Can credit unions make a dent in the affordable housing crisis?

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In their own small way, credit unions are entering the national conversation surrounding housing.

This summer, President Trump signed an executive order aimed at eliminating barriers to affordable housing, a move championed by the National Association of Federally-Insured Credit Unions. Some Democratic presidential candidates have also touched on the topic, though it hasn’t gained traction as a hot-button campaign issue. All of this comes amid both rising home and rental prices, neither of which are likely to change until the next recession hits.

Some credit unions have begun attempting to have an impact on the issue.

For the Northwest Credit Union Foundation – a wing of the Northwest CU Association, which serves institutions in Washington, Oregon and Idaho – the process began about three years ago when the foundation’s board began to focus more on community impact work. According to Executive Director Sharee Adkins, that included “putting a stake in the ground around certain priority areas,” one of which was housing.

“It’s really just been in the past two years where we’ve … started to look at what we could do to drive credit union-led solutions to the housing crisis in all three states we serve,” she said in an interview earlier this year.

The chief component of the effort is a partnership with the Meyer Memorial Trust that will help provide funding for a trio of Portland area credit unions to each commit $50,000 per year for two years to provide a minimum of 150 security-deposit loans for consumers in the Portland metro region. While the credit unions will each put up their own money, noted Adkins, that money is matched by a grant from the trust to help provide loan loss reserves to mitigate the risk.

“When we talk about housing solutions, often times we think about things that have really, really big price tags, and this is a much more approachable way to still have a big impact on housing issues,” she said.

The program offers eligible members up to $5,000 in loan funds priced at a maximum of 5%, but Adkins said the money is primarily intended as a bridge.

“You’ve got an individual or a household in a rental looking for their next rental, and potentially they have the security deposit from the existing rental coming to them after they leave, but they have to come up with a security deposit and first and last month’s rent to move into the next property,” she explained. “This just helps them with that bridge. Once they move into that next property, we envision them being able to pay that back.”

Portland is among the 20 most expensive cities in the country, according to Kiplinger, and housing there is at a premium, with housing costs 82% higher than the national average. The Rose City is one of the nation’s top 10 metro areas with the lowest vacancy rates, and the median monthly rent is $1,285 – nearly identical the median monthly mortgage cost.

“With the churn and demand driving up housing prices in the Portland metro area, we found a need to have this loan product to ease the transition and help a move happen at a moment’s notice but keep the rate low,” explained Amy Nelson, CEO of Point West CU, one of the three credit unions offering the security deposit loan.

Along with Point West, the product is also available at Trailhead Credit Union and Consolidated Community Credit Union. All three are designated as community development financial institutions with community charters, an element which enables them to avoid hurdles surrounding who is eligible to join the credit union to take advantage of the loan.

As CDFIs, these institutions are charged with providing solutions for communities in need, and Nelson said the participating CUs aren’t currently concerned about profitability on these loans. For one thing, she noted, this is a two-year pilot program to assess what works and what doesn’t. Beyond that, she pointed out that while they are intended for security deposits, the loans are merely a repackaged version of an old-fashioned CU product.

“At its heart, it’s a small personal loan," Nelson said. “Credit unions were formed to do small personal loans to help community members. This is what we do and what we’ve done for decades.”

‘Ground zero’

Other credit unions have taken a different approach to tackling affordable housing issues.

Power Financial CU in Pembroke Pines, Fla., earlier this year became the first credit union to invest in the Community Development Fund, a market-rate bond fund focused on investing in fixed-income securities with high credit quality, with proceeds being directed toward community development efforts nationwide.

Kenneth H. Thomas, president of the fund, in a press release called PFCU’s South Florida market “ground zero” for affordable housing. Median home price listings in Miami-Dade County are just shy of $400,000, according to Zillow, though median sales come in about 25% below that figure. The average rental price in Miami in July was more than $1,700, up 6% from one year prior.

Power Financial said in the release that its commitment to the CDF “represents its support of a growing economic crisis in South Florida.” Since its inception, the fund has generated more than $50 million in support for affordable single-family and multi-family housing.

Feeling the squeeze

The number of financial institutions getting involved in affordable housing has ebbed and flowed over the years, according to Robert Silverman, a professor at SUNY Buffalo focused on community development and urban issues.

“As there has been a crunch in terms of affordability in a lot of markets, financial institutions have become more involved in that whole discussion,” he said, pointing out that projects have ranged from becoming involved in local land use regulations to informing consumers about tax breaks, down-payment assistance and more. What makes the situation different right now, he added, is that because new construction and housing inventory have declined. That has put upward pressure on prices, shifting supply and demand curves “in a way to create fewer available units,” Silverman said.

“That has put pressure on prices in general across the country to go up for housing unites because of a lack of new inventory created,” Silverman added. “That has implications for people at the lower end of the housing spectrum, and that’s part of why you see a lot of discussion across the country on affordability – lower-income households have been squeezed out of the market because there’s not enough new housing construction taking place since the recession to create the inventory you need to keep prices down.”

But can initiatives at credit unions and other lenders actually make a difference on such a big issue? According to Silverman, it depends.

While loan products, homeownership counseling and more can help at the individual level, he said, there are also steps the industry can take to make a difference at a foundational level.

“I think credit unions can advocate locally for housing policies that might produce more affordable housing, whether it’s things like more flexible zoning standards that allow for more affordable units to be developed or local housing funds being used to promote affordability,” Silverman suggested.

CUs can also do more in working with nonprofit housing developers to provide bridge loans for construction at lower rates in order to reduce the cost of development, which ends up translating to lower rents and more affordable housing in general, he added.

Point West’s Nelson agreed that security-deposit loans are just a drop in the bucket, but emphasized that they can still make a vital difference for consumers struggling with these issues.

“It’s one solution,” she said. “Credit unions across the nation are finding niche ways they can contribute a solution to the community to take advantage of, and this is just one of those.”

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