Norris Bruce
Jun 22, 2018

The State of Affordable Housing With Steve PonTell and Gregory Bradbard #596

Steve PonTell and Gregory Bard

Bruce and Aaron Norris are joined this week by Steve PonTell and Gregory Bradbard.  Steve PonTell is the CEO and President of the National Community Renaissance, or National CORE, which is one of the largest affordable housing developers in the US home based in Rancho Cucamonga.  The acquisition, developer, and social services nonprofit controls over 10,000 doors and close to $1 billion in assets, while housing over 27,000 residents.  In 1996, Steve founded the La Jolla Institute, a California-based nonprofit think tank that advances a better understanding of the critical elements necessary for both communities and corporations to achieve sustainable economic competitiveness.

Gregory Bradbard is the Senior Vice President of National CORE and the President of Hope Through Housing Foundation.  He’s got 20 years of experience as a community leader and a fundraiser.  Prior to joining Hope Through Housing and National CORE, Greg served as President and Chief Executive Officer at the Inland Empire United Way.

Episode Highlights

  • Who is National CORE, and what is their mission?
  • How did both Steve and Greg get involved in the industry and their line of work?
  • Who is the core audience for National CORE?
  • How does National Core differ from HOPE Through Housing?
  • Why are social services in combination with affordable housing so important?
  • Have the structures they built changed over the years, especially when it comes to apartments vs. mixed use?
  • What is the state of affordable housing, and how has it changed over the past decade?

Episode Notes

Aaron began by asking about National CORE and how they got involved in the business. Steve said this is National CORE’s 26th year. They got started as SoCal Housing when redevelopment agencies had a responsibility for providing affordable housing but really didn’t know what to do. There was an organization in Northern California known as Bridge Housing. SoCal Housing was created to be the bridge of Southern California. They began working with cities early on and started to help solve some of the affordable housing problems in Rancho Cucamonga and Rialto. From here they have grown tremendously.

About a dozen years ago they decided to go national, and a sister organization was created that expanded nationally. About 6 years ago they merged them into one organization. Now, they are in California, Arkansas, Texas, and Florida. They are continuing to look at national opportunities, and about 80% of the work is in Southern California. Aaron asked why these particular states were picked, and it was because at the time they went national they bought a number of portfolios. The states were determined by the location of the properties. They were the logical contiguous states, and Steve said he hopes to add Maine and Alaska and have all four corners covered.

Aaron said National CORE is separate from the Foundation. Aaron wondered what the strategy was behind this and why it was set up this way. Steve said one of the challenges they have is National CORE is a developer, general contractor, and property manager as well as provides social services. The funding they get does not adequately fund the social services they want to provide. One example is they have approval for after school programs two days a week, but they are needed 5 days a week. They have to raise the money for those additional three days a week. Creating the Hope Through Housing Foundation gave them a vehicle by which they could raise the funds necessary to support the social services they needed to provide for the benefit of the residents.

Greg said one of the things he loves about the National CORE and Hope Through Housing model and partnership is that it is about so much more than just providing safe and stable housing for families and seniors. Instead, it uses the housing as a platform to create life transformation. This is really where he sees Hope Through Housing coming in with the partnership with those who are already living on the site and providing for the children, adults, and seniors to make sure they are improving both their well-being, physical health, and mental health. In addition, they want to improve their economic stability and long-term sustainability. For the kids in particular, their mission is to break the cycle of poverty. They want to do that by preparing the kids for future self-sufficiency.

Aaron asked if there is a standard property size in which they specialize, whether large or small apartment buildings. Steve said it used to be. Their goal was to do something over 100 units, and it is getting more and more difficult. They have done a couple 19-unit projects recently. Most of their projects now are in the 65-100-unit space. As of recently, they were notified they were being recommended for a cap and trade grant under the whole strategic growth initiative for 184 units in San Bernardino. They received a $20 million grant that will be voted on by the end of this month. That will be a larger project.

Aaron asked about the cap and trade and if they are talking about energy credits. Steve said they are already building lead-certified buildings, but when they put the cap and trade in place a certain amount of money was allocated for affordable housing under the logic that distressed communities are more often the most disadvantaged environmentally. They did believe that having adequate housing is a critical environmental initiative. A certain percentage of the money is put out throughout the state of California. This year was a couple hundred million. Theirs is the only project being funded this round in the Inland Empire.

