Essays on People, Place & Purpose

Investing in What Works for America's Communities

Integration and Innovation in a Time of Stress: Doing the Best for People and Place

by Ellen Seidman

The Great Recession has also greatly harmed lower-income communities, including some that had made significant progress during the previous 30 years. House prices have collapsed and are showing no sign of recovery in many lower-income communities, record levels of vacant and foreclosed homes have attracted speculative buyers with little interest in the continued health of the community, and rental vacancies (especially for lower rent and larger apartments) are down while demand is up. As former Assistant Secretary for Policy Development and Research at the Department of Housing and Urban Development Raphael Bostic put it, in many places “there is no functioning real estate market.”6 This situation has in turn ignited a debate about one of the major tenets of community development: the value of homeownership. Whereas some have questioned whether both the country and the field have put excessive emphasis on homeownership as the key to “the American Dream,” others have pointed out that lower-income homeowners with well-designed loans, in particular long-term fixed-rate mortgages, were generally able to weather the recession successfully and to provide important stability to their communities.7

A related challenge is the uncertain state of the housing finance system. With Fannie Mae and Freddie Mac in conservatorship, more than 90 percent of home mortgage loans backed in some way by the government, a moribund market for private securities backed by mortgages, regulatory uncertainty, and mortgage originations drastically down both in general and among lower-income borrowers,8 the future of housing finance—especially for affordable housing, whether ownership or rental—is less clear than at any time since the 1930s. Although one of the major breakthroughs in community development over the past 10 years has been to consistently broaden the field’s interest beyond housing, as Sister Lillian Murphy and Janet Falk point out in their essay, “the need for quality, affordable housing is still a crucial part of the equation.” Unless and until the housing finance issue is settled in a way that continues to support affordability, real progress in rebuilding stable mixed-income communities, especially in the communities hard hit by the recession and in newly-attractive city centers where rebuilding can lead to the displacement of long-time residents, will be especially difficult.

Community development also faces significant fiscal challenges. At the federal level, the twin challenges of a growing deficit and political gridlock threaten four critical sources of support for community development—funds to support construction of, for example, affordable rental housing; operating subsidies; tax credit programs for low-income housing and for facilities and commercial development in low-income communities; and support for innovation. Although there may be new sources of federal funding (such as from the Affordable Care Act), and the Obama administration has tried to protect community development programs and make them more efficient through such integrative efforts as Choice Neighborhoods and Promise Neighborhoods, there is little doubt they are under threat. The threat is both direct, through a reduction in appropriations, and indirect, such as through tax reform that might lower the tax rate or do away with the Low Income Housing Tax Credit and New Markets Tax Credit, both of which are important to community development finance. The challenges at the federal level are replicated and amplified at the state and local levels, where both funds specifically targeted to lower-income communities and monies to support broader infrastructure development, upkeep, and basic services (such as police, fire, and schools) have been hard hit by a stagnant economy, reduced property values and property tax revenues, and reduced transfers from the federal and state government, at a time when the demand for services is increasing.9

Although government and philanthropic support has always been critical to community development—especially to provide scarce equity, credit enhancement, and operating support—most of the money that flows into community development real estate projects comes from banks subject to the Community Reinvestment Act (CRA), which is also under severe pressure. The number of banks in the United States has declined by 40 percent since 1995, when the regulations governing the CRA were last seriously revised. Moreover, the 10 largest banks now hold 43 percent of system assets and the 100 largest hold 79 percent.10 This means that not only are there fewer institutions subject to the CRA, but those that remain have less local knowledge and decision-making is further removed from communities. These changes have been exacerbated by increased capital and regulatory demands on the remaining banks, often resulting in diminished funds for community development.

Finally, banks are finding it more difficult to get CRA credit for targeting funds to the communities and investments most in need because the CRA regulations, adopted before the wave of coast-to-coast mergers and acquisitions that have transformed the banking system, are outdated for today’s needs. And, as Antony Bugg-Levine points out, the CRA is less important to bank senior management in a world in which regulators are more focused on safety and soundness. The financial stresses on banks aren’t over, especially for smaller institutions that serve lower-income and minority communities. There were more than 400 bank failures from 2008 through 2011, and as of the end of March 2012, there were still 772 banks on the “problem institutions” list.11


The essential building blocks of community development are physical, human, and financial capital. Each is changing in ways that will continue to evolve over the next several decades. With respect to physical capital—in many ways what community development has been focused on for much of the past 30 years— affordable housing continues to be critical. With the housing and housing finance markets in continuing disarray, the Low Income Housing Tax Credit threatened, and (as Murphy and Falk point out) the business model of most nonprofit affordable housing developers unsustainable, this will be more of a challenge than it would have appeared eight to 10 years ago.

