New Way to Affordable Housing
WITH the cutback in federal funds for community development, and escalating state budget deficits, urban neighborhoods face the grim reality that they must rely on their own limited resources for revitalization. Since 1980, urban decay and the declining quality and quantity of affordable shelter has grown, according to the Joint Center for Housing Studies at the Massachusetts Institute of Technology. In that same period, Community Development Block Grant funds shrank by over 30 percent (adjusted for inflation) and the budget for the Department of Housing and Urban Development dropped from $36 billion in 1980 to $15.3 billion in 1990. Bud Kanitz, executive director of the National Neighborhood Coalition, believes that employee housing benefits targeted to older urban neighborhoods could provide an important new resource for community revitalization and investment. According to Mr. Kanitz, ``City halls and government planning agencies should encourage local employers to provide benefits to low- and moderate-income workers so that they can become first-time home buyers in neighborhoods that have not seen new investment in many years. By building partnerships with community-based nonprofit housing developers, employers could reinvigorate the previously stagnant neighborhoods.''
Some cities have established housing partnerships, linkage fees for affordable housing, zoning-density bonuses to stimulate housing activity, and urban enterprise zones. But few cities have sufficient tools to spur ongoing investment in the revitalization of low-income communities.
Employer-assisted housing is a new tool that could spur increased investment in urban neighborhoods. More and more, cities and local companies are coming to realize that employer-assisted housing programs constitute a cost-effective strategy for the improvement of urban areas (by helping workers to afford homes in targeted neighborhoods). Across the country, employers are discovering that by helping employees buy homes they are stabilizing and enhancing real estate values, strengthening and maintaining residential property-tax bases, protecting the integrity of the local labor force, infusing local institution with new vigor, and developing community spirit.
The role of businesses in funding low-income housing has grown with the new opportunities to earn a return on low-income housing investment made available in the Tax Reform Act of 1986. Since 1986, $9 billion in low-income housing tax credits, which earn a 15 percent return, have been sold to corporations. Employer-assisted housing programs involve the same business interest in a return on investment by linking return on investment to savings in employee training and retention, labor-force availability, productivity, and real estate appreciation.
A prime example of an employer-assisted housing partnership is revitalizing a low-income area in Chicago. Greater North Pulaski Development Corporation, Neighborhood Housing Services, and Fannie Mae in association with local employers are rehabilitating a 50 square block low-income neighborhood with mixed industrial and residential uses in the northwest side of Chicago with an employer assisted housing initiative.
Known as the Chicago Walk to Work Program, participating companies make a investments based on the size of their work into a revolving loan fund. Firms include Pioneer Bank and Trust Company, Finzer Roller Company, Universal Allied Imaging Company, Helene Curtis Inc., and Pride Container Inc. Participating employers earn a return of 5 percent per year, payable at the end of the term.
Employees of enrolled companies are eligible to borrow up to $8,000 at 6 percent interest for a term of seven years. Funds can be used as home-improvement loans or to supplement funds needed for a down payment. Loans are bought on the secondary market by Fannie Mae.
The University of Pennsylvania has offered a mortgage-guarantee program for 20 years to its employees that has successfully stabilized the west Philadelphia neighborhoods in which the university is located. Because the university guarantees 100 percent of the mortgage value, no down payments are required. The program has given moderate-income employees who could not otherwise afford to buy a home because they were unable to save the down payment access to home ownership. Since the late 1960s, more than 1,000 loans have been made.
Cities with strong or emerging nonprofit housing developers will find that promoting partnerships between nonprofits and local employers for the creation of affordable units is much more efficient than the current system of patchwork financing. Rather than relying on corporate philanthropy, nonprofits would benefit by entering contractual arrangements to deliver low-cost housing for low-income employees. A nonprofit with a steady stream of financing on a contractual basis could develop an ongoing capacity to deliver many times the number of units they now provide.
For nonprofits, employer partnerships hold the promise of political stability, continuing financial capacity, and long-term institutional support that will help attract lenders, mortgage insurers, and other important financial players.
Many employers may find that their employees currently are renters in neighborhoods adjacent to their facilities. Moving those employees into home ownership through group mortgage insurance programs and mortgage guarantees would stabilize real estate values in areas where local industry has a substantial investment. Just as important for local employers, a stable neighborhood helps insure that workers would be willing to work in an area not plagued by crime, drugs, and blight.
For low-income renters in urban neighborhoods, employers can use employer-assisted supply programs that subsidize housing to affordable levels even for these very modestly paid workers. Employers could participate by providing surplus land to a land trust in return for some priority being given to employees. Or employers could join mutual housing associations, participating as a partner in financing and managing affordable units. Whatever method is used, targeted housing investment by employers in low-income areas will leverage private investment.
In addition to private employers, cities and public institutions could use their human-resource budgets as part of a community development strategy. Municipal workers tend to be modestly paid, but to be stable long-term employees. With current strains on municipal finance, city administrators may find that they could offer housing benefits, at little or no cost to their budgets, that public workers would eagerly accept. A coordinated approach to revitalization that included a housing benefit targeted for use in low-income neighborhoods can have a greater impact on urban communities than limited dollars in community block grants.
Neighborhood developers across the country are building new partnerships with employers, nonprofit developers, and public institutions, rethinking the uses of their benefit packages to make available millions of new investment dollars in declining neighborhoods. These innovative public private partnerships may hold the key to saving our cities from blight.