Aaron said the genesis of this interview is they are doing a series based on a question from one of their real estate investors. They asked what counties and cities want to see from smaller infill projects. Aaron Norris serves on the boards of 211 Community Connect, and since he has been on the board housing and homelessness has been the top issue. 30% of the calls they take have to do with housing and homelessness. This was how he met Steve and Greg. They were at a conference, and Aaron tried to convince Steve to come on the panel. He was very hesitant and thought all panels were the same. Aaron has been putting together panels of real estate experts for over a decade, and Steve said the most interesting thing he had ever heard. He said he would like to get somebody in education and somebody in sustainability.

Steve went on to explain, but first he asked Aaron how long he had been on the board. He said it was 7 years, and Steve jokingly asked why he had not solved the problem yet. He said the challenge housing developers have to come to realize is it is true that people care about housing, but they care about health more. It is true that they care about housing, but they care about education or the environment more. One of the most critical determinants of health is housing. This is not complicated, but when it comes to being homeless and not having a healthy lifestyle, people living in overcrowded conditions is the single largest public health crisis facing the future of California.

Kids cannot perform well educationally if they do not have adequate housing or places to study or be able to focus. Tens of thousands of children are living in overcrowded circumstances. The state of California was 1 million and a half housing units short last year according to the State Department of Finance. If you care about the environment, you would care that people are adequately housed. At the end of the day, people care about the environment to the extent they can afford to care about it. If people do not have food shelter, or basic human needs, their caring about the environment is very low. If you were a true environmentalist, you would be out there fighting for every housing development you can get so people can be adequately housed. This way, we could have the resources and ability to protect the environment we want to protect.

This is one of the areas where they can cognitive dissonance. The opposition they get for housing development from those people who say they are for the environment can be completely disingenuous. Aaron asked if they didn’t like the rules about solar having to be on every house in 2020. It goes back to every idea being a good idea, but at some point you have to ask yourself at what cost. At the end of the day, if housing affordability is the most critical issue facing California right now, why would you want to mandate additional costs. Thinking through the cumulative effect of everything, fire sprinklers, garages, and back doors are all great ideas.

There are certain cities that are looking at fees for public art. This is a good idea, except every fee adds to the ability to provide housing. When you are already in a hole, at some point you have to stop digging and count the cost. Aaron asked if there is any benefit to building as a non-profit that they get out of the fees. Aaron was just at a seminar where there were industrial, commercial, and residential builders. Around 28% of the projects cost what has to do with regulation. Aaron asked if National CORE gets anything out of this since they are nonprofit. Steve said no. The only thing they get out of it is they can get a welfare exemption for property taxes. As far as developer fees and all the development processes and mitigation, National CORE pays 100% of these.

Aaron noticed these all going up now that they are making money on foreclosures and finding banks. There are really two halves of that equation. The fees are the easiest part to quantify. One of the conversations they have with cities is they need to count the total cost. This includes the cost to process, the cost of time, the cost of mitigation, uncertainty, litigation. If you paid $100,000 in fees, you would probably pay another $100,000 a door in process. Yet cities do not think this is a real cost. If you are in a pipeline for five years getting a project through, the carry cost on that money is a real cost. If you have to go to seven design, review, or planning commission meetings and then do redesigns every step of the way, those are real costs. At the end of the day, this is not calculus or algebra. This is pretty basic math, and cities should count the cost and understand the total cost before making a decision. You want to limit the cost you put on a project in order to be able to see the production of housing units that are more affordable.

Things have changed a bit over the last ten years, especially in the state of California where you specialize in with redevelopment dollars. Aaron asked how this has changed the process where the money is coming from or not coming from anywhere. Steve said redevelopment is putting $1 billion a year into affordable housing. Six and a half years later, $6 billion has been removed from the affordable housing industry, which is about 60% of all the dollars available in California specific dollars. There are still Federal dollars, which is a different category.

