Can Social Investments in Housing Offset Gentrification?

An urban renaissance has been taking place in many of America’s cities, with philanthropy at the forefront. Foundations and wealthy donors have heavily supported a range of public goods to make urban life more appealing, including parks, museums, bike lanes, farmers markets, and much more. 

But an urbanist boom doesn’t come without its costs, starting with gentrification and displacement of poorer residents. We've covered a number of funders grappling with these downsides, which isn't an easy challenge for philanthropy, given that gentrification is largely driven by market forces in the housing market and the broader economy. The more appealing and prosperous cities become, the more attractive they are to affluent people, with a squeeze on everyone else. 

Funders have pulled multiple levers to lessen this squeeze, including preserving the affordable housing stock that does exist and helping finance the building of new housing. Not all these efforts are in response to pressures from gentrification. In fact, the housing affordability crisis extends well beyond communities that are being gentrified. Along with healthcare, housing is an area where the market simply hasn't been functioning well for many working Americans, and for various reasons. Yet, as we often stress, the resources of private philanthropy are very small relative to the scope of the problem here. Which is why it's all the more important for funders to forge partnerships with other stakeholders, and go beyond traditional grantmaking through impact investments. 

The Kresge Foundation is among those funders who are adept at doing both. Most recently, as part of a sizable social investment program (topping $350 million in grants, loans, equity, guarantees and the like through 2020), Kresge announced a $10 million investment with the National Housing Trust (NHT) to renovate mixed-income, mixed-use residential properties. At least 20 percent of the units will be reserved for Section 8 renters.

Kresge’s Social Investment Practice is pretty unique among foundations, not because it supports social enterprises, but because it does so by fiscally supporting partner organizations like NHT. As we’ve reported, community development finance institutions (CDFIs) are also frequent beneficiaries of Kresge’s social investment money.

Focusing on developments in Chicago, Baltimore, New Jersey and West Hartford, Connecticut, the equity investment supports affordable housing in close proximity to good schools, retail, and transit. As part of the equity investment, Kresge hopes to track educational outcomes of students living in the developments. Those results will help the foundation determine whether this investment approach is working. 

An additional three-year grant of $150,000 supports the National Housing Trust’s policy work, pushing for fair housing requirements in places where urban amenities are plentiful. Since 2009, Kresge has awarded $775,000 in grants to NHT, mostly for efforts around energy efficiency in affordable housing developments.

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Through its support for fair housing and good urban health outcomes, the Kresge Foundation is keyed into the challenges facing America’s rapidly changing cities. Kresge’s American Cities Practice draws on the foundation’s experience in Detroit to fund policy studies on topics like economic restructuring, fiscal collapse, infrastructure, inequity, inclusive growth and natural disasters.

Kresge loves partnerships of all kinds. We’ve covered its collaboration with players like the Robert Wood Johnson Foundation, KeyBank and Goldman Sachs on the Strong Families Fund, a $70 million initiative to pay for 600 to 700 units of affordable housing, weaving in a Pay for Performance model to incentivize on-site social services.

Kresge’s investments in NHT and the Strong Families Fund are bids to help low-income urban residents stay in the city as rents rise. Does this conflict with Kresge’s support (along with a lot of other big foundations) for housing mobility? Not at all. In this new era, high-opportunity neighborhoods are often urban, too, and might be very near to the “low-opportunity” areas some residents want to leave. Also, as program officers at Kresge note, the NHT investment is partly exploratory. Which partnerships with private developers can work, and for which housing types? How much risk should foundations take on to ensure that disadvantaged groups can access high-opportunity urban areas? Those are questions that innovative approaches to housing philanthropy can address.

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