Non-Profit Developing: A Few More Thoughts

A few quick hits off my last post about non-profit infill development.

1.  I am well aware my numbers are off.  The goal wasn't to write a viable business plan, but just to illustrate a point.

2. I think a major question is: what's wrong with the current system of affordable housing development?  Overall, organizations like the San Diego Housing Commission and smaller non-profits are performing essential, important, and worthwhile work.  But often, they aren't exactly nimble.  To qualify for financing and tax credits, etc., affordable housing has to jump through a lot of hoops: greater building durability, requirements to pay prevailing wages, and strict requirements for tenants.  While all of these "hoops" are worthwhile, they also make building affordable housing difficult and expensive.  Often, affordable housing is built in large blocks and, while they aren't quite the housing projects of the past, they still result in some segregation and stigma.  While the City of San Diego desperately needs more truly affordable housing, the current affordable building practice is to work from the ground up.  A non-profit infill developer would instead work from the top down by increasing total housing supply and undercutting for-profit developers simply by forgoing the profit (and potentially earning true non-profit status, i.e., lower tax burden).

3.  Conversely, what's wrong with for-profit developers?  Nothing per se.  But they are focused on maximizing profits, which translates into a narrow range of unit sizes, not necessarily focusing on community improvement, and they also tend to dry up during recessions, when new affordable housing is needed the most.  If a non-profit developer has sufficient funding to build without taking out loans, it could seize on an economic downtown's effect on property prices to actually rev up during a recession.  Without the need to use financing to leverage investments and decrease risk, the non-profit can tread where a for-profit developer can't.

4.  Last thought:  Another great project for a non-profit developer is to create an accessory dwelling unit (ADU) program, also known as granny flats.  I won't go into why we should encourage building granny flats, but you can find some good overviews here, here, and here. The City of San Diego allows these units, but it can be a difficult process for homeowners to finance, design, permit, and build ADUs.  So I propose the non-profit enterprise lend a hand.  The ADU program would present a few standard designs for ADUs (over the garage, freestanding, etc.) that homeowners could pick, and then the non-profit would handle all design, permitting, and building of the units, with direction from the homeowners.  Additionally, the non-profit could finance the unit with little to no interest loans or taking a share of the rent until the loan is paid off.  Often, these units can be built cheaply and result in net income within a few years.  Perhaps the non-profit will also dabble in property management to take all the headaches away from homeowners.  After that, the homeowners have a new source of income, new affordable housing is mixed into nice neighborhoods, and a neighborhood's density is increased.  A net positive all around.  Although contractors are building these units, few for-profit developers would likely be interested without full up-front payment by homeowners.  If this is the case, few homeowners will have the cash on hand or ability to take out home equity loans to cover the cost.  A non-profit could help build ADUs without worrying about profits.  Another relatively low cost method to improve our city.