What’s more, as the essays in this book make clear, healthy communities demand more than housing. Franklin and Edwards’ description of Purpose Built’s work in Atlanta emphasizes the need to integrate mixed-income housing with high-quality cradle-to-career education and supportive public services. The work of Neighborhood Centers, Inc. in Houston, which Blanchard describes, focuses largely on empowering a community to work together to discern and accomplish its goals, but the physical structure that holds it all together in the end is a “bricks and mortar” multipurpose community center. Others emphasize the broader nature of the built environment, including the structure of the community to encourage a healthy lifestyle (Risa Lavizzo-Mourey, Nancy Adler), the connection of the community to transit and to anchor institutions (Smith and Brooks, Howard), and the integration of the community into the broader regional economy (Edelman, Hecht, Smith and Brooks, Duncan, Blackwell).

Beyond physical capital, healthy communities focus on human capital—improving the quality of life for lower-income people, whether focused specifically on a place or not. As Federal Reserve Governor Elizabeth Duke writes in her foreword, “At one time, policy discussions revolved around whether community development was about people or places. I would argue that the debate is over and both sides won.” Thus, as both Conti and Heckman and Jack Shonkoff and James Radner state in their essays, interventions to ensure early childhood health and the development of social and character skills are critically effective in improving outcomes for children, families, and communities. Ingrid Gould Ellen focuses on the importance of public safety in part simply because people care about it, but also because crime destroys the fabric of the neighborhood and increases individual and family stress. Tescher points out that quality financial services are key to moving families beyond a cash economy and enabling them to build both a financial cushion and a strong credit history. And several authors, including Miller, Howard, Edelman, Hecht, the Secretaries and Blackwell, focus on the importance of jobs that provide a stable income and security.

Finally, healthy communities need financial capital. For individuals, as Tescher states, this means having financial services— including transactions, savings, investing, and borrowing—that are well-priced, well-designed, well-marketed, and accessible. Technology such as smartphones and unconventional distribution channels such as nonprofit organizations like the AARP and retailers like Wal-Mart may complement (and in some cases supersede) traditional banks and credit unions.

Healthy communities also need access to new forms of capital and to make better use of what is available. During the past 50 years, several thousand community development corporations (CDCs) have developed, acquired, and managed more than a million units of affordable housing. Murphy and Falk find that in an era of reduced federal funds, the CDC business model is outdated and unsustainable. They call for a new model that allows for innovation, collaboration, and diversification and that is sustained to a far greater extent by low-cost enterprise funding instead of the project-based funding on which the current model is based.

At the same time, CDFIs, including nonprofit loan funds and credit unions and for-profit banks dedicated to working in lower-income neighborhoods, have grown increasingly sophisticated at accessing and using public and philanthropic funds to leverage private money, largely from banks, to support housing, facilities, and economic development. CDFIs largely came through the recession in relatively strong financial condition. But as Bugg-Levine and others point out, their ability to access the larger pools of capital necessary to bring greater scale to their activities—including social impact investors and new sources of public funds—will depend on enhancing their efficiency, transparency,12 and ability to demonstrate impact. This will likely require industry consolidation, or at least far more robust networks of shared services, and, according to Mark Pinsky, focus on a brand that emphasizes strength, effectiveness, and “solution,” rather than “community development.”

Technology can also help increase access to capital. Before 2008, community development was beginning to find ways to tap the broader capital markets through securitization; as Hecht suggests, this may once again become possible. But beyond that, social networks enabled by technology may provide access to capital for community development through techniques ranging from person-to-person lending to the type of equity fundraising authorized by the recently enacted Jumpstart Our Business Startups (JOBS) Act. Focusing on foundations, both Miller and Lavizzo-Mourey assert that to be effective, foundations supporting community development will need to use more—perhaps all—of their financial and human assets and intellectual capital to support their mission, in better collaboration with others.

Although only Paul Grogan and Blackwell take on the issue of policy advocacy directly, it will be impossible for community development to retain and gain increased access to the public monies and systems (such as the CRA) on which it has relied unless those involved in the field, including those in communities, make their needs known and voices heard. This encompasses advocacy to ensure that the outcomes of deficit reduction and tax reform, banking regulation and land use planning, health care reform and energy efficiency, enhance the country’s ability to serve its entire population. While many authors assert the need for increased direct funding for community development, Mark Calabria argues that programmatic funding for community development may in fact be holding communities back from choosing to do what is in their own best interests, and that a more market-based solution is needed.


The essays in this book suggest a series of strategies that will be essential if the field is to accomplish its goals relating to poverty, community, and the broader economy. Key concepts are that solutions must be integrated, broadly collaborative, data-driven and focused on what works, and entrepreneurial.

