If you live in a major American city, you may have grown inured to the plainly unacceptable humanitarian crisis playing out on urban streets. At the start of the pandemic, more than 580,000 people were experiencing homelessness across the United States, marking the fourth year of consecutive increases. And while Covid-19 disrupted annual point-in-time counts of the unhoused, many fear that the problem has grown worse.
Significant energy has been devoted to solving homelessness, including billions in government and philanthropic dollars and millions of nonprofit working hours — all with insufficient effect. But like a quarterback whose throwing arm is in a sling, the philanthropic world is not playing near to its potential when it comes to tackling homelessness.
Rather than relying on entrenched and generally unimaginative strategies to address the problem, foundations should consider a solution that is staring them in the face: the deployment of their endowment assets to fight homelessness. Grant makers could have far more impact if they viewed every unhoused person as an investment opportunity for those assets, which now total an estimated $1 trillion nationwide. While it may sound callous, making homelessness profitable could be our best chance of ending it.
In Los Angeles, where I live and where the problem is grave, charitable foundations hold at least $96.7 billion in assets. If they invested 10 percent, or $9.7 billion, of their wealth in housing projects for those experiencing homelessness, the impact could be transformative.
The calculation is simple: Studio and one-bedroom apartments in Los Angeles can be built for $200,000 each with private funding, especially if cheaper dorm-like housing is part of the mix — including units made with repurposed shipping containers. If you divide $9.7 billion in philanthropic assets by the cost of building or rehabbing these units, the sum total is housing for 48,500 people. In a county with roughly 66,000 unhoused people, that means 73 percent could be moved off the streets.
Such a commitment from philanthropy would represent eight times the $1.2 billion city residents approved in 2016’s Proposition HHH, which promised to subsidize the cost of 10,000 units of supportive housing, which combines housing with services such as health care and substance-use treatment. As of October, just 1,041 of those units had opened, a testament to the inefficiency of a local government taking on the role of housing developer.
Recession-Proof Income Streams
Philanthropy could create housing much faster in Los Angeles and other cities across the country — all while generating tidy returns for foundation endowments. In addition, developing housing for the homeless comes with government-backed security. The City of Los Angeles doles out nearly $600 million in Section 8 vouchers every year. This, coupled with county, state, and federal programs providing rental assistance and cash relief, means that investors can rely on a near recession-proof stream of rents.
More financial products, however, are needed to make investments in eradicating homelessness a simple and risk-adjusted option for foundation endowment managers. A few models have sprung up in major cities; in New York City, for example, the $525 million Rose Affordable Housing Preservation Fund V, operated by development and investment firm Jonathan Rose Companies, drew $191 million from philanthropy in 2020, including $2 million from the Ford Foundation.
The fund will acquire, improve, and preserve aging affordable housing across the country, including bringing properties up to environmental standards and partnering with local service providers and nonprofits to offer assistance to tenants, including those who have experienced homelessness. The fund projects investment returns in the midteens, and many of the properties receive rental subsidy through the Section 8 program, which helps provide stable and predictable income. In terms of both the social and the investment impact, the payoff for foundation endowments is clear.
Similarly, in October, Los Angeles-based impact-investing firm SDS Capital Group closed a $150 million fund to develop housing for 1,800 unhoused people in California, including 1,200 in Los Angeles. Not only can SDS build studio and one-bedroom apartments for $200,000 each — easily half what it costs for publicly subsidized supportive housing — the group anticipates completing all the units in five years.
The firm can do this because private investors are the sole backers of its Supportive Housing Fund. This allows SDS to sidestep hurdles that result when developers receive government subsidies, which can include applying for as many as five funding streams. That process not only slows down construction but also regularly drives costs to more than $500,000 a unit. Fortunately, once its projects are complete, the government is there to secure the fund by providing Section 8 and other public subsidies to cover rent for its formerly homeless clientele.
Although most of SDS’s investors were not charitable foundations, three large local philanthropies did provide funds: the Annenberg, California Community, and Weingart foundations.
Tim Ortez, chief financial officer of Weingart, oversees the foundation’s $936 million endowment, and he said the $5 million investment in the SDS fund offered the double bottom line he sought: annual returns that fit with his 8 percent goal and a financial product that met the foundation’s commitment to align the entirety of its endowment with its mission.
Role of Midsize Foundations
Despite the obvious synergy of such strategies for organizations established to benefit the public, few have gone this route. Just 18 percent of small to midsize foundations surveyed by Exponent Philanthropy engaged in impact- or mission-aligned investing in 2021.
This is both disappointing and befuddling, given the opportunity to make lots of money while contributing to the social good. Right now, far too few investment funds are focused on social challenges such as the homelessness crisis. But that will change if those who hold the wealth speak up for more such vehicles in which to park their endowment assets.
The pandemic and racial-justice reckoning have forced the philanthropic world to rethink many long-held practices, including how it supports grantees and how it measures success. Now grant makers need to apply that same creative thinking to endowment assets. Foundation leaders need to recognize the power of those assets to both address an unacceptable national crisis — and produce a solid return on their investment dollars. Our communities, and those endowments, will be richer for it.
