The Key to Strengthening Low-Income Families: Connecting Financial Capability and Affordable-Housing Strategies

Co-authored by:
Executive Director Luis Granados
Director of Asset Building Programs Lucy Arellano
Director of Community Real Estate Karoleen Feng

At MEDA, we believe that given the existing housing and economic circumstances in the Mission District, San Francisco — and the Bay Area overall — it is imperative that low-income families are concurrently connected to financial-capability services and affordable-housing opportunities. To keep our racial and economic diversity, the financial capability and affordable-housing sectors, plus funders, can no longer separate housing as a foundational asset from financial capability.  Now is the time for a collective, innovative and commonsense approach for addressing these issues.

Separately offering such services is impractical. For example, access to financial-capability services without housing services can still result in the displacement of that family. In reverse, access to affordable-housing opportunities without financial-capability services may result in reduced success in accessing such housing opportunities and/or tenants that are financially less ready, thereby making themselves and their buildings more financially vulnerable.  

In the Bay Area, we have experienced a perfect storm of income and housing issues. Salaries have not kept up with the cost of living. In particular, with an average household income of $49,000, Latinos in San Francisco make the least of any ethnic group, while the average salary of a technology employee (excluding janitors and security guards) is $100,000. During this time, housing production has not kept up: In the Mission District, only about 150 affordable housing units were created between 2000 and 2015. Similar communities have not fared much better.

This imbalance between supply and demand of housing has led to a few key dynamics:

  • The stagnant or low incomes of Latino households has meant the majority of that community can pay for rents that are only defined as affordable.
  • High salaries have attracted many high-tech workers to the Bay Area, and specifically the now-trendy Mission District, creating an unprecedented — and unforgiving — demand for housing.
  • Property owners (specifically, real estate investors and speculators) have taken advantage of this opportunity by purchasing buildings, evicting long-term, low-income tenants, and renting refurbished units to high-tech workers at 300 percent or more than what had been previously paid.  
  • Since the year 2000, this has resulted in 8,000 Latinos being displaced from the Mission District — that’s over 25 percent of our community.

At MEDA, we are true believers that a strong financial standing strengthens low-income families and sets them up for success and stability for generations to come. That is why we have worked tirelessly to develop and refine our culturally relevant asset-development services, now accessed by over 7,000 families per year.   

Our model involves providing access to several sets of direct services, but whether people come to MEDA to obtain a job, start or expand their business or prepare their taxes for free, they will be exposed to the basic principles of financial capability.

It’s called DISC, translating to clients receiving coaching to reduce Debt, increaseIncome and Savings, and improve their Credit.  

Typically, MEDA clients, on average, are achieving significant DISC financial outcomes:

  • Debt reduced by $4,666.
  • Income increased by over 30 percent.
  • Savings increased by over $7,111.
  • Credit improved by 25-50+ points.

These are outcomes of which any family should be proud to accomplish, and can equal significant impact on their financial standing; however, given the housing crisis in the MIssion District and elsewhere, these outcomes still fall short in helping low-income people achieve financial security. Such ever-escalating housing costs make these financial gains negligible.

Even if families are able to increase their income by over 30 percent, this amount is insufficient in compensating for the 200 to 300 percent increase in Mission District housing costs. For example, if a household increases its savings to $10,000, this amount is barely enough to cover two months’ rent and security deposit, families relying on their limited income to pay their monthly rent after just the second month of occupancy.

For this reason, it is vital to simultaneously engage families in financial-capability services and affordable-housing opportunities. MEDA so strongly believes in the need for this combination  that we became an affordable-housing developer in the last three years.   

MEDA’s housing strategies are as follows:

  1. Access to below-market-rate (BMR) rental units. We assist people in applying for BMR rental units — units created as a mitigation of the many market-rate projects that have and are being developed in San Francisco.  
  2. Access to BMR ownership units. We work with clients to be ready to apply for first-time homeownership opportunities.
  3. Purchase existing apartment buildings. We are purchasing four- to 25-unit apartment buildings that are home to tenants vulnerable to no-fault eviction.  
  4. Construct new affordable housing. We are in the process of building approximately 500 units, and have plans for an additional 1,000 units in the next four years.

We strategically connect our financial-capability services and affordable-housing strategies. We do so by assuming that every asset-building client will face housing challenges, and that our tenants will benefit from an improved financial standing.

These assumptions have led to the following bundling of services:

  • Access to below-market-rate (BMR) rental/ownership units. For these opportunities, we work with applicants to be ready by ensuring they reduce their debt, have enough savings for the deposit and exhibit a strong credit score. To become homeowners, we work with families to: increase their savings so they can meet downpayment requirements; have a credit score that enables them to receive the lowest interest rates possible from the mortgage lender; and make sure income is sufficient to afford the monthly mortgage payments.  
  • Financial capability services for MEDA residents existing apartment buildings. Financial capability services are key in ensuring that, collectively, tenants are able to support the building’s mortgage payments. This strategy prevents tenants from being evicted. Once we acquire a building, we start introducing families to the services MEDA offers, thereby giving them tools to financially achieve their dreams.
  • Build new housing. It is important that we create a pipeline of tenants who are financially ready to access and maintain these affordable-housing opportunities over the long term. That means making sure that their debt is manageable, and that their income is maximized and stabilized.

Additionally, we have become a Community Development Finance Institution to directly  access financing capital and lend to our real estate ventures. The CDFI will initially set up a $20 million acquisition fund for us to have quick and flexible access to funds and be competitive with private-sector buyers, who can often close their deals in no more than 30 or 45 days.  

To address current circumstances, we must collectively tailor some of our practices.

Financial capability professionals working with low-income individuals must assess clients’ housing situations during the intake process as a means to understanding the level of housing stability. Once that assessment is made, a financial action plan can be properly set for clients’ specific financial goals.   

Affordable-housing developers should recognize the benefit of financial capability services in the maintaining of their developments. Also, by incorporating financial capability as the main piece of the key supportive services available to tenants. This puts residents on a path to building assets, from supporting their own or their children’s education, starting a small business or to buying their first home.

Funders who support affordable housing and/or financial capability should leverage their resources to support the integration of financial-capability services and housing opportunities.  Among other strategies, funders can further this integration by directly providing resources to this effort, convening conversations on this topic and influencing their peers to adopt a similar approach.

Also, consideration should be given to developing the financial capability, affordable housing and access to capital  infrastructure in high cost, low-income communities of color like the Mission District. We know that for about 15 years, this infrastructure was not available in the Mission, and few affordable-housing units built. Now that this infrastructure is in place, we are confident in our ability to strongly expand our housing portfolio; however, the question arises of how to address this type of capacity in similar communities in San Jose, Oakland, Richmond and elsewhere. Is that capacity there and does it just need capacity investment and assistance to leap to the challenges devastating our communities? Or do we rely on regional affordable-housing developers to carry out that work? If so, what is the difference in approach of these place-based developers versus the regional developers?   

The unprecedented level of displacement that is facing the Mission, San Francisco — and the Bay Area overall — calls for an all-the-more collective, innovative and commonsense approach for addressing these issues.

Please join us.

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