Innovations in Affordable Housing

  • Over 175,000 households in Colorado pay more than half their income for housing.* 
  • Rent in Denver has risen nearly 47% over the past 10 years, ranking behind only the Bay Area.** 
  • The estimated shortage of housing units in Colorado is expected to exceed 32,000 units this year.**
  • The cost of both rent and home ownership has been rising rapidly in our state, while wages have largely remained stagnant.*** 
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Affordable housing has traditionally been primarily funded through government programs at the Federal, State, and local levels. Yet, those programs are increasingly insufficient to meet the needs in our communities. Low Income Housing Tax Credits are the largest subsidy source, but they are often oversubscribed 4 to 1. Section 8 Housing Vouchers are not accepted by most landlords. Thousands of these vouchers remain unusable each year. The City of Denver has set aside an additional $15 million per year for affordable housing, yet this funding remains insufficient to support the affordable housing need in the city. All of these resources are necessarily being focused more and more on the formerly homeless and the lowest income households in our communities. As a result, thousands of families with steady jobs are increasingly finding it difficult to find affordable housing. There is a great need for innovation in affordable housing, and our guests on March 21st were those innovators.  

Julie Mihevc with Housing 180 has launched one of the latest innovative programs from the folks who created Cafe 180 on Broadway in Englewood and Good Turn Electric Cycles in Littleton. Housing 180 connects with people struggling to find housing and provides them with support and rental assistance for two years. With their rental property partners, they provide 2/3s of the rent payment for 1 year, 1/3 for a 2nd year, and then help their clients transition to stable housing on their own in the 3rd year. 

Heather Lafferty and Habitat for Humanity of Metro Denver have a long history of building and selling affordable homes to lower income families. They facilitate home ownership for 50 to 60 homes every year. However, the need for affordable homeownership opportunities in Denver continues to increase faster than homes can be built. In response, Habitat is launching Affordable Home Mortgage Solutions, LLC to provide mortgages to lower income families that will increase their purchasing power and enable them to buy homes in Denver's rapidly appreciating real estate market. Their mortgages will offer below market interest rates, no PMI, and low down payments. To facilitate this impactful business, the organization is seeking investment from local foundations, banks, and impact investors who will receive a modest rate of return while helping 400 families achieve their dream of homeownership. 

Karen Gados with Pikes Peak Capital Holdings launched their work to enter into the traditionally predatory market of sub-prime lending and home foreclosures in early 2017. They are breaking the cycle of sub-prime lenders foreclosing on struggling home owners and then recycling the same home back into more predatory lending businesses. Pikes Peak is purchasing foreclosed properties at deep discounts, and then selling those homes to lower income families at reasonable prices with favorable financing options based primarily on their income rather than their past credit history. They also provider their home buyers with credit counseling, opportunities to add value and equity to their homes, and education regarding the opportunities and options that home ownership provides for them. Pikes Peak is seeking additional investors to help them expand beyond their initial pilot of 14 homes, offering market rate returns. 

Craig Metrick with Cornerstone Capital Group discussed several ways to support affordable housing through accessible investment opportunities through Ours to Own Denver and mutual funds such as those offered by Community Capital Management. Beyond personal investing, he encouraged everyone talk to their retirement plan providers and the various institutions they are connected to regarding integrating social issues like affordable housing into their investment portfolios. 

Whether you are a young activist or a retired executive, we can all work together to address the need for affordable housing. Whether you have $20 or $1 billion, there are numerous opportunities to deploy those dollars to address this issue through both grants and investments. We hope that this event helped to spark new innovative ideas and inspired all of us to move more capital into affordable housing.

 

For those of you who were not able to attend, here is a handout we provided showing ways to both give and invest in supporting affordable housing.  

 

 

 

*Colorado Fiscal Institute
**Real Page Research
**Shift Research Lab in partnership with Phyllis Resnick, PhD

Impact Adjusted Returns - Is there room in your portfolio for deeper impact?

Over the past several years, much research, time, and discussion has gone into busting the myth that investors must sacrifice return for impact. It is not hard to find such an article from most firms in the impact investing industry. It is safe to say that there are many opportunities to receive market rate returns while creating a positive impact. However, I think it is worth asking:

Shouldn't we be willing to accept lower returns to generate greater impact?

We can hope that there may someday be no tension between financial returns and positive impacts, but we must admit that this tension exists in numerous industries and asset classes. So, perhaps we should make some room in our portfolios for investments that deliver lower returns but deeper impact. 

For many, choosing impact over return may feel like no sacrifice at all, even if there is a significant financial opportunity cost from making that choice. Helping to house families struggling to find affordable housing has a value that is not measurable in a brokerage account statement. Seeing employees thriving and building wealth won't appear on a company's balance sheet. You won't find assurance that an energy company isn't poisoning the water flowing into nearby communities by looking at their cash flow statement.

Investors commonly accept lower rates of return when there is lower risk. Accepting a lower rate of return when there is a deeper impact may be necessary to make some deals work.

At Impact Charitable, we are seeking, analyzing, and creating investment opportunities that offer what I call “Impact Adjusted Returns” (“IAR”). We believe that donor advised funds offer a unique opportunity to target impactful opportunities within a portion of our investment portfolio that are not able to deliver market rate returns. With no set timeline or future event driving liquidity requirements; all funds set aside for charity have an opportunity to analyze investments with a stronger impact lens.

There is a large area of opportunity where an IAR approach can yield investments opportunities that would not otherwise be funded by the capital markets. Instead of holding all investments to the same risk/return standards demanded of traditional investments, an impact investment can be analyzed based on the positive impact created relative to the forgone financial return or increased risk.

In comparing a traditional market rate investment with an IAR investment, we can seek to determine what the financial return differential is between the competing opportunities. In some cases, this differential may be quite large, but in other cases, it may be only a few basis points. If we can define what the forgone expected financial return would be, we can then determine if the impact created by the investment is worth that tradeoff. The same can be done with a risk comparison between opportunities, though perceived risk can vary significantly.

Most fundamentally, an Impact Adjusted Return approach asks:

Is the expected impact worth the financial return that I will be foregoing?

And:

Is the additional risk worth the expected impact of this investment?

Many individual impact investors and a small number of foundations are already effectively taking this kind of approach, though they may not articulate it this way. I take this approach in my own personal angel investments, and I know of many others who, in practice, do the same. For many, the potential impact of an investment opportunity can far outweigh concerns around return, risk or liquidity. However, that notion may not survive traditional credit committees or financial advisors.  We hope to see that begin to change, especially for dollars set aside for charity.

 

Note:

This is the beginning of a series of blog posts to further explore the idea of Impact Adjusted Returns and apply it to different asset classes. We will also analyze how IAR investments can be included in a reasonable investment portfolio, especially with dollars set aside for charity or when the portfolio value exceeds the expected needs of the investor.