We recently shared how empty retail space could be the solution to California’s affordable housing crisis. Across the country in North Carolina, the city of Charlotte is taking another innovative approach to housing security. Investors have recently established a $58 million fund to purchase affordable buildings and keep them that way. How are they doing it? Let’s take a look.
Charlotte has an estimated 120 people moving into the city each day and real estate investor Mark Ethridge noticed how many of the city’s affordable housing options were being bought up and flipped for a huge profit. Unfortunately, the city’s middle and low income citizens were left with nowhere to go. Ethridge came up with the idea to buy up low income housing, fix it up, and hold it as a fixed affordable housing unit for the long term.
In a city growing quickly, demand for the units is virtually guaranteed, so the investments offer a steady return while also helping solve the growing housing security issue. Through a 20-year deed restriction, these units become what’s known as naturally occurring affordable housing, or NOAHs. They offer a small return to investors while having a positive social benefit.
To grow the concept beyond his employer, Ascent Real Estate Capital, Ethridge partnered with local organizations and two major city donors, Nelson Schwab and Erskine Bowles, to secure a $58 million money pool. Named the Housing Impact Fund, the pool is dedicated to buying, repairing, and leasing affordable housing units to ensure they remain, well, affordable. So far, the collaboration has yielded three housing developments for a total of nearly 600 protected affordable housing units.
NOAHs have been experimented with in other US cities, but what makes Charlotte’s version so effective is the collaboration with private real estate companies. If an organization sets out to create just NOAHs, they will likely run out of funding to take the solution to scale, but working with companies that have other larger-scale real estate projects means they have the flexibility in their budget to pursue some smaller-income side projects for social benefit.
When it comes to low-income housing, roadblocks like the high cost of land often stop projects before they can even get off the ground. One great aspect of NOAHs is that they require no new land development. The fund has provisions to ensure it is successful in the long run. Any sales made after the 20 year deeds expire must divert 60 percent of profits to another affordable housing fund and the fund stipulates that 80 percent of the repair and upkeep construction on the investments must be done by minority contractors.
Ethridge and his partners tell FastCompany that they’ve had calls from all over the country asking for support in implementing NOAHs initiatives in other cities. The investors call their initiative a “fund for-profit structure.” It’s a great solution for making affordable housing not only reliable and available, but also economically viable enough to stand the test of time. We are excited to follow this project and see similar NOAHs funds established in other cities around the world.