Housing production can get stuck at almost any stage of the long and winding process, be it community input, zoning approval, hiring, material acquisition, or construction. Affordable housing groups, hoping to diversify the companies building during the state’s unit crunch, are taking aim at a key barrier: accessing capital in the first place.
Rather than waiting for underrepresented groups in a sector that has typically skewed white and wealthy to build themselves up enough to become eligible for traditional housing funding sources, a new Equitable Developers Fund is “just doing away with this chicken and egg thing and saying, ‘Okay, let’s invest in these companies. Let’s give them the ability,’” Moddie Turay, president and CEO of the Massachusetts Housing Investment Corporation, said on The Codcast.
“What people don’t think about,” he said, “is, to do affordable housing projects, in order to access low-income housing tax credits and new market tax credits and all these government subsidies, it’s an entire ecosystem of consultants and this and that, and you need resources to do that. Affordable housing is not a cheap industry.”
The Boston Globe called it the $600,000 problem – the average cost to build a single unit in Boston – and Turay notes building affordable housing is as pricey and sometimes even more expensive than a market rate unit. So if a developer can’t find sources of investment, even projects with enthusiastic backing can sit in development purgatory.
This is one of many barriers facing the state’s efforts to close a gap of some 200,000 housing units by 2030, and the capital problem is especially acute for minority and low-income developers.
The Massachusetts Housing Investment Corporation, or MHIC, and MassHousing partnered earlier this year to announce the $50 million fund, which is now accepting applications. It targets active developers from underrepresented groups, meaning the developer has to have completed at least one project – which could be anything from a single family home to a mixed-use project – and have another in the pipeline.
“The hardest thing you can do in real estate is your first deal,” said Turay, who has worked in the real estate sector in both private and public capacities. “You’re having to prove to everybody that I can do this. So what we’re doing is coming in after you’ve done that, because as [MassHousing CEO] Chrystal Kornegay will tell you, we want our money back, it’s a loan.”
Coming in after that first project and with another in sight, Turay said, is a strategic bet. The new capital might let the developer hire a new staff person or fund consultants to map out the next two, or three, or four projects.
“When I was starting,” he said, “the business plan was like ‘one project under construction and one on the way.’ If you broke that cycle, you’re basically gonna go out of business. And so what we are trying to do is make sure that that cycle is continuous and that we give people the ability to continue to grow.”
Targeting developers from socially and economically disadvantaged backgrounds and communities makes sense, Turay said, because they would naturally be the first to see potential for growth that makes sense for their communities.
The Equitable Developers Fund is the largest publicly led financing program of its kind in the country, and Turay said response has already been encouraging.
“We know that there’s an absolute need for these dollars,” he said, because in just two weeks they’ve received more than 45 applicants, about three times the number they expected, with more coming in each day.
“We have to assess how the program is doing over a short period of time,” Turay said. “We would love to be able to say it’s gonna be 500 or 1,000 or 2,000 or 5,000 units, but the honest answer is we believe that it’s going to be significant and that we have to continue to take in the applications that we’re getting now with an eye on groups that we think that could really actually put a dent into that 200,000.”
Before coming to Massachusetts as a Loeb Fellow at the Harvard Graduate School of Design, Turay worked in Detroit real estate. The regions have very different struggles, he notes, but both benefit from paying close attention to specific community needs, to make sure growth is happening at the right speed in the right places.
“I think Massachusetts has maybe arguably the most robust affordable housing ecosystem in the country,” he said. “That’s just what it is. I think that what we have here – the resources we have here, the coordination we have here – is pretty amazing. Detroit’s a different animal because we were trying to rebuild a city, rebuild a market. Whereas in this market, you don’t think about it, but a market could actually work too well. That sounds crazy.”
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