Scarcity is a word that has long defined affordable housing, but the latest National Affordable Rental Housing Landscape, produced by New York University’s Furman Center and Capital One, shows that securing affordable housing has become an even greater challenge for low-income families. Between 2006 and 2014, the renter population grew faster than the stock of rental units in the 11 largest metro areas included in the study. Rents rose faster than incomes, which pushed the average rental household size up. In nine of the 11 metro areas, the typical renter could afford fewer than 40% of the units on the market the previous year—and in Miami, New York, and Los Angeles, the typical renter could afford fewer than 25% of recent units.

Laura Bailey
Laura Bailey

Addressing this shortfall is a critical need, but it also offers banks an opportunity to adopt a more sophisticated approach to affordable housing, one that goes beyond the provision of four walls and that views affordable housing as a catalyst for expanded economic opportunity in local communities. For banks, the challenge is gaining comfort with more complex and ambitious projects that incorporate a variety of uses and involve a more disparate group of stakeholders than the traditional affordable housing development.

A case in point is the Sugar Hill Apartments developed by the nonprofit Broadway Housing Communities in New York. Sugar Hill integrates affordable housing, education, and cultural resources in a critically acclaimed building designed by David Adjaye Associates. In addition to providing 124 families with an affordable home, the development includes a 12,000-square-foot early childhood education center serving 100 children ages 2 to 5 and an 18,000-square-foot area that houses the Children’s Museum of Art and Storytelling.

In addition to providing 124 families with affordable homes, the Sugar Hill project includes an early childhood education center serving 100 children and the Children’s Museum of Art and Storytelling in New York City.
Wade Zimmerman In addition to providing 124 families with affordable homes, the Sugar Hill project includes an early childhood education center serving 100 children and the Children’s Museum of Art and Storytelling in New York City.

Capital One provided a $25 million construction loan and $38.5 million in equity for the $80.2 million project, including investing in New Market Tax Credits to fund the early childhood education component of the building. The very elements that make up an innovative approach to affordable housing may require additional funding, however. By virtue of their close involvement in these developments, banks are in a position to make strategic grants to ensure these initiatives get off to a good start. In this case, Capital One provided a $750,000 social services grant to support the development of the museum. In essence, banks must consider an expanded range of funding sources to help create housing that is affordable and that also provides such benefits as education, cultural arts, and community development.

Capital One has used its social service grant program in other contexts to similarly amplify the community impact of affordable housing. In 2012, we worked with Wesley Housing Redevelopment Corp. to renovate Colonial Village, a 162-unit affordable apartment community in Arlington, Va. The development includes a community resource center to provide support and services for children and adults, including English as a second language classes and workforce development training.

Capital One supplied a grant that supports a social services coordinator to staff the center. The coordinator assists with early intervention, which is important to help households transitioning into permanent housing maintain housing stability and achieve self-sufficiency. Early intervention improves outcomes and tends to keep rent collections high and turnover low.

In essence, we looked to see if there was anything else we could do, based on our intimate and detailed knowledge of the project, to ensure its success. For these and other projects, we have provided almost $4 million in grants, an effort well within the reach of other lenders.

A flexible, adaptable approach to affordable housing is particularly important in the suburbs. One of the key findings of the Furman Center-Capital One report is that issues of affordability have expanded far beyond the central city. Last year, rents rose in all 11 metro areas suburbs in the study, with the exception of Miami. In fact, rents rose faster in the Dallas and Houston suburbs than within city limits.

Wyandanch Village, a 177-unit apartment community including 91 units of affordable housing, is a good example of taking a holistic approach to support a vibrant, sustainable community. The development is part of an ambitious plan to effectively reboot Wyandanch, a historically African-American suburb of New York City. Community leaders are attempting to address entrenched social problems by creating a vibrant, high-density downtown in an area currently dominated by strip malls and auto-repair shops. In addition to apartments, the plan calls for offices and stores as well as a new park, new sidewalks and street lighting, a larger train station, and a parking garage for commuters.

In addition to housing, the five-story buildings will have approximately 17,000 square feet of street-level retail. The developers decided that none of the 15 commercial spaces would be more than 5,000 square feet, a decision meant to encourage local retailers. Underwriting a mixed-use project of this kind is admittedly a complex undertaking, but it can be done. Capital One provided more than $50 million for construction, including a $14 million permanent loan and a $33 million equity investment. So far, the project has been a success, bearing out the need for reasonably priced apartments in the suburbs. Eighty-five percent of the apartments—both market-rate and affordable—were leased before the first phase of the community opened in 2015. In addition, several leases for the commercial spaces have been signed.

Working through transactions with this level of complexity requires creativity, skill, and a measured appetite for risk, but it also can be extremely rewarding for banks, financially as well as socially. To maximize their return on either issue, they must go beyond thinking of themselves as simply financing new construction but as investing in economic opportunity for individuals, families, and communities.

Laura Bailey is senior vice president, community development finance, at Capital One Bank.