Who Is Responsible for Affordable Housing Construction?

Why don’t philanthropic foundations fund affordable housing construction? I believe the issue of race neutralization, as described by Alice O’Connor (see “Foundations, Research, and the Construction of ‘Race Neutrality’”), and the role of philanthropy and its response to social science research are significant factors in answering this question. I’ve seen these play out in my work as Housing Commissioner in Bloomington, Indiana, where we manage about 500 units of public housing and another thousand or so Section 8 vouchers. Bloomington has one of the tightest housing markets and the most housing problems in the state of Indiana.

One of my chief goals has been to expand the number of affordable units. Right away, I began investigating the foundation money I thought must be available. I was told by a number of large mainstream foundations that they don’t fund affordable housing construction. The most typical response was that they don’t because that’s what the government is supposed to do.

The public sector used to fund affordable housing construction, but, unfortunately, hasn’t been very aggressive in this area during the last 30 years. There were some recent efforts in the 2000 Congress to pass a housing construction bill, but they failed. The history shows that foundations and private philanthropy actually used to fund this type of construction. The model tenement movement that existed about 100 years ago and lasted for about 30 years resulted in the construction of large numbers of affordable housing units. At one point, I think there were about 20,000 New Yorkers living in model units. These were also known as “investment philanthropy,” because they were designed to create a profit, in addition to their positive, altruistic purpose. So the entrance of the public sector into public housing construction seems to have crowded out the philanthropic sector. And now that the public sector is out of that business, the philanthropic sector is nowhere to be found.

Another typical response to my inquiries about foundation funding was that the need for affordable housing is so great and the cost so high that there’s really no way the foundation world can make a dent in the problem. That’s a tough argument to rebut. But if you look at the kind of mission statements major foundations have, some of them include lofty goals such as ending world hunger—clearly the resources that they have available to them are not sufficient to achieve such missions. Yet they have those missions in mind.

Many of the model tenements were built by philanthropists and, at the time, were built for specific racial and ethnic groups. There was no pretense that imposing any kind of residential integration was a goal of these projects. Perhaps one of the reasons foundations generally do not engage in affordable housing construction is that it would bring them into the racial arena.

If a foundation simply provides funding to build housing, it has to inevitably answer the question of who is going to live there.

If the housing is then left to the vagaries of the commercial housing market, it will more likely end up being residentially segregated. That puts a foundation in the awkward situation of essentially funding housing construction that reinforces patterns of residential segregation.

Now, the alternative for foundations, if they were to build housing, is to actually embrace this issue and to push for residential integration. But this forces them to deal with race, which they don’t want to do. The result, then, is that the foundation world simply writes off the massive need for affordable housing. (There have been some notable exceptions. The Ford Foundation, a few years ago, invested about $50 million underwriting mortgages for low-income families. Unfortunately, such an effort doesn’t increase the supply of affordable housing, though it may subsidize housing costs for low-income households.) Instead, the foundation world has decided to invest fairly aggressively in building a community development corporation industry: one composed of nonprofit organizations, including community-development financial institutions. This industry is supposed to utilize scarce public funds to build affordable housing and revitalize distressed neighborhoods.

I would like to see the foundation world analyze the present value of investing $1 million or $100 million in housing rather than giving it to build the capacity of more nonprofit organizations. I believe that if you run the numbers, you will find that investment in housing is going to have a much greater value over the life of that investment. Foundations invest in buildings through their support for the construction of libraries, opera houses, and quasi-public facilities. One of the benefits is that the money doesn’t actually go out the door. It’s an asset that sits on a foundation’s books and may, if managed properly, accrue interest and acquire greater value over time.

I urge the foundation world to try to revisit this issue of whether or not to fund affordable housing construction. But in order to do that, they need to be more willing to address the issues of race that come along with trying to balance investment decisions. As well, they need to be willing to conduct institutional research that would calculate such options. Housing construction is a viable investment alternative for foundations, and it’s one that is sorely needed.

Photo by LeRoy Henderson