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Strong Families Fund to finance decade-long pilot pairing affordable housing, intensive social-services coordination for low-income families

Social Investment Practice

A number of banks and philanthropic partners, led by The Kresge Foundation, the Robert Wood Johnson Foundation, KeyBank and Goldman Sachs, have committed more than $70 million to launch the Strong Families Fund, the largest pilot pay-for-performance project to finance social-services coordination and quality, affordable housing for low-income families.

The Strong Families Fund is expected to finance construction or renovation of 600 to 700 affordable-housing units in the next three years. It will also support on-site access to high-quality social-services coordination over the next decade.

The first funded project is Deborah Strong Housing, in Ypsilanti, Mich. The complex, named in memory of a longtime housing advocate in Ypsilanti, is rehabilitating 112 units of affordable family housing.

The fund combines federal Low-Income Housing Tax Credits for capital development with a pay-for-performance model to provide access to up to 10 years of incentive payments to housing developments.

In return, developments must provide on-site social-service coordination targeted to improving resident and property outcome measures in five areas, including health and wellness, housing stability and education. Multiple studies have cited improved outcomes for families and children from high-quality affordable housing with well-defined links to services. Such settings, the research shows, also may lead to a reduction in other public-sector costs.

“This fund is a great example of the bold, innovative approaches that philanthropy and the private sector can use to create positive change,” said Kresge President and CEO Rip Rapson. “Bringing together so many strong partners allows us to marshal shared resources around a common agenda, and achieve a greater impact than any of us can have by going it alone.”

Along with Kresge, Robert Wood Johnson, KeyBank and Goldman Sachs, partner organizations include the Community Development Trust, Great Lakes Capital Fund, National Affordable Housing Trust Inc., Stewards of Affordable Housing for the Future and the Corporation for Supportive Housing. The Ypsilanti Housing Commission and Chesapeake Community Advisors Inc. are developing the project.

Russ Olwell, director of Eastern Michigan University’s Institute for the Study of Children, Families and Communities, which is providing social-service support, calls the Strong Families Fund an opportunity to test both the intense service-delivery and pay-for-performance models.

The fund “is based on the best evidence we have of what will make families stronger and keep people healthy,” Olwell said. “The fund’s structure gives us a time frame beyond the typical grantmaking timeline of one or two years to understand which approaches are the most effective.”

That family focus is a key for the Robert Wood Johnson Foundation and its work to build what it calls a “culture of health,” said Nancy Barrand, senior adviser for program development at RWJF.

“Meeting the social needs of families where they live is a critical component of improving health in this country,” Barrand said, “and we welcome the opportunity to work with our other partners on this important effort.”

Ypsilanti Housing Commission Executive Director Zachary Fosler said he agrees that the opportunity is unique. “We struggle to secure the funds to offer these types of programming, yet the outcomes we are seeing with people are just unreal,” he said. “This fund is promising for the housing industry, and I hope that we can see this replicated across the country.”

Robert Likes, KeyBank’s national manager of community development lending and investment, said, “This impressive initiative has found an innovative way of incorporating private capital to create safe, decent, affordable housing. We’re proud to be working with so many partners to improve the daily lives of low- to moderate-income families, especially when the lack of quality affordable housing is at an all-time high in this country.”

Goldman Sachs, through its urban investment group, has committed $30 million to the fund through a Low-Income Housing Tax Credit equity investment in a limited partnership with the National Affordable Housing Trust to support multiple new constructions or substantial rehabilitations of family housing projects throughout the United States.

“This initiative will develop an innovative, scalable pay-for-success model in traditional affordable-housing projects that will result in better outcomes for low-income families,” said Goldman Sachs Managing Director Margaret Anadu, who oversees the firm’s impact investing projects.

Avana Johnson, a resident of the complex for the two years, said the comprehensive approach is exactly what she and her family needed.

“They go way beyond the norm with helping people in the community,” Johnson said. Since moving into affordable housing with access to services, the single mother of four has nearly completed an associate degree and has plans to earn advanced degrees and enter the field of social work.

The Strong Families Fund is part of a trend in philanthropy to use grants plus other forms of investment capital to address complex social problems. More than a dozen states are pursuing Social Impact Bonds, a funding mechanism to pay for social services where there is evidence that the intervention is effective in improving outcomes and results in savings for the public sector.

The Kresge Foundation has committed $7.25 million to this initiative, including $6 million in Social Investment commitments and $1.25 million in grant funding from its Human Services team. The Robert Wood Johnson Foundation will provide $4.8 million in grant funding, a significant portion of which will fund the incentive outcome payments. 

Low-Income Housing Tax Credit equity is being provided by KeyBank and Goldman Sachs and up to $20 million in debt for the developments will be invested from Community Development Trust, a major affordable housing lender. Great Lakes Capital Fund, based in Lansing, Mich., and the National Affordable Housing Trust, based in Columbus, Ohio, are syndicating the equity for the investors. 

The Corporation for Supportive Housing, which is active in a number of pay-for-performance initiatives around the country, is overseeing outcome measurement, evaluation and strategies for advancing the Strong Families Fund model in other affordable-housing developments. The corporation has worked closely with Stewards of Affordable Housing for the Future in identifying the key social outcomes being measured by the fund.