When you hear about nonprofit housing developers, you might think about the internationally known Habitat for Humanity. Most likely, though, unless you live in an urban area and pay attention to community development, you may not have thought about such a topic at all.
Nonprofit housing developers actually could fill some valuable roles in rural areas, as well as in depressed cities and everybody in between that needs a particular type of housing that the market is not providing.
A community corporation that drives housing development for neighborhood revitalization can be a real catalyst for good.
Often such organizations, which in the U.S. typically would be 501(c)(3) corporations, named after a section of the Internal Revenue Service code allowing formation of a certain type of not-for-profits, are capitalized at least in part through some level of government.
Community Development Block Grants often provide funding to nonprofit housing developers to meet moderate and low-income needs. Federal HOME funds also are a major source of funding.
Nonprofit housing developers are especially adept at constructing and managing low-income rental housing for the long haul. Various government housing assistance programs have come and gone. Nonprofits developed and continue to operate much Section 202 elderly and handicapped housing.
Some obsolete federal programs, such as the Nehemiah programs that granted interest free second mortgage loans, continue to operate in some locations around the country using loan repayments as their source of funding.
Other initial funding sources for nonprofit housing developers include foundations, community foundations, community development loan funds created by foundations, or perhaps community development corporations, which are discussed below.
In theory, a successful nonprofit housing developer needs to be well capitalized, but could actually become self-sustaining based on rents and possibly smart real estate investing.
In reality, corporations dealing especially with low-income populations usually hit a wall at some point due to a bad business decision or the sheer volume and expense of repairs needed. This situation does not necessarily indicate poor management, since the margin for error in low-income housing development is often ridiculously thin. At that point some government assistance or a very targeted and determined fund-raising drive will be needed.
Non-profits need to become very sophisticated in today's environment in the U.S. because there are a number of initiatives to help them produce housing. Surprisingly, many of them are not part of HUD (the Department of Housing and Urban Development), but rather are part of the U.S. Treasury Department. You will need to understand community development banking. Recently someone asked the question what is a CDFI, and we've answered on that link.
When you perform a community housing analysis and learn what price range or type of housing is in short supply in your community, typically you first try to offer incentives that will entice the private sector to build appropriate housing. Look especially for the young and starry-eyed developers, some of whom will be socially motivated. (You might be interested in our answer to a site visitor question from a young for-profit housing developer.)
Sometimes this takes the form of incentive zoning.
But when a market is broken, or the development community simply has an abundance of more profitable opportunities elsewhere, the incentive approach may not succeed. For 20 or more years the single-family housing market has edged out the multi-family market as the place to be if your goal is making a profit, particularly if it's the lower-income market segment being discussed. Yet right now reasonably priced rental apartments are a severe need in many communities.
That's when you need robust nonprofit housing developers in your region. This is especially true if you need to develop a greater supply of affordable housing.
The idea of a community development corporation gained popularity in the 1970s, and the Community Services Act provided somewhat reliable funding for a few years beginning around 1975. But now these organizations have to scrounge for public and private grant money and private contributions just like any other nonprofit corporation.
The advantage of these community development corporations (CDCs) is their ability to travel easily among housing, job skills, economic development, neighborhood beautification, and social service programs as needed. A fairly high proportion of community development corporations (80 to 90 percent, depending on what you read) act as nonprofit housing developers.
Some of the original corporations have endured, and new community development corporations have been forming at a steady pace through the years. As the name implies, they are formed by community people and institutions. Although individual activities, such as running a grocery store, might be profitable, the original impetus for the product or service is community betterment.
If you're interested in the CDC option, visit our page about how to start a community development corporation.
But if you only want to deal with housing, stay right here.
In the last 50 years, the faith community also has stepped forward in many cities to fill some of the gaps in the private housing market. Sometimes they have built senior citizen housing, both federally subsidized and internally subsidized. Some low-income housing also has been constructed, often in tandem with government subsidies for the tenants.
My favorite of all is Jubilee Housing in the Adams-Morgan neighborhood of Washington, D.C. Jubilee was created by a small congregation that saw a tremendous need for repairing some quite broken apartment buildings and the lives of the occupants as well. Now there are a number of affiliates or imitators across the nation.