Cap and trade is an example of what the state has been doing over the past year where $200 million a year comes from it for affordable housing and there is a bond on it. There is money being added to the system, but it is only a fraction of what it was. Something else that is happening is the dollars being added to the system are targeting narrower and narrower slices of the population with higher levels of acuity. We are under construction in San Diego right now, and half the units are targeted for chronically homeless, veterans, and those with AIDS. This is a very slim slice of the population, and all three have to be met. The project is 60 units, and 30 of the units will target this population. At the end of the day, the direction the funding is going is toward narrower slices. The challenge is creating a community that blends together these different populations of needs and layer the funding together necessary to do a project.

Aaron was looking at National CORE’s website with all the different funding sources, and he had not even heard about half of them. At the same time, it is getting very political where regulation is coming down from the state. Aaron wondered if the money is disappearing. Steve said they have to look very hard on some of the sources of funding where the strings that are attached to it cost more than the money that is available. This is a constant balance as well. It is interesting, and we will see what happens with the next governor. The presumptive gubernatorial winner has been talking about reinstituting redevelopment, so we will see what this looks like.

The biggest problem in California is there is not enough money on the planet to build a subsidized housing for anybody who needs housing. Until the market produces market rate housing that median income-earners can afford, they are never going to get there. The distortions will continue to be significant. One of the biggest problems they have is the market is massively distorted, which is why they need more subsidy to produce the units for those people in significant need. There will always be segments of the population that need help and society has an obligation to help. The bulk of the population should have product and shelter choices available that they can afford, especially if you are earning the median income. Yet the housing units being produced are significantly more expensive than median income-earners can afford. Until we get that market distortion worked out, there is not enough money on the planet to build the necessary housing units.

There are seniors deciding to stay in place because of tax benefits and they cannot afford to move onto the next location. You do not have seniors selling houses, and the affordability crisis is landing all at one time. Bruce asked what price point in California would be the number that would be needed. Steve said it is variable by county. The median income in San Bernardino County is $60,000. If you cannot spend more than 30% of your income, you are spending $20,000 a year for housing. This would either be for rent or mortgage. $1,500 a month for a family of four would be the payment. Places like Orange County and LA County would be a little bit different. This is something that should constantly be monitored.

At the peak of the last run-up in 2007 and 2008, they were to the point where only 14% of the population could afford to buy a median-priced house. That is how much the cost of housing has risen. Now we are at the point where we are between 30%-40% of the population who can afford a median-priced house. We are continuing to trend back to where we were in the last run-up. Greg added to this by saying on the rental market side almost half of renters are rent burdened. To afford the median rent today, you have to earn essentially 2 ½-3 times the minimum wage. If you have a single parent supporting a couple kids, they would literally need 2 ½-3 fulltime minimum wage jobs in order to afford the rent.

Bruce asked what the circumstance is where people need affordable housing. He asked if it is typically one parent or if there is an autistic child. Steve said they fall into a couple of primary categories. One is seniors. The senior tsunami is real, huge, and we are so underhoused for the population. This should be a huge wake up call, especially for the seniors who want to age in place in their community where their friends and church are. The alternatives are increasingly limited, so seniors is a big component.

The vast majority of housing available is workforce housing. This refers to the working poor and those who earn anywhere from 30-60% of the median income. When discussing this, if it is $60,000 in San Bernardino, then a family earning $36,000 a year is a part of the population that would be served. These are the working poor that need places to live.

You also have an entire array of special needs. This could be developmentally disabled or autistic. National CORE has an amazing property in Montclair for developmentally disabled adults, and it is magical how everyone lives together and supports each other. There is a population that will need help, and National CORE puts this together. Other categories include transitional assistant youth and foster kids aging out of the program. 85% of foster kids end up being homeless. As a society, this is unconscionable. You can look at all these people who have physical or mental health issues and require a certain amount of support. The three major categories would be seniors, working families, and various aspects of disabilities.

Bruce said going out five years from a project being fully occupied the first time, he wondered what percentage would have the same occupants after five years. Steve said there are huge disincentives for families to move out of the properties. If you have not had stable housing, then you get it, you will do a lot to keep it. This includes not accepting a promotion or not taking a new job. When they do the math, they would need to go find a market rate house based on a new job they do not know will last versus the stability they have living in the community at the income with the job they have.

