One of the problems plaguing many American cities, especially in the Northeast and Midwestern “rust belt” states is a shortage of decent, affordable housing for working class peoples. More aggressive formation and use of public benefit corporations could become an effective means of improving the quality of housing stock in our nation’s cities, creating job-training opportunities for urban youth, and chasing out slumlords by making their properties non-competitive in urban rental markets. A public benefit corporation is a type of for-profit company that receives reduced tax rates in certain states. Part of their corporate charter includes a stated goal of trying to provide some kind of public good. The argument that follows is a description of how such a corporation may function.
Imagine you live in a Rust Belt city and you’re tired of the stories of condemned houses and rising crime in part of your city. You may choose to buy a bond in a public benefit corporation that promises to improve the quality of housing stock in that city. The public benefit corporation offers you a rather modest rate of return on that corporate bond, which socially responsible investors are willing to accept in exchange for seeing a benefit to their community. The public benefit corporation then takes the revenues from bond sales and starts buying up dilapidated homes in the community, and restoring those properties to a condition where they are fit to be rented out.
This is not a cheap process. A home that’s purchased from a city land bank for only $5000 is going to need a new roof, new windows, new wiring and new plumbing, plus all new interior finishes and appliances. You aren’t really buying a “$5000 house”, you’re buying a thing for $5000 that used to be a house, and could be a house again once you sink $90,000 or $100,000 worth of work into it. We’re talking about properties that look like this, and this. A public benefit corporation can hire full time employees and leverage economies of scale in the home renovation process that are not available to a private individual working on one home at a time. The public benefit corporation can also hire an accountant who can keep track of costs and make sure that when that house is finished, that it can be rented out at a reasonable rate that local people can afford.
Public benefit organizations can also partner with local school districts that provide construction trades programs. Students are brought onto job-sites, and act as shadows and assistants, with the goal of reaching a break even point where the extra construction labor that student is able to provide off-sets the extra time and effort that it takes for your skilled trades-workers to show them how to do the work. Providing job training for urban teenagers can help to reduce crime rates, reduce unemployment in urban neighborhoods, and reduce stress on real estate firms that frequently face a shortage of workers, or have rural white men driving in from surrounding counties to do construction and repair work in city neighborhoods.
Because a public benefit corporation would only be trying to cover it’s costs and generate the revenue needed to pay out 3% to 4% interest a year on its corporate bonds, it’s possible to offer rental rates that are far more reasonable than those offered by slumlords who buy up dozens of properties, never do any repairs, and try to suck every last dollar they can out of urban neighborhoods to fund posh exurban lifestyles complete with Mercedes S-Class sedans, lakefront homes and expensive fishing boats.
Recent increases in home prices and rental rates are creating stress for many Americans at the same time that many of our nation’s cities are filled with block after block of homes that could be repaired and returned to the rental markets. By partnering with school districts, public benefit corporations can help to reduce crime rates and unemployment in urban neighborhoods, and ensure their own future labor pool. By appealing to socially responsible investors who are willing to accept a more modest return on investment, public benefit corporations can out-compete landlords who charge the highest rent they can get away with for dilapidated apartments. American cities should begin asking socially responsible investing groups to consider the creation of Real Estate Public Benefit Corporations for the purpose of restoring the nation’s urban housing stock.