I hope your community will be broad-minded enough to accept a
faith-based corporation or group that steps forward to build housing in
your community. The ongoing relationships, support, and forgiveness
frequently offered in association with these groups is a worthwhile
resource for occupants. Christian community development corporations can give new vitality to the most downtrodden of neighborhoods, as could similar organizations from different faith traditions of course.
Like many of our site visitors, I don't especially appreciate the Salvation Army hear-a-sermon, get-a-meal approach, but on the other hand, in a world of way too few options for people at the very bottom of the social ladder, I think we can allow the people who need help to make their own choices.
The Low-Income Housing Tax Credit program allows tax credits supporting low-income housing to be sold to corporations that have major tax liabilities. The program requires that at least 10% of state tax credits be allocated for projects partially or fully owned by nonprofit housing developers, although in many states the percentage is higher.
Most states also have created a housing finance agency, which may be devoted mostly devoted to rural or lower-income housing, since the mid-1980s. Check with your state regarding an overall housing finance commission or low-income housing finance agency. Most of these work extensively with nonprofit housing developers.
Some nonprofit housing developers were or are funded through grants and subsidies from state or local housing trust funds. A housing trust fund usually is established through a dedicated (set aside) revenue source, such as a tax on recording deeds or a portion of sales or property tax. A national housing trust fund was created in 2008, so cross your fingers that some meaningful funding eventually comes its way. So far that has not occurred.
In the U.S., you should keep an eye on the Opportunity Zones program as it develops. The idea of the zones, which already have been designated by the state governors, is to attract private investment in the zones through offering tax incentives to those investors. As usual when a major new program is instituted, there has been plenty of scrambling to figure out how this will work, who can broker deals between potential investors who want the tax relief and the opportunity zones. But there is great potential for nonprofit housing developers if they have a good track record and can figure out how to work within this system.
To take advantage of the Opportunity Zones, consult one of the many maps being posted online to find out where they are located. So far, we like the information and mapping tool contained within an Opportunity Zone playbook compiled by LISC. Then talk with the city government in which the zone is located.
If you want to rehab historic properties, defined as more than 50 years old, look into national and state historic preservation tax credits and programs. For a taste of this world, please read our page on local historic districts.
In the 1980s and 1990s four very important large national entities formed or regrouped to provide funding and technical assistance for nonprofit housing developers in targeted areas:
Larger regional or national corporations often belong to the Housing Partnership Network. These HPN organizations were created on a public-private partnership model; frequently metro-wide business or civic leaders were involved in their creation, as compared to the more grassroots approach of the community development corporations. The HPN organizations operate as "social enterprises." This general term applies to for-profits that have a social purpose as part of their core mission.
If you're dizzy from reading all these acronyms, and ins and outs of government financing, note that I could have been a hundred times more complex and still not covered everything you might need to know to put together a particular deal. I guarantee we'll be receiving some sharp critiques for over-generalizing. But most community deals are built with multiple layers of financing, guarantees, and requirements.
But it's a constantly changing field, in part because government policy has waxed and waned at the federal level, with the coming and going of liberal and conservative administrations.
Clearly the large organizations described above will be leaders in neighborhood community development for awhile. Nonprofit housing developers will need to take their cues from them.
Rural areas hoping for resolving their often desperate need for quality housing will need to continue to comb through news from the U.S. Department of Agriculture and the various rural housing finance organizations. Rural communities lack the scale needed to support larger nonprofit housing developers, but with some moxie, faith-based organizations on a state basis might begin to address rural housing needs, moving from community to community in summer blitz fashion. If you work in a rural area, become acquainted with the Housing Assistance Council, which offers loan programs and technical assistance.
The Great Recession in the U.S. certainly created a challenging environment for nonprofit housing developers and similar community-oriented organizations, some of which have not recovered well. However, the need for low-income housing, particularly of the multi-family rental sort, continues to be urgent. In all likelihood, the strongest of the nonprofits survived, thanks to the large organizations listed above, and will learn new ways to partner with for-profit developers in meeting community goals.
If you're working or living in one of those lower-income neighborhoods suffering from community poverty, let's make more affordable housing happen.