In Hospitals, Affordable Housing Gets the Long-Term Investor It Needs

Ce’Yann Irving, a mother of a 1-year-old daughter, pays $990 a month for a two-bedroom apartment on the site of a former dairy processing plant in the Central City neighborhood of New Orleans. She has amenities, like a 24-hour gym and an on-site community clinic, at arm’s reach.

“I’m a first-time mom, so if my daughter coughs too long, I’m trying to take her to a doctor,” said Ms. Irving, 30, who is a disaster case manager for Catholic Charities. “Here, I can literally walk to the clinic, and if there’s a wait, just wait in my own apartment.”

The affordable housing complex, which has 192 apartments and opened in January, is a joint project of Alembic Community Development and the Gulf Coast Housing Partnership, an affordable housing developer formed in the wake of Hurricane Katrina, in hopes of rebuilding the Gulf Coast region. The complex seeks to be a model for communities nationwide by linking stable housing to better health.

Aetna, a managed care organization that operates in the region, invested $26.7 million in the $80 million project, called H3C, whose “H” stands for health and the “3C” represents commerce, culture and community. Tenants and others in the community will have access to a medical clinic operated by DePaul Community Health Centers on the ground floor. Researchers at the Louisiana Public Health Institute will study patients’ health outcomes, and consultants at Health Management Associates will use the anonymized data to determine more effective ways that health systems can work with developers.

H3C is just one of many examples showing that health care systems are increasingly starting to see benefits in building affordable and safe housing, from the improved health of local communities to how much managed care groups benefit financially from those healthier populations. Those factors and others, including a shortage of housing for their own workers, have pushed health systems to become partners and investors in affordable housing.

Partnerships like this are “necessary,” said Peggy Bailey, vice president for housing policy at the Center on Budget and Policy Priorities, a think tank. “It takes so many investors and so many types of funding to deliver an affordable housing development.”

Hospitals “reinvesting in the places they serve is important,” she said, especially if they’re in underserved communities.

Kaiser Permanente, a managed care giant in Oakland, Calif., has committed $400 million to fund affordable housing through its Thriving Communities fund, which aims to build or preserve 30,000 units by 2030. And the Healthcare Anchor Network, a national coalition formed in 2017 with over 70 health care systems focused on investing in local economies, has put more of its capital into housing, neighborhoods and commercial projects like grocery stores. From 2017 through the end of September 2022, the group’s most recent data, the network has invested $450 million in affordable housing projects.

This type of long-term capital, usually in the form of low-cost loans, has become even more valuable during a period of higher interest rates, financial uncertainty and rising costs for builders. The costs of these developments is a huge undertaking. H3C, which was funded through government and private sources, was estimated to be $60 million before supply and inflation increased the budget by one-third.

Health systems are, however, not acting as banks, said David Zuckerman, Healthcare Anchor Network’s president and founder. “They’re filling the gap that has been created by the financial sector not properly investing in affordable housing and the public sector not providing the necessary subsidy to make it all work,” he said.

Affordable housing has become a way for hospitals and health care systems to meet their nonprofit community benefits requirements and invest capital from their cash reserves, which nonprofit health care organizations rely on to cover operating costs and unexpected expenses. (A strong reserve is an indicator of financial stability and helps to improve nonprofit health care facilities’ credit rating.)

There are some early examples of health care systems investing in housing, particularly Catholic hospitals working with groups like Mercy Housing, an affordable housing organization.

But over the past decade, hospitals, health care systems and insurance groups, in partnership with affordable housing developers, have expanded those efforts. They’ve built transitional housing for the most vulnerable people and created programs to temporarily house homeless people, especially those with severe mental health issues.

A recently expanded pilot program through Medicaid, called the 1115 waiver, allows certain health care providers to use Medicaid money to provide temporary housing. Washington State has used this model, with federal funding for rental support and $141 million in state funding, to build new homes as a means of targeting populations with the most needs.

And a shortage of available housing for hospital employees has also pushed for more developments. Kathy Parsons, a consultant and former vice president for CentraCare, a health care system in St. Cloud, Minn., said that getting health care workers to move to the area had been difficult and that the network had been exploring ways to work with developers. Housing shortages can be acute in rural areas. They can lead to longer commutes, significant costs in overtime and staff burnout and the closing of hospital services in communities that need them most.

More projects are also looking to build housing for people who need special care. In New Jersey, the Hospital Partnership Subsidy Program has started to see demand expand from big cities to suburbs, with proposals for specialized housing projects to support individuals with multiple sclerosis and Down syndrome. The program, which was started in 2018, provides millions of dollars in government subsidies to help break ground in hospital investments in housing projects.

Barclay Place, the first project completed under the state’s program, opened in Paterson in July. The 56-apartment complex has a wellness center on the first floor, and a number of units are set aside for residents with chronic health conditions. The project was developed through a partnership between the New Jersey Community Development Corporation and St. Joseph’s Health, which will provide supportive services to the residents.

In Minnesota, the Greater Minnesota Housing Fund, which has backed 20,000 affordable homes since 1996, offers some kind of additional health care focus in roughly 20 percent of its projects, said Eric Muschler, director of housing and health equity for the fund. The organization’s new initiative is educating health care professionals about the importance of housing solutions in health equity and supplying developers with loans to help cover gaps in a project’s overall funding plan.

“We need more capital, constantly, to do more housing,” Mr. Muschler said. “We’ve got a housing system that’s broken, and we need to think outside of just subsidies.”

Hospitals can also use another key resource: their own land and property. Boston Medical Center and Trinity Health both have plans to build affordable housing complexes on their own properties.

John Vu, Kaiser’s vice president of strategy for community health, said this was the first phase of fixing the housing problem. The next stage, he said, will use the data collected at the developments to determine how future partnerships can better address communities’ health and housing needs.

Numerous studies by pediatric researchers and groups like Children’s Health Watch have shown how housing support can help homeless people and families who have members with a chronic disease or disability, or who need health services more than usual.

And Kaiser has been teaming up with Enterprise for the Housing for Health initiative, which connects developers with public health groups to evaluate how housing determines health across 30 factors.

Stephany De Scisciolo, a vice president at Enterprise Community Partners, a national nonprofit developer that has worked with Kaiser on some of its housing investments, said the program had been collecting data for four years.