Three principal actors are tackling the housing affordability crisis in the United States- government entities, nonprofits and investors. The issues arising from housing instability and affordability are complex, and a patchwork approach is necessary to make a dent in the problem. With that being said, investors should be aware of their crucial role in alleviating or even ending the housing affordability crisis in America. In fact, the role of the private sector will likely be the deciding factor in whether or not this crisis gets solved.
Subsidies may evaporate
One pitfall that comes from relying too much on government aid is the fickleness of politicians and political parties. In tough economic times, the rug can be pulled out from under a wide variety of government initiatives that have been relied on, like social services, school budgets, fire and safety, and housing initiatives. Especially in these days of political extremes, government priorities can change radically from one administration to the next, which can leave local stakeholders or even private-sector partners holding the bag.
Private enterprise is nimble
The idea that private enterprise is more responsive than the government is not a new one. However, when it comes to housing, the government has a particularly checkered history. The first extensive forays into public housing in the United States were an unmitigated disaster, with massive brutalist projects focusing on warehousing residents rather than creating community. Predictably, most of these communities failed, and some have been demolished such as the infamous Cabrini Green in Chicago.
In the intervening years the government approach to housing has had mixed results and unintended consequences. Many experts pinned lax home loan lending policies, intended to increase homeownership, as the cause of the 2008 crash. As a result, the housing crisis festered and then exploded in the decade that followed through to the present day. Local, state and federal responses to this crisis have been lackluster, to say the least, and most innovative work in the space is being carried out by public-private partnerships, nonprofits, and private investors.
Investor priorities are changing
One of the standard and somewhat accurate criticisms of investors is that their priorities are not aligned with sustainable community growth. Take one drive through a Southern California town filled with rows of McMansions, or an empty luxury tower in downtown Portland, and you can see why many believe that investors are not interested in anything other than profits.
Despite the mistakes of the past, a new generation of socially conscious investors in partnership with community groups and nonprofits, is making great strides in developments across the country. Projects that are too niche or not profitable enough for large developers are instead being undertaken by smaller developers and investors working in concert with local groups. Some are even utilizing crowdfunding platforms. Rather than relying on a large lender in Chicago or New York to fund their projects, socially minded entrepreneurs can solicit funds through crowdfunding efforts, from friends, family, socially responsible investors and even residents of the same areas in which they plan to develop.
An excellent example of such a community-centric projects are the redevelopment of vacant urban infill lots, some of them oddly shaped and otherwise unsuitable for traditional or large-scale development projects. These projects are centrally located in already built-up areas, close to flourishing economic zones and neighborhoods. They provide a pressure valve for housing demand and are often embraced by local residents who are eager to remove an eyesore from their community, like an abandoned factory an overgrown lot or a long vacant house.
The private sector has a great deal to contribute when it comes to ending the affordability crisis. Responsible investors can work on timescales longer than the period before the next election and have a vested interest in creating spaces in which residents want to live.
Image by Inmacus from Pixabay