Essays on People, Place & Purpose

Investing in What Works for America's Communities

Crossing Over to an Improved Era of Community Development

by Eric Belsky and Jennifer Fauth

Yet as the field has matured, those in it have increasingly recognized that substandard housing is only one of many problems facing the poor that community developers should address. Over time, CDC leaders have expanded their activities to include economic and commercial development and the provision of human services. While a full 92 percent of 163 community developers surveyed in 1999 developed housing, a solid 47 percent of them had workforce and youth programs. Furthermore, the same study found that an additional 17 percent of them planned to have workforce and youth programs in place within the following two years alone.8 Clearly, the trend leading into the 2000s was not to abandon a place-based housing strategy, but to complement it with a people-based one focused on social services.

The view that the community development field has to purposely pursue the development of human capital is the focus of Nancy Andrews’s paper “Coming Out as a Human Capitalist.”9 David Erickson and Andrews take this argument further in a paper called “Partnerships among Community Development, Public Health, and Health Care Could Improve the Well-Being of Low-Income People.”10

Failing to attend to the human development needs of poor and low-income individuals and families in addition to their housing and community needs can derail efforts to improve communities because it makes it harder for the residents to do well in school, find and keep jobs, and receive other supports they need. Conversely, failing to deal with place threatens to derail efforts to improve the lives of the poor because those lives are deeply affected by community conditions, including housing, schools, retail, access to jobs, and public safety.

Andrews recounts a growing body of scientific studies that plainly demonstrates that place matters to people’s life chances, and conversely, that successful human development also affects place. Indeed, path-breaking research reported in 2011 by the New England Journal of Medicine demonstrates that living in better communities can lead to about a 20 percent reduction in obesity and diabetes, an impact as great as a medical intervention.11 In addition, the stressful living environment that poverty all too often produces impedes cognitive development, as does the better known impact of certain toxins (like lead paint) often found in older, low-income housing.

Poverty is a multidimensional problem. Solutions must also be multipronged. Studies that have found a relationship between poor-quality housing, health problems, and educational attainment provide a clear and strong argument for the integration of housing with human services, including health, education, early childhood intervention, and daycare.12 The most successful interventions are not limited to placed-based bricks-and-mortar strategies; rather, they include people-based services, especially early learning programs and health counseling.

In fact, early childhood interventions and health education have been found to outpace others in terms of the strength and reliability of their long-term effectiveness. A report by the MIT Workplace Center, for example, found that “every dollar invested in quality early care and education saves taxpayers up to $13.00 in future costs.”13 While the impact of job training programs has been less consistent and compelling, the most carefully controlled study done on the combination of housing and job training did show solid positive results on both employment rates and wage levels from bundling these two forms of assistance.14

Although effective, services are harder to fund because they do not provide solid financial returns to sponsors. Instead, sponsors must rely excessively on grants rather than fee or rental income to generate operating surpluses to provide the service. Furthermore, the social impacts of these programs may take decades to manifest fully.

Housing investment, on the other hand, generally produces a positive financial return, and multi-billion dollar federal programs exist to support it. Social impact investors, therefore, need to be convinced of the social worth of activities unrelated to real estate and be willing to accept lower financial returns for investing in them. And they need to find ways to lend to entities for the operation and expansion of schools and clinics not just to building the facilities.

Striving For—And Investing In—Social Impact

The emergence of social impact investment and pay for success programs are major developments in community development. Increasingly, socially motivated investors (including philanthropic organizations, financial institutions under regulatory incentives to serve poor and low-income communities, and funds that raise money from investors willing to accept below-market returns) are interested in channeling investment into activities that have social impacts that are large and measurable. They also are trying to understand how to best use their limited socially motivated capital to leverage private capital for maximum social impact.15

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Investing in What Works for America’s Communities is a joint project of the Federal Reserve Bank of San Francisco and the Low Income Investment Fund.

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Funding for this project was generously provided to the Low Income Investment Fund by the Citi Foundation.