LABC Institute Study Highlights Innovative Models for Attracting Private Capital to Maximize Measure A Funding for Affordable Housing

Adapting some of the nation’s most innovative affordable housing strategies that attract private investment and philanthropy can greatly extend the impact of new Measure A funding to scale up construction and preservation of affordable housing in Los Angeles County, according to initial findings of a study commissioned by the Los Angeles Business Council Institute.

The research by the Terner Center for Housing Innovation at UC Berkeley and Forsyth Street Advisors is particularly timely, as the Los Angeles County Affordable Housing Solutions Agency (LACAHSA) prepares to start allocating hundreds of millions of dollars in sales tax revenue dedicated to addressing the region’s homelessness and housing crises.

The researchers reviewed successful funding models used by housing finance agencies nationwide, such as issuing bonds and seeding accelerator funds that also raise private capital. Such market-driven approaches, coupled with LACAHSA’s unique and permanent funding through Measure A, could attract new investors and development partners to leverage county resources, jumpstart affordable housing projects, and ensure housing-supply growth over the long-term.

LACAHSA draws its core funding from Measure A, a half-cent countywide sales tax to support comprehensive homelessness services and affordable housing. Nearly 36% of Measure A revenues, or about $385 million, will flow to LACAHSA annually, largely to fund housing production and preservation. By law, LACAHSA must pass 70% of this revenue to municipalities, where the bulk will support new affordable housing projects by leveraging existing state and federal affordable housing subsidy sources.

The study focuses, instead, on how LACAHSA can maximize funds it retains for housing development and preservation – nearly $70 million each year – primarily to create affordable housing opportunities in ways that augment – but don’t directly compete for – those same scarce state and federal subsidies.

Applying achievable levels of financial leverage, LACAHSA is initially targeting the production of 3,300 affordable units in the next five years. Tapping into the capital markets and philanthropy allows LACAHSA to generate far more affordable homes than the agency could finance otherwise and can be additive to new housing produced with Measure A funds allotted to the county’s 88 cities.

“Public funding is essential, but it isn’t enough to scale up to address the dire affordable housing shortage,” said Ben Metcalf, Managing Director of the Terner Center for Housing Innovation at UC Berkeley and Chief Executive Officer of Terner Labs. “LACAHSA can instead draw from tested, scalable models that use public funds to bring in additional, catalytic capital from mission-oriented sources like philanthropies and foundations, as well market-oriented sources like financial institutions.”

The New York City Housing Development Corporation, for example, has established best practices among housing finance agencies that tap capital markets by issuing bonds. The bond proceeds support construction and permanent loans for affordable housing, and thanks to strong partnerships, the agency’s assets have grown over 54 years to $28.5 billion.

San Francisco offers another promising model. In 2017, the City contributed $10 million to seed the Housing Accelerator Fund, a nonprofit vehicle that drew additional support from philanthropies and mission-oriented investors. The Fund’s ability to speed up affordable housing lending later attracted mainstream institutional investors, further scaling the impact. In less than a decade, the Fund has invested $590 million to finance the production or preservation of 2,997 units in one of the country’s costliest markets.

Using the accelerator fund model with an initial focus on preservation, LACAHSA estimates it could leverage $50 million in Measure A seed funding 12-fold to $600 million in 10 years. The agency’s initial projections for funding and units preserved could change depending on economic conditions.

“LACAHSA is bringing a new era of affordable housing investment to L.A. County, and not a moment too soon,” said Rex Richardson, Mayor of Long Beach and Chair of LACAHSA. “We’re finalizing the structure to grow and preserve affordable communities this summer - and ultimately introduce innovative new solutions this Fall.”

For the capital markets and accelerator fund strategies, LACAHSA starts with an advantage that New York and San Francisco didn’t have: immediate and predictable annual funding. The ongoing capital stream from Measure A will enhance LACAHSA’s ability to borrow and attract investment.

“Measure A is a transformative funding source that creates opportunities for entrepreneurial strategies to maximize public and private dollars to tackle L.A.’s affordable housing challenge,” said LABC President Mary Leslie. “We’re proud to have supported it, and we look forward to working with LACAHSA to mobilize business community support for successful models that fund a basic need.”

While LACAHSA-led initiatives will open avenues for new, non-traditional affordable housing investors and lenders, the annual distribution of $256 million in Measure A funds to L.A. County municipalities ensures the Los Angeles region doesn’t leave any state or federal affordable housing subsidies on the table.

“Coupling public funding with investment capital from pension funds and financial institutions has been a key strategy for us in California,” said Bill Witte, Chairman and CEO of Related California, a unit of national real estate developer Related Companies. ”We are always looking for creative ways to leverage capital to help finance affordable and workforce housing, and I think there is great potential in LACAHSA to accomplish this.”

“It’s an exciting time for affordable housing providers seeking innovative approaches to enhance traditional financing models," said Beulah Ku, Chief Strategy Officer at Century Housing, a major affordable housing lender. "LACAHSA addresses a critical need by providing cities and investors multiple ways to channel funds toward accelerating production and preservation of affordable housing in the nation’s most populous county.”

The preliminary findings of the Terner Center-Forsyth Street study were presented today at the 23^rd Annual LABC Mayoral Housing, Transportation and Jobs Summit. The study is the latest in a series of LABCi-commissioned research that has set the agenda for housing and homelessness policy solutions in Southern California.

About the Los Angeles Business Council Institute

The LABC Institute is a forward-thinking research and education organization dedicated to strengthening the sustainable economy of California. Founded in 2010, the Institute provides a bridge between the business, government, environmental, labor and nonprofit communities of Southern California to develop policies and programs that promote investment, jobs and business development. The Institute is the research and education arm of the Los Angeles Business Council, one of the most respected business advocacy organizations in the region. Founded in 1936, the LABC is known as an innovator and catalyst for policy development on a wide range of issues, including education, housing, green building, energy efficiency, transportation and solar development. For more information, please visit labusinesscouncil.org.

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