Report
Teaser, summary, work performed and final results
Periodic Reporting for period 1 - REINVEST (Financing Affordable Housing Under Localism)
Teaser
The project addressed the European urban governance challenge of motivating private investment to increase affordable rental housing supply under state austerity and localism. The high-pressure rental markets of New York, London and Amsterdam provided study sites, generating...
Summary
The project addressed the European urban governance challenge of motivating private investment to increase affordable rental housing supply under state austerity and localism. The high-pressure rental markets of New York, London and Amsterdam provided study sites, generating insights from both US and European experience. Currently, demand for affordable rentals in Europe’s cities is escalating, with severe shortages in global cultural and financial centres. Low and moderate-income renters are being priced out amidst growing social vulnerability, with implications for social justice, socio-spatial cohesion and urban economic development. While traditional forms of social and public housing remain vital to meeting housing need, neoliberal reforms have scaled back their resources. These reforms, which mirror earlier developments in US cities, have also promoted ‘localism’, asking civil society and commercial actors to help meet local community needs. The research examined emerging supply strategies that hinge on community-based not-for-profits developing affordable rentals with less state funding, and more private finance. The target investors are large financial institutions, ostensibly motivated by both steady long-term returns and opportunities for local social impact.
Yet little is known about how these new investment opportunities connect to investors’ internal motives and organisational structures. The role of social impact investment objectives, for example, is not yet clear, nor are the long-term societal implications of this shift to private finance. The overarching objective of the study was to build understanding on how investment opportunities in affordable rental projects connect to investors’ structures and logics, and how drivers for investment differ in US and European cities. To this end, the study: (1) took a comparative approach to learn how local institutions in different cities help connect projects to finance (2) developed a conceptual approach to understanding investment relationships, using theories of organisational hybridity to explain how they balance societal and commercial aims, and (3) used cross sectoral partnerships to disseminate findings and inform both academic research and housing practice.
Work performed
The project began with a literature review to inform the conceptual approach and to establish the state of the art in each study setting. This guided the selection of programmes and projects studied. A simple set of criteria for the evaluation of affordable rental housing projects was developed and initial interviews with industry experts in the two European cities were used to identify key local contextual factors and case study sites. The decision was made to focus the international comparison on programmes for privately financed affordable rental housing provision, using analysis of projects within them to understand housing outcomes produced. The second work package refined the analytical approach through presentations to the industry partner, academic experts and policymakers in both European cities. Semi-structured interviews in the three urban settings with key industry actors were then undertaken to reveal their interpretations of the institutions that help connect local affordable housing project to finance. A comparative appraisal of selected affordable rental housing programmes and projects in the three cities focused on how the investment relationships were institutionally structured and negotiated. Findings were synthesised to identify opportunities for industry and academic impact, with preliminary findings disseminated through conference presentations.
Main findings: (1) The ‘Holy Grail’ of sustainable low-cost private finance for a non-profit maximising good, without risk to the public purse, remains elusive. Most institutional investment in affordable rentals in the European cities studied takes the form of loans or bond finance, underpinned by existing social housing regulatory frameworks, including implicit or explicit subsidies/guarantees. Investments outside these frameworks tend to be motivated by deep concessions over the depth and duration of affordability, and some programmes studied failed to mobilize significant investment despite such incentives. Evidence of local societal responsibilities and reputational benefits driving investment remains scarce. (2) In contrast, the New York City cases uncovered a powerful regulatory driver for banks to finance affordable rentals and other responsible investments. Federal ‘community reinvestment’ law requires transparency over bank investments in particular categories of societal value. Local civil society actors, including housing providers, participate in the assessment of bank reinvestment performance. (3) The conceptual approach based on theories of organisational hybridity showed that investment relationships studied affected organisational development, driving mission oriented not-for-profits to scale up and commercialise, but also stimulating profit-oriented investors to develop shallow social traits such as opening community reinvestment divisions.
The fellow engaged with several industry and academic partners to disseminate findings through plenary and panel presentations at academic conferences and industry debates on affordable housing provision, social innovation and public participation in finance. She and the supervisor contributed to a collaborative academic/industry book project on international affordable housing finance and governance and an international academic handbook on hybrid organisations, before beginning collaboration on journal papers with both industry and academic partners. This work with industry partners led to a follow on academic/industry liaison role for the fellow with the European Federation for Living enabling longer term embedding of project learning with key industry partners.
Final results
Debate on affordable rental housing finance in Europe tends to focus on financial incentives and voluntary corporate social responsibility, leaving the significance of how investors are publicly regulated underexplored. By exploring project funding agreements and the governance arrangements behind them, the research revealed powers of participatory governance that are institutionalized in the US, but as yet untapped in European cities. While formal policy and legislative structures are vital to attaining investor confidence, institutionalized processes of negotiation over local social impact investments can also be structured – even in liberalized and competitive property markets, to empower local communities.
The findings speak to high level debates on the need to reform Europe’s financial sector, so that it promotes sustainable development, provides transparency, and fulfils basic accountabilities to citizens. They also have implications for work being undertaken by the industry partners to develop indicators for investors to measure the social impact for affordable rental housing projects. The empirical study also highlighted the long-term systemic risks of privately financed models for time-limited affordable rentals, and the immense societal value of existing forms of public and social housing around Europe. This suggests that governments need to develop regulatory frameworks that demand greater social value in return for the implicit and explicit subsidies and guarantees they provide to housing investors.