Traditionally, housing for lower-income Americans has been built by the government or by nonprofit organizations using public funds. But today, with many parts of the United States facing an affordable housing crisis in which supply is falling far behind demand, that model is no longer functioning effectively.
That was the consensus at “Real Deals: Market-Oriented Solutions to Expanding Affordable Housing,” a panel discussion at ULI South Carolina’s Capital Markets Conference on Kiawah Island, moderated by Lisa Lanni, principal at McMillan Pazdan Smith Architecture. Panelists outlined strategies that are leveraging the strengths of the private sector.
“We’re creating rentalhousing,” explained Jon Grzyb. Grzyb is the chief executive officer (CEO) ofConrex, a company buying single-family homes to rent them out. It is a fieldthat blossomed in the last decade, when investors took advantage of low housingprices. Today, there are about 16 million single-family rental homes across thecountry, and Grzyb estimates the market at around $4 trillion—slightly higherthan the $3.7 trillion market for multifamily rentals.
While the homes-for-rent sectorhas historically been dominated by small, mom-and-pop investors, the role ofinstitutional investors is still growing; larger companies now own about 2percent of the market. Conrex, founded in 2011, is one of those companies. Currently,the firm owns almost 10,000 houses across the Sunbelt region.
Grzyb explained that whilethe single-family rental field is wholly a private-sector one—largely driven byinvestment opportunities—it is effectively increasing the country’s affordablehousing stock.
“Single-family rentals aremore affordable per square foot than multifamily—you get a bit more space,”explained Grzyb. “It’s entry-level workforce housing, at the upper end ofaffordable housing.”
Conrex largely focuses on midsizedcities such as Columbia, South Carolina, and Birmingham, Alabama. As a result, thecompany can keep its rents around $1,200 per month and appeal to those earning50 to 70 percent of the area median income (AMI). And it has ambitions tocreate substantially more affordable housing, Grzyb said. “We believe there’llbe additional opportunities to go lower in AMI.”
In contrast to Conrex and other single-family rental companies, the Lotus Campaign is very intentionally creating more affordable housing—in this case, to house people who have been homeless. Philip Payne, a ULI Trustee and Foundation Governor, is cofounder and chairman of the Charlotte, North Carolina–based organization, which aims to turn the typical nonprofit-directed model of homeless services on its head.
“Traditionally, homelessness hasbeen approached through the ‘moral model,’ which means a lot of nonprofits thataren’t actually familiar with real estate deals,” explained Payne, who hasspent decades renovating and managing multifamily properties as CEO of GinkgoResidential. “They don’t invite the private sector to the table”—even though thatis where the people with the most expertise and money tend to be, he added.
In contrast, “Lotus is market-and action-based,” said Payne. The model is fairly unique. His organization worksdirectly with property owners to get homeless people placed in apartments: it provideslandlords with a one-time incentive payment (often around $1,000) andguarantees against nonpayment of rent and damages. It also acts as anintermediary in cases of potential eviction. At the same time, Lotus partnerswith specific social service agencies that will check on the tenants on amonthly basis.
The organization’s realprivate-sector element, though, is its purchase and renovation of olderapartment complexes; 20 percent of the units are then made available tohomeless people, and the rest are affordable to those earning 60 percent of AMIor above. Lotus is working with a New York–based investment fund, and returns arearound 6 percent—essentially market rate, said Payne, who added that he isseeking investors.
The project is going well; inits first 14 months in Charlotte, Payne said, the organization placed 200people in homes—with no payments made for damages and no evictions.
Don Oglesby, CEO of Homes of Hope, sounded a similar message: with personal attention, a stable place to live, and some outside money, individuals and families can thrive. “Our mission and vision are generational change,” he said. “We’ll help with families so they can move up the economic mobility ladder.”
The Greenville, South Carolina–based organization works closely with low-income families by shepherding them through financial wellness classes that help participants identify their financial objectives. At the same time, Homes of Hope is building affordable, market-quality homes in mixed-income neighborhoods; these houses are available for rent or sale to participants once they finish the program. Currently, Homes of Hope has almost 230 homes in its pipeline.
“This isn’t just throughdonations or government funding,” explained Oglesby. “That model is broken.”But to keep its rents affordable to families earning 30 to 80 percent of AMI,the organization has to have some kind of subsidy. In response, Homes of Hopehas developed a social impact equity fund with 10-year terms. Like the LotusCampaign, it is seeking investors. “Cheap or patient capital is what we need,”said Oglesby.