The disincentives for families to move out are huge, and the disincentives for developers to have families move out are also huge. Nobody pays National CORE to help families move out of their properties. Terms cost a lot of money as well as coaching the families takes a lot of energy with the financial literacy and language issues. National CORE, however, believes in it passionately and views the properties as launching pads, not landing pads. A lot of what they do is figuring out how they can work with families to help them move out.

Greg said they just launched a program called Pathways to Economic empowerment. It is focused on exactly what they were just discussing and is breaking cycle of poverty. However, it is really about long-term. It is one thing if they look at a family today and tell them they have affordable housing and stay where they are and changing the future generationally. Then they would need to look beyond this. One of the best ways to make this happen is through homeownership. If they can help their residents to move out and into homeownership, it can put the kids through college and provide long-term assets and stability. Pathways is a one-on-one coaching model where a one-one-one financial coach meets with the residents and helps dig into what their income, expenses, and spending patterns look like. This helps them set some personal goals. This also helps them set a household budget, which a lot of these families have never had prior. Their goal is to focus on four different things: increasing their income through employment, decreasing their debt, increasing their credit score, and increasing their short and long-term savings. What this does is it prepares them for homeownership.

This was launched with a series of first-time homebuyer workshops, and he was interested to see who showed up. When he went into the first workshop, there was literally a line out the door. There were 50 families packed into the room, and you could barely breathe. This showed him how many families, even those in affordable housing, who want this. They want to get ahead and want the best for their kids. They see the benefit long-term and are willing to make the sacrifices to get there.

Steve and Greg are excited about this. Even in just the six months since they launched it in January, they have heard some incredible stories of residents who had high interest loans and used check cashing services. They have now refinanced those and are paying down the debts. Their credit scores are going up, and three of the families they were working with have been pre-approved for home loans and are moving in that direction. There are some promising practices.

Steve said about five years is the median time people live in National CORE’s properties. Some live there for generations, while there are others who they move out more quickly. Aaron asked if there is inventory on the other side of that and if they are working with Habitat for Humanity or cities begging to help them any way they can. Greg said he wished they were begging, but they are not. However, they do have partnerships and are working with a lot of banks and lenders in addition to Habitat for Humanity. There are quite a few homebuyer assistance programs that help with down payments.

A challenge is just the cost of housing and getting them to a place where they can afford a home, even in San Bernardino County. This can be challenging. One of the things they have seen is the families who are used to a community that might have a higher standard of living and incomes, it might be harder for them to adjust if they need to move a couple towns over where the house cost might be less. It is quite a change for them in terms of what they are used to and could also mean moving their kids to a different school.

Aaron next asked if they work with any real estate investor groups that are more focused on infill properties and putting cities and investors together to bridge that gap. Right now it is harder for real estate investors to find values on the MLS, so there is a lot more conversation about creating value by building and adding accessory dwelling units. Greg said they are not working this space specifically right now, but it is definitely something they would be interested in with building these partnerships and seeing the possibilities. Steve said one of the ways they can solve the housing crisis is through accessory dwelling units. If you just look at Vancouver, British Columbia, 30% of the single-family homes have accessory dwelling units. In Southern California, it is around 1-2%. If they got to 20% of single-family homes that are accessory dwelling units, they would solve the housing crisis. They are working with market rate developers on infill multifamily units. They are working a variety of areas around Southern California with the market rate and affordable going in together. They are bringing in the affordable part of that equation.

Aaron lived in New York City for several years and lived in some very interesting areas. One of them was next to one of the projects, which had a horrible reputation. New York frowns on that period of time when they set things up the way they did. As an artist in New York, Aaron knew they were working with developers to set aside a specific number of affordable units in the middle of Times Square. They would set aside a few, and it was a lottery kind of system. Steve said this is one of the solutions. He said he would challenge anybody to randomly drive around and try to find one of their projects since theirs are indistinguishable from market rate projects. The era of public housing and the projects is pretty much over. Most affordable housing is exactly the same as market rate housing.

Tune in next week as Bruce and Aaron continue their discussion with Steve PonTell and Gregory Bradbard.

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