With most major metropolitan areas of the US struggling to alleviate the shortage of affordable housing, some high tech companies are pledging billions to combat the escalating problem.
According to the National Low Income Housing Coalition’s 2019 Gap Report, the United States has a shortage of 7 million affordable rental homes for extremely low-income renters. Meanwhile, home prices continue to outpace wage growth. In the past six years, costs have jumped 47 percent, while wages rose 16 percent. A growing share of renters (56 percent) say the big reason they don’t own a home is because they can’t afford it, according to the National Association of Realtors.
The issue is extremely complex. However, it goes beyond the obvious result of homelessness and the negative impact on low income workers, which are often the most visible casualties, and often have the most vocal advocates. Middle income workers such as nurses, teachers, and first responders are also being displaced at a rapid rate.
For many regions, the growing population of well-paid tech workers has brought a much-needed influx of money into local economies. But the downside is that middle income workers are no longer able to compete for the limited available housing – whether it’s continually-rising home prices or skyrocketing rents.This group is being forced to move further outside cities to more affordable areas.
Speaking at the Innovate Housing conference, held earlier this week in Seattle, former Washington state Governor Christine Gregoire of Challenge Seattle, said, “This hit us rapidly.” She noted that to live in the Seattle area and be considered “middle income” you need to make $125,000 annually. She added that most nurses, for example, earn about $80,000 per year.
“Families have three choices. Move out, stay and go under water, or they can displace low income residents.” Gregoire cited a study from Zillow showing in California that a 2 percent increase in housing prices had a trickle-down effect, leaving 4,000 people homeless.
“We’ve been preoccupied with the homeless and low income housing, but now it’s hitting the middle income levels.” She added that the other trickle-down problems include increased healthcare costs (from commuting stress and diminished quality of life), unhealthy air quality (from the increased commuter traffic), less quality education (as teachers move out of the cities), and a decline in the vibrancy of cities.
These problems are not specific to Seattle. Tech companies have started to take some responsibility for their part in the crisis, and have devoted millions of dollars (and in the case of Apple, billions) to help address the challenges.
Fannie Mae Executive Vice President and Chief Operating Officer, Kimberly Johnson, said in her opening remarks at the Innovate Housing conference that Microsoft is using its vast resources “and addressing the housing challenges it had a hand in creating.”
Susan Milazzo, CEO of the California Mortgage Bankers Association, who attended the Innovation Housing conference, said of Microsoft, “in broad brush terms, they’re leading the way for global companies of that size to be taking a look at issues like this and make a commitment – a financial commitment to do something to address it.”
Gregoire was on a panel at that event along with Jane Broom of Microsoft Philanthropies, The two talked about how tech is playing a key role in creating more housing opportunities and building stronger communities.
Microsoft Focuses on Housing Opportunities
In January, Microsoft announced it was dedicating $500 million to fund construction of affordable homes and homeless services in the Seattle region. The effort aims to alleviate the growing housing crisis driven by the city’s tech boom.
The Redmond, WA-based tech giant committed $475 million for loans to affordable housing developers over three years and another $25 million to services for low-income and homeless residents. It’s the largest philanthropic pledge in Microsoft’s history.
Last week, Microsoft provided a $60 million, 15-year loan at below-market interest rates to the King County Housing Authority, an independent organization established by Washington State to manage affordable housing and provide other services. King County contains Seattle and Redmond.
The county estimates the number of affordable rental homes for low- and middle-income families has decreased by 36,000 in the region. Rents increased 43 percent between 2012 and 2017.
The funds will allow King County Housing Authority to buy five residential apartment complexes in Kirkland, Bellevue, and Federal Way. Taking ownership of the 1,029 apartments will ensure they stay affordable for low- and middle-income residents. In June, Microsoft donated $5 million to a new affordable housing fund launched by Plymouth Housing.
A study by Zillow and Microsoft found that since 2011, jobs in the Seattle region have grown 21 percent while housing construction has lagged behind at 13 percent. Over the same time period, median home prices in the Puget Sound region of Washington increased 96 percent while the median household income only rose 34 percent. The study estimates there is a gap of about 305,000 middle and low-income affordable housing units in the region.
Broom said that what “flipped the switch” for Microsoft to get more involved was that the company was beginning to lose people from the area. This put an already-established Microsoft task force in “full motion to come together with a plan.”
“We began looking at what we could potentially do,” said Broom, who noted that Microsoft wanted to come into this problem as an “additive voice” with different, flexible resources, new technology, and to join in the community conversations that were already happening.
Broom went on to say that “there are a lot of people screaming from the mountain tops and no one is listening. So, having a different voice and people coming together with different points of view” is something that policy makers need to hear.
Gregoire said there was a very human side to Microsoft’s urgency in addressing the problem. She recalled a story about Microsoft CEO Brad Smith having coffee with the Bellevue Chief of Police, who told Smith he’d moved to Monroe because he could no longer afford to live in Bellevue. Then Smith also found out that the Redmond Chief of Police had also moved out of the city that houses Microsoft’s headquarters. The same was true of many local firefighters that fled for less expensive areas. Gregoire pointed out the troubling prospect that nurses and other first responders could also no longer afford certain areas and the impact on those communities (especially in an emergency) could be tragic and devastating.
