Sept/Oct 1996

Housing-Led Economic Development

By Bennett L. Hecht

Nonprofit housing organizations have become significant producers of affordable housing, with more than 400,000 affordable units to their credit through 1993, according to an estimate from the National Congress for Community Economic Development. This means nonprofit landlords control millions of dollars each month in rents and rent subsidies.

Historically, nonprofits have viewed their rent stream solely as a source for paying bills. This view is changing. More and more organizations see this rent stream, along with other elements of the housing they produce, as corporate "assets" that can create economic opportunities for residents while helping nonprofits meet their objectives through better, more aggressive management. This strategy is called "Housing-led Economic Development."

What is Housing-Led Economic Development?

Unlike the neighborhood community revitalization efforts of some CDCs and similar organizations, the housing-led economic development approach exclusively targets residents of individual housing developments. Nonprofit owners create these opportunities using resources they already control, such as the rent stream (or residents' monthly payments to help cover operating expenses), funds for rehab or construction, and physical space within properties.

This economic development strategy is founded on four objectives:

• Decrease Cash Outflows from Housing Developments. Whenever possible, nonprofit owners should purchase goods and services from sources within their housing developments, instead of "importing" them from other communities. This calls for nonprofits to hire residents of their properties as on-site employees; to sponsor activities that help create nonprofit- or resident-sponsored businesses that can contract with management and other residents to provide goods and services; and to utilize firms that agree to hire and train a certain number of property residents in return for the nonprofit owners' business.
• Better Use of Space. Affordable housing developers should use available space to sponsor the delivery of much needed services or facilities, such as child care, GED classes, or a convenience store. This space can also be used to develop nonprofit- or resident-sponsored businesses. For example, the owners of a 200-unit property in Washington, D.C., made a 2,000-square-foot basement room available to an established Head Start provider who began a new Head Start program in less than 60 days, at no cost to the owner.
• Increase Cash Inflows. Nonprofit developers should also use available space to increase income to the property and residents by leasing space to paying commercial tenants, by entering into profit-sharing ventures with commercial tenants, or by providing services and products to outsiders. For example, if a developer uses an in-house painting crew, he can later "export" these services to other multifamily housing complexes. At Edgewood Terrace in Washington, D.C., an on-site computer learning center trained residents to use sophisticated mapping software - a skill residents have used to earn income from outside organizations.
• Build Contracting Capacity. The ability to increase cash inflows is directly related to the ability of nonprofit- or resident-sponsored businesses to compete for work outside of the nonprofit-owned housing developments. By controlling the awarding of contracts, the nonprofit can "incubate businesses" by awarding work to residents over a period of time until they can develop the work and contract management experience to, among other things, secure bonding necessary to compete for larger contracts. The Rocky Mountain Mutual Housing Association, based in Denver, Colorado, is working to incubate painting, landscaping, and vacant unit rehabilitation business driven by its residents.

The expanded opportunities that result from housing-led economic development not only help stabilize families by increasing their incomes, but also can stabilize the overall economic condition of housing developments. Providing more income for families results in more timely and complete payments to property owners. Timely payments allow nonprofit organizations to more adequately meet their financial obligations, fund much needed operating and replacement reserves, and spend less time and money collecting unpaid rents.

Despite the great potential of housing-led economic development, nonprofits seldom venture into this area. This may be the result of the perceived complexity of economic development work or simply the fact that nonprofits have their hands full with development and day-to-day operation of properties. Of course, housing-led economic development is not a cure-all for the complex problems facing nonprofit multifamily housing developers. But by understanding residents, their needs and skills, and through effective management of resources within the developers' control or reach, some people's lives will be changed for the better.

Creating A Housing-led Economic Development Plan

• Gather, summarize, and analyze information about residents at targeted properties, through resident surveys, for example.
• Identify assets available for economic development – such as rents, rehab/construction funds, and physical space – and the economic development opportunities created therefrom.
• Match resident skills, interests, and needs to available economic development opportunities.
• Evaluate the feasibility of sponsoring microenterprise and child care activities that help the economic development plan have its full impact.

Bennett L. Hecht is the director of housing services for The Enterprise Foundation, 10227 Wincopin Circle, Ste. 500, Columbia, MD 21044. 410-964-1230.

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