Are Community Foundations the answer to NY’s affordable housing crisis? - by Michael Discenza

Over a century after banker Frederic Goff established the first community foundation in Cleveland, Ohio, in 1914, more than 900 community foundations across the country manage approximately $110 billion in assets and award about $14 billion in annual grants.

Those foundations offer a variety of programs designed to improve community well-being, with the most common areas of support being education and human services. 

In New York, where nearly 50% of all households are renters, nearly half of those households are “rent burdened,” or spend more than 30% of their income on rent and utilities each month, according to New York University’s Furman Center. More than a quarter of renters are ‘severely rent burdened,” meaning they spend more than 50% of their income on rent and utilities. 

The Furman Center also points out New York lags other states in housing production and New York City, in particular, falls well behind other major cities in establishing city housing. For example, per 1,000 residents, New York City had 23.8 permitted housing units from 2014-2021, far below Miami’s 88, Atlanta’s 83.8, Boston’s 45.5 and Philadelphia’s 33.9.
Research demonstrates inadequate housing supply is linked to less affordable housing, reduced economic productivity, lower income, increased environmental harm and other social problems. Affordable housing is a key priority for governor Kathy Hochul and state lawmakers, with a slew of ideas being implemented or considered.

But community foundations can help, too, by leveraging their social and financial capital to meet the urgent needs of the state’s current housing crisis.

What is a Community Foundation?
Community foundations are public charities focused on supporting geographical areas by pooling and investing donations from individuals, families and businesses to address community needs and support local nonprofits. By pooling and investing, the power of each contribution continuously expands. Community Foundations usually invest about 5% of their endowment annually. As the investment grows, so does the amount available for distribution. 

Community foundation funds usually include designated funds, where donors designate to charitable efforts they want to support; field of interest funds, designed to tackle specific community issues; scholarship funds, to support the education of students; and unrestricted funds to meet any community need.

Donors to community foundations may be eligible to take a tax deduction for their support, and the IRS generally treats donations to public charities more favorably than donations to private foundations.

Why Should Community Foundations Assist with Affordable Housing?
Affordable housing at the local level is sprawling and often disorganized, making it difficult for stakeholders to broadly assess community needs and coordinate housing production and preservation. Without a centralized process to match projects with funders, developers must piecemeal capital stacks for worthwhile projects, leaving many opportunities unidentified or abandoned.

Community foundations can step in, bringing together key stakeholders to evaluate data, engage community, prioritize critical needs and develop comprehensive housing strategies. As aggregators of mission-driven capital, community foundations can significantly expand housing production and affordability through impact investment funds, traditional grant-making and public-private partnerships. 

And the work aligns with the objectives of community foundations: enhancing individual and community well-being.

Four Actions Community Foundations Can Take on Affordable Housing 
Defining and Prioritizing: Help regions identify the scope of housing challenges by funding a local market analysis, convening key stakeholders to evaluate findings and developing strategic plans to bolster production. 

Convening and Organizing: The short-term tenure and competing demands of elected officials may not align with the longer-term strategic focus needed to increase housing production. Non-governmental actors, such as community foundations, can fund intermediaries to coordinate long-term, regional strategic plans or partner with local governments and other philanthropy organizations to coordinate transitional housing and homeless services.

Piloting Investment and Program Models: Elected leaders and public officials may hesitate to pilot new programs, particularly due to Not-in-My-Backyard (NIMBY) constituent concerns and competing budget pressures for limited government funds. Private investors may be reluctant to invest in risky projects, such as neighborhoods with high loan-to-value and large appraisal gaps. Community Foundations can fund pilots, programs or projects to validate the feasibility of new models for producing or financing housing. For example: funding projects that use innovative building technologies like modular construction; creating new financing vehicles to support affordable developments; and/or providing seed funding to launch organizations like community land trusts that steward long-term affordability.

Organizing and Aggregating Long-Term Capital: Community foundations already serve as capital aggregators, pooling community donations into unified investment portfolios to achieve economies of scale and greater returns. By establishing impact investment funds focused on housing production, they gain advantages over traditional grants, including the ability for funds to revolve, exceeding the traditional 5% threshold for deployment; attracting capital from a wider range of funders; and uncovering a broader range of investment vehicles, including equity-like instruments.

Affordable Housing as an Investment
The U.S. affordable housing sector is an attractive investment strategy within commercial real estate and an effective diversifier among housing investments, given the sector’s economic resilience compared with other property types. The need for housing remains steady throughout economic cycles, including in recessionary environments. In fact, demand for affordable housing increases during recessionary environments as incomes stagnate or drop.

Investment in affordable housing provides investors the opportunity to achieve attractive risk-adjusted returns. Durability of rental income in the sector is supported by strong market demand and government subsidies, offering greater stability than traditional real estate. Affordable housing investments have yielded an average return of 4.8% since 2011, comparing favorably to assets such as bonds, equities and T-Bills. 

A win-win situation 
A smart investment and a way to address a systemic issue affecting health, education and community stability? That is a win-win for community foundations. By addressing gaps in coverage, preserving existing affordable housing, building new units and providing services to renters and homeowners, the foundation is creating an ecosystme that leads to stronger individuals, families and communities. 

Michael Discenza co-leads the affordable housing industry team and is a member of the commercial real estate practice group at Harris Beach Murtha, Rochester, N.Y.