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Theodos: Revitalizing a neighborhood requires more than big projects, it demands sustained, multi-faceted investment

American Cities, Social Investment Practice

Urban Institute’s director of mission finance, Brett Theodos, presented data at Kresge’s national convening Our Urban Future that outlines the challenges in today’s landscape for community developers. This Q&A follows up on that discussion and dives into what makes that work hard today, how that can vary by place, and what the future under a new administration might hold. The initial conversation was held on Sept. 11, 2024.

Kresge: Why does it feel harder today to address economic challenges?

Brett Theodos: That feeling is based on on-the-ground reality. If we look at income trends, the gap between the top 20% and the bottom 20% has widened over the past 50 years. The top 20% have seen their incomes rise by $171,000 (this is after adjusting for inflation so in constant dollars). But the bottom 20% barely budged, just a $4,000 income gain in 50 years (again adjusting for inflation). This economic disparity means we’re “swimming upstream” in community development finance as we try to deliver benefits to low/moderate-income people and places. The challenges are deep—it’s not possible to deliver enough affordable housing units to make up for wages that aren’t growing.

Q: How does this economic disparity impact different areas?

Theodos: The economic situation varies significantly across the U.S. Some areas have grown substantially, while others lag far behind. For instance, in Virginia, inflation-adjusted average family incomes have risen by 50%. In contrast, Michigan has seen basically no real income growth over the last half-century, and West Virginia actually declined. Such disparities influence our politics and communities, shaping the environment in which community finance operates.

A panel of four speakers sitting on a stage in white chairs with plants between the chairs.
Theodos (second from right) spoke on a panel that included (from left) Jason Paulateer from Fifth Third Bank, Meghan Venable-Thomas from the City of Birmingham, Alabama, and Kresge’s Aaron Seybert.
Q: What does this mean for investment in smaller or rural areas or for other underserved areas?

Theodos: There’s a stark difference in how investment is distributed. Certain areas consistently receive more funding than others. For example, smaller cities and rural areas generally access less capital, even when population size is accounted for. This challenge is compounded by the lack of financial infrastructure—fewer accountants, appraisers, syndicators and other professionals essential to the economic ecosystem. These places can struggle to compete for resources compared to larger cities.

Q: How do race and demographics factor into investment flows?

Theodos: Race, unfortunately, plays a sizable role in investment flows. Controlling for various economic factors, Black-majority areas receive significantly less investment. The same relationship doesn’t hold for people of color overall. This pattern highlights our long, sad history of exclusion and extraction from Black people and communities—a legacy we have not yet overcome.

Q: Can you explain the financial scale of place-based investments?

Theodos: If we aim to revitalize economically stagnant areas, we need investment at much greater levels than we typically believe. We think in terms of one LIHTC (Low-Income Housing Tax Credit) project or NMTC (New Markets Tax Credit) or Choice Neighborhoods project—maybe $10 or $50 million for a community. However, our research has shown that it takes half a billion to a billion dollars per Census tract for truly disinvested places. Also—it takes time. Those funds can’t be absorbed all at once—it takes two or even three decades of patient, sequential market-making work. This level of funding is necessary to enable meaningful growth in communities, considering both real estate costs and other market dynamics. In short, revitalizing a neighborhood requires more than one or two projects; it demands sustained, multi-faceted investment.

Q: Where do we go from here regarding community finance, especially given the change in politics at the federal level?

Theodos: We need to identify places that are “off the trend line” or those not receiving expected levels of investment despite their potential. Even among big cities, some, like Cleveland, have a robust capacity to attract and manage investment, while others, such as Memphis, lag. It’s about understanding each place’s strengths and weaknesses—from government support to local financial institutions—and filling in gaps strategically. Diagnosing these specific needs can better equip communities with the right financial tools and partnerships to foster sustainable growth.