But simply throwing money at the problem is not the answer. Broom acknowledged that $500 million is “so much money, but in housing that can go really fast.” She added that the capital can help realize ideas, but that the key is to be creative, innovative, and “to listen really well and be humble in the process and be flexible.”
Gregoire said that Challenge Seattle has searched to see if other areas – even other countries – had successfully solved this affordable housing problem – and see if Seattle could replicate the solution. They have not, she acknowledged.
“Everyone’s got capital, but if you don’t change public policy, rules and regulations, you can not succeed,” she said. “It’s going to take every single person in the region to make the changes.”
She admitted that one step might be to change the permitting process – and have a single permit for affordable housing. “To anyone outside this world, that might not seem like a big deal. But it is a honking big deal.” She also said, “We also need to find new funding and financing mechanics,” and noted the need to find new ways to incent builders and contractors to do more middle-income housing.
Broom said, “I do think it’s hard work to stay at the table” but you have to be “meeting people where they are at and then you can slowly push.”
When asked about mitigating the risks for private sector businesses jumping into the affordable housing fray, Broom responded that “the bigger risk is if they don’t. You can’t sustain the community, quality of life and a healthy community – the fundamental aspects of how a community must function. We have to play a role in that.”
Apple’s Big Commitment
Microsoft’s focus is on the Seattle area, but earlier this week, Apple announced it was committing $2.5 billion to combat the housing crisis in California.
The Apple initiative is designed to accelerate and expand new housing production; jump-start long-term developments that would otherwise not be possible; help first-time buyers purchase homes; and support new housing and programs to reduce homelessness.
In partnership with California Governor Gavin Newsom, the state of California and community-based organizations, Apple is providing a significant investment that offers statewide housing support as well as funding for projects in Silicon Valley(Apple is headquartered in Cupertino, CA) and the Bay Area.
“The sky-high cost of housing – both for homeowners and renters – is the defining quality-of-life concern for millions of families across this state, one that can only be fixed by building more housing. This partnership with Apple will allow the state of California to do just that,” Governor Newsom said in a statement.
Apple’s commitment includes:
- $1 billion affordable housing investment fund to provide the state and others with an open line of credit to develop and build additional new, very low- to moderate-income housing faster and at a lower cost.
- $1 billion first-time homebuyer mortgage assistance fund to provide aspiring homebuyers with financing and down payment assistance with a focus on essential service personnel, school employees and veterans.
- $300 million Apple-owned land in San Jose, CA will be available for the development of affordable housing.
The funding commitment to California is expected to take approximately two years to be fully utilized depending on the availability of projects. Capital returned to Apple will be reinvested in future projects over the next five years. In addition to these initiatives, Apple is working to identify private developers who, with the right financing and investment, are ready to start construction on affordable housing projects in the Bay Area immediately.
Apple will also provide $200 million to support new lower-income housing and help some of the most vulnerable populations in the Bay Area.
Other Tech Companies are Contributing
In September, Amazon CEO Jeff Bezos launched a $2 billion philanthropic fund to help homeless families and improve preschool education in the Seattle area. The announcement came after Amazon and other businesses spent months embroiled in a battle with the Seattle City Council over a tax on the city’s top-grossing companies to fund affordable housing.
Homelessness was also a focus for Paul Allen, the late Microsoft co-founder. Paul G. Allen Philanthropies donated $30 million to a new low-income housing development and homeless resource center in Seattle’s Mount Baker neighborhood. Allen passed away in October 2018, but the project is still under construction.
Tech behemoth Google plans to build 20,000 homes in California with a $1 billion contribution. Seventy-five percent of that will go toward repurposing company-owned land in Silicon Valley for affordable housing. The remaining $250 million will be used to establish an investment fund aimed at building another 5,000 housing units.
San Francisco-based Salesforce donated millions to a campaign in 2018 supporting a ballot measure that would tax local businesses to fund homelessness programs. Salesforce CEO Marc Benioff and his wife Lynne also personally donated $6.1 million last year to add 58 housing units in San Francisco.
Proptech and Alternative Solutions
Other tech companies are also working to solve the problem of housing affordability with different solutions including property technology (often referred to as proptech).
Module, which manufactures prefabricated housing, and Rentlogic, which aggregates publicly available data to issue ratings for 1.1 million apartment buildings in New York City to give tenants more bargaining power, are looking to make a difference in the housing crisis through the use of technology.
Venture capitalists are taking notice and VC firms invested $18.6 billion into proptech companies from 2015 to 2017 and more than 25 percent of that was invested in the fourth quarter of 2017 alone, according to a report from Re:Tech
The bottom line is that solving the growing affordable housing crisis will take time as well as a multi-faceted approach requiring a variety of constituencies working together with resources, creative ideas and a willingness to change policy.
“We have a lot of hope, but it’s a huge issue, for sure,” Broom said.
Milazzo was also hopeful for an eventual solution and added that “if it’s done correctly and successful, perhaps it’s something that can be replicated in other very expensive housing markets across the country.”