good-quality schools—for families who made less than 60% of the median income.
“New construction on multi-family low-income housing is entirely dependent on these public-private partnerships,” said Sampayo. “Without them, we just couldn’t build new low-income housing. But thanks to these partnerships, the number of affordable units in Brownsville has increased by 100 to 150 units every year since 2010.”
In addition to building new rentals, private-public partnerships are addressing deteriorating conditions in public housing. Through the Department of Housing and Urban Development’s Rental Assistance Demonstration (RAD) program, housing agencies across the country are converting government-managed public housing developments into Section 8 housing, which is run by private landlords with support from government subsidies. As the units are released from government control, landlords can turn to private investors for renovation funds, shifting away from a dependence on dwindling public funding.
Sonia Calderon’s story illustrates the need for private-sector assistance. Until recently, Calderon—who has lived for 26 years in her downtown San Francisco apartment complex—had complained about rat infestations, dilapidated plumbing and a broken heating system. Her monthly rent was low, but in 2011, federal inspectors ranked her apartment complex as the worst public housing in the city.
Conditions are changing for Calderon and her fellow tenants. By bringing in private investors, the San Francisco Housing Authority was able to finance much-needed repairs to 3,500 public housing units, including Calderon’s, as part of the San Francisco RAD program. Bank of America Merrill Lynch acted as the largest private investor in the $2.2 billion project, taking advantage of the same tax credits that worked in Brownsville. The bank was also the project’s largest lender, providing roughly $1.06 billion in tax-exempt construction debt for affordable housing in that community.
Millions of Americans like Calderon have seen their public and subsidized housing similarly saved thanks to partnerships between cities, the federal government and private investors. Others have been enabled to rent or buy homes with help from public-private initiatives.
As homes get harder to buy, and affordable rents tougher to find, these public-private partnerships are forging new paths forward—not yet scaled to completely solve the crisis, but representing a promising start with immense personal impact.
“The housing crisis isn’t about bricks, it’s about families,” said Sampayo. “Kids can’t dream if they don’t have a safe place to sleep.”