Ownership and Outcomes: Investigating Nonprofit and For-Profit Subsidized Housing Developers

Author: Keri-Nicole Dillman

Dissertation School: New York University

Pages: 219

Publication Date: January 2007

Availability:
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Access Number: 10832

Abstract:

State relations with nonprofit affordable housing developers have blossomed in the past quarter century. While there was a nonprofit production role in the 1960s and 1970s, it was minimal and primarily for special populations such as the elderly and the disabled. Recently, however, the largest existing federal affordable housing programs have included targeted nonprofit subsidies (O'Regan and Quigley, 2000). The Low Income Housing Tax Credit program - our largest low-income housing production program - set a 10-percent nonprofit requirement. And the HOME program of the National Affordable Housing Act (1990) required that a minimum of 15 percent of funds be allocated to community-based nonprofit organizations. Meanwhile, between 1990 and 1995, nonprofits more than doubled their share of federal housing production dollars, to 37 percent (Walker and Weinheimer, 1998, p. 19). And between 1994 and 1994 nonprofits produced more than 60,000 units (Von Hoffman, 2003, p. 16).

As the homelessness and affordable housing crises worsened in major cities, government leaders at local, county, and state levels faced growing pressure with fewer resources. As a result, local governments have also expanded their support for nonprofit providers (Deier and Kulchanski, 1993). By 1990 the majority of our large cities were providing project financing to their nonprofit housing developers, with slightly fewer also contributing administrative funding, predevelopment loans, and technical assistance (Goetz, 1993, p. 122).

Policymakers tap nonprofits because they are expected to fill in where the for-profit actors are missing - in high-risk, distressed neighborhoods (Weisbrod, 1977) - and to provide quality housing with little government monitoring (Nelson and Krashinsky, 1973; Hansmann, 1980). Simply, they are expected to do "the difficult job of providing service and leadership in communities that need help and that other agencies cannot or will not serve" (Vidal, 1992, p. 111).

Community-based nonprofit developers (CBDOs) are expected to bring additional strengths. First, their connection to the local neighborhood, through resident representation on their governing boards as well as narrow geographic focus, is seen as a tremendous asset in inner-city housing development. With such access to local knowledge about the community's housing needs and desires, CBDOs are often believed to be uniquely qualified to design and implement housing developments to meet those needs. For example, CBDOs will produce a greater proportion of large units for families or easily accessed, smaller units for the elderly, as dictated by the communities' needs. This community orientation is also expected to win greater resident support - countering the long-standing negative image of publicly subsidized housing and revitalization projects. With greater community support for the project, advocates also expect a deeper commitment to completion and maintenance among residents, rather than neglect or vandalism. Moreover, community support often includes the investment of sweat equity, thereby stretching public subsidies further.

Akin to this neighborhood connection, size is seen as a second asset of community-based nonprofit developers. As smaller, and often grassroots organizations, they are felt to be more nimble and less vulnerable to the technocratic and bureaucratic orientation of larger and city- or region-wide nonprofit organizations.

Third, and lastly, community-based developers are expected to use housing production not as an end but as a means for larger neighborhood revitalization. Local ownership, through community-based development organizations, is seen as enabling long disadvantaged communities to control material assets and reconnect with the larger economy. And when combined with community and economic development programming, as is common among Community Development Corporations (a subset of CBDOs), such housing development is expected to improve the overall quality of life in the neighborhood. While regional nonprofits may share this mission and holistic approach, the argument is that community-based providers will again have greater access to information about the particular needs and services best able to stimulate the production of human, social, and political, as well as financial, capital.

While advocates stress the advantages of the community-orientation of CBDOs, there are also reasons to expect that it compromises housing quality. First, the smaller scale and often lesser experienced CBDOs may have insufficient resources to construct durable and utilitarian housing. For example, they may lack the design experience to recreate "livable" spaces from crumbling buildings. Also, these smaller nonprofits may not only have fewer resources to commit to project monitoring, but may also have less experience with such management tools - perhaps result in lower quality, tighter budgets, and more protracted timelines. Second, their prioritization of larger community empowerment and neighborhood revitalization goals, over housing in particular, may come at a cost. Their designs may attend more to resident desires than to function or durability. And their assembly of construction resources may prioritize local vendors and construction professionals, while weighing reputation or expertise less.

Unfortunately, our knowledge about the validity of the policy assumptions is limited. The housing development and policy literatures have only scratched the surface of nonprofit housing activity (Riggin, Grasso, and Westcott, 1992; see Stoutland, 1999 and Rohe, 1998 for reviews), drawing heavily on qualitative data and relatively small-scale quantitative analyses. And despite the large presence of for-profit developers in the affordable housing industry, the relative behaviors of the sectors have rarely been investigated (rare exceptions include Cummings and DiPasquale, 1999; Hebert and Wallace, 1998; Leachman, 1997).

Evidence of sectoral differences in subsidized housing production has both practical and academic significance. As cities are experimenting with ways to spur affordable housing development, particularly in devastated central city neighborhoods, rigorous evidence on nonprofit and for-profit developers is immediately relevant to development officials. Understanding the relative strengths of each sector, as well as the unique benefits of community orientation, can aid their decisionmaking on a project-by-project basis. This information can also feed the design of public policies - setting the optimal amount of targeted nonprofit subsidies, providing technical assistance to developers, and detailing public management tools to yield affordable housing markets rich with high-quality developers.

Acknowledging these practical and empirical needs, this dissertation investigates the markets served and the production of "goods" (for example, rental housing services) by subsidized for-profit and nonprofit developers. Do the sectors work in different neighborhoods; and what characterizes the communities in which they work? And, looking deeper into sector distinctions - Do community-based nonprofit developers employ distinct planning and construction management techniques in their (re)development of projects? And to what extent are these distinctions tied to their community-based orientation or more generally to their nonprofit status? I investigate the provision of subsidized affordable housing funded under New York City's $5.3 billion Ten Year Plan over the period from 1987 to 2000, with a focus on the production of rental housing through the rehabilitation of city-owned properties.

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