Last week, I attended a gathering convened by BALLE (Business Alliance for Local Living Economies). The group consisted of about 20 people, all of whom are committed to investing significant portions of their wealth in local economies, many of them involved with food and agriculture, social entrepreneurship or marginalized populations. Each of us was asked to make a five-minute “dashboard” presentation of something we are working on. I decided to talk about affordable housing because it is such a huge issue in Seattle (and other cities) and because it’s been on my mind and in my heart and portfolio for a long time.
Sometimes you don’t need a lot of words to make a point. In this case, two numbers do it for me. Seattle is humming along with a very high rate of population growth—about 3% per year. And it shows every day in the cranes hanging over downtown, new restaurants and bars, traffic everywhere all the time, and a buzz of excitement and energy that makes it all seem worth it.
Meanwhile, the King County Coalition for Homelessness recently conducted its annual One Night Count of people living on the streets. One might reasonably expect some increase given that the city is growing. But the actual figure is shocking—and shameful. The number of homeless people in King County (where Seattle is by far the largest city) rose not by 3% or even 5% but by 20%!
This 20% number is a window into the larger picture of what is happening to housing in Seattle. It used to be that developers could make a decent profit by building apartments priced for moderate incomes and operating them long term. Nonprofits could build affordable housing with tax credits and government funding. This is no longer true. Government funding is shrinking, and construction and development are focused on higher-end projects with attractive profit margins.
We are experiencing a market failure to address homelessness, housing for the working poor and home ownership for the marginalized. And yet, these are the people who serve us, who entertain us, who labor for us, and who help make our city vibrant, interesting and diverse. Surely, we have a moral obligation and civic duty to be sure they have a decent and affordable place to live.
Enter Integrated Capital. The principle behind integrated capital is that mission and purpose come first. Then comes an analysis of what is needed in terms of the amount and form of financial capital. This can be gifts, grants, loan guarantees, loans, convertible debt, or equity. The key is that mission comes first. Financial returns are secondary and not self-centered. Capital providers (donors, investors) consider the needs and conditions of all participants and engage in discussions around fairness, equity, and affordability.
Here is a simple example of Heather’s and my integrated housing portfolio:
|Category||Need for Financing||Our Investment|
|Permanent Housing for Homeless People||Projects rely heavily on charitable gifts and grants. No predictable rental income as tenants pay a percentage of income as rent, and income is often very low or nonexistent.||Plymouth Housing Group, a nonprofit developer and operator of apartment buildings in downtown Seattle. We have contributed to PHG’s capital campaigns and make an annual gift.|
|Affordable Housing for the Working Poor. These are people who earn around half of Seattle’s median income. They make up to about $37,000 per year.||These projects use tax credits and bank loans for about 2/3 of their funding and then rely on government grants for the remaining 1/3. They commit to rents restricted for affordability. As available grants shrink and the need rises, there is a need for low-cost debt financing to fill this funding gap.||Bellwether Housing, a nonprofit developer and operator of affordable housing in Seattle. Bellwether is taking a leadership role nationally and in Seattle by offering five-year 2% notes to accredited investors (renewable for a total of 15 years). We plan to invest in these notes.|
|Affordable Housing for the Urban and the Urbane.||There are for-profit market opportunities for developers in this sector, particularly for smaller local businesses that are committed to urban vitality and moderate rents.||Eagle Rock, a Seattle developer, renovates and builds interesting urban spaces that offer small studio apartments and shared amenities. We have equity investments in two projects.|
|Single- and Multi-Family Residences.||For now, the market is meeting these needs, although affordability is questionable.||We own our home on Queen Anne.|
It is my opinion that everyone can and should take this kind of integrated approach to financial decision-making. Admittedly, it is currently much easier for wealthier people (“accredited investors”), so, for now, I am challenging all of us at that end of the wealth and income spectrum to take the Integrated Capital approach.