With its $500 million pledge to address affordable housing in the Seattle area, Microsoft isn’t primarily cutting checks to local charities. Private companies have done that before. Nor is it proposing to create housing