In Part 1, Belsky and Fauth discuss the increasing focus on integrated community development, ranging from the highly directive strategies of Purpose Built and the Harlem Children’s Zone to the more resident-driven Neighborhood Centers and LISC’s Better Communities Initiative. As von Hoffman makes clear, “comprehensive” community development strategies have a long history. What distinguishes the newer strategies is a conscious effort to understand the linkages among, for example, housing, health, education, public safety, and economic development, and to tackle them in a manner that strengthens them in concert. As the Secretaries put it, “As community developers have long recognized, the problems that contribute to poverty are very much interconnected. While poverty cannot be explained as merely a consequence of housing, education and health, each poses unique challenges to low-income families at the community level and none can be understood independently of one another.” Blanchard says “real transformation comes from an integrated, focused approach to neighborhood transformation, not from an ‘either/or’ set of choices like housing or school, health or financial, infrastructure or immigration,” whereas Lavizzo-Mourey states that “what we’ve learned is that factors that are integral to poverty—such as insufficient education, inadequate housing, racism, and food insecurity—are also indicators of poor health.” Edelman, Franklin and Edwards, and others also stress the need for integrated solutions. Similarly, Bugg-Levine emphasizes the need to integrate financing strategies, involving both human and financial capital and focused on solving problems, with investment as one tool rather than the focus of action.

Integration of necessity requires collaboration across many disciplines, types of programs, and funding sources, and among a wide range of stakeholders, from residents to the most powerful actors in a community or region. Xavier Briggs and Phillip Thompson call for “deep democracy” or “empowerment 2.0,” collective problem-solving that “hinges on developing and using ‘civic capacity’ with and beyond the government” to ensure sustained effort, trust, and “the creative exchange of ideas.” Radner and Shonkoff emphasize the need for broad-based collaboration, including in particular for community involvement in both goal setting and strategy development. Blanchard summarizes this line of thought: “The people are the asset. . . . Community development is about unlocking that asset, releasing the potential of people to move forward together.” Briggs and Thompson and Howard extend this concept to community control over capital through, for example, worker-owned businesses and greater accountability for owners, managers, and users of capital, a concept also present in Blackwell’s focus on equity.

“One table” collaboration requires facing issues such as determining who is at the table, finding local leadership and keeping it relevant, the impact of race and poverty on effective participation, and the extent to which organizations or individuals will be at the table. Calabria raises the question whether it is possible to accomplish this in a manner that is not captured by elites who act in their own interest even when they think they are acting in the community interest. Calabria suggests that neighborhoods might in fact be better off with fewer participation requirements, but also less discretion on the part of officials and more reliance on rules and the market to make investment decisions.

However residents make their views known, integration requires new relationships among more institutional players.13 The Secretaries point to integration initiatives across the country, under the umbrellas of the Neighborhood Revitalization Initiative and Strong Cities, Strong Communities. Hecht, citing Living Cities’ Integration Initiative, stresses the need for a systematic change in approach, rebuilding the civic infrastructure, systems innovation, engaging the private market by focusing on shared value, and using “big data,” social media, and distributed leadership to make it all happen. Smith and Brooks, focusing on transportation systems, which are typically large in geography, cost, and time, state that collaboration and integration across disciplines and timelines is essential, especially to influence both transportation infrastructure and the location decisions of major employers. Howard looks at the same issue from a slightly different perspective, discussing how “anchor institutions” in a community, such as universities and hospitals, can become drivers of major change in collaboration with both the community and civic and philanthropic leadership.

Several of the essays note that notwithstanding the expenditure of trillions of dollars to help low-income communities, poverty has not declined in either rate or numbers. As Edelman and others point out, much has indeed been accomplished. But our ability to fully understand the impact of the accomplishments of community development—affordable housing units, charter school seats, health clinic spaces, square feet of commercial space, and similar metrics—on the lives of those living in the communities has been limited. One of the major goals of the new community development efforts, aided by significant advances in information technology, life sciences, and other fields, has been to collect, analyze, and use data to drive investment to activities with the greatest impact, a point emphasized by Conti and Heckman, Lavizzo-Mourey, Smith and Brooks, and Murphy and Falk. Although there are concerns, some of which Belsky and Fauth raise, that too great a focus on metrics can disadvantage the small (including the rural), the new and difficult to achieve, and things that take a long time to accomplish, the pressure to demonstrate impact suggests the value of developing strategies to overcome these concerns.

Comments to these pages are moderated and will be posted as soon as possible.

Leave a Reply


Privacy Policy  |  Terms of Use  |  Content Copyright & Permission

About The Project

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.

To request a copy of the book and join our email list, Contact Us.

The views expressed in this book and on this website do not necessarily reflect the views of the Federal Reserve Bank of San Francisco, the Federal Reserve System, or the Low Income Investment Fund.

Tell Us What Works

The ideas in Investing in What Works for America’s Communities are just a start. We want to hear about what’s working in your community. Tell us about innovative ideas for addressing poverty and share examples of people and places that inspire you. We want to share these ideas and spark conversation about how to create opportunity and prosperity for all Americans. Tell Us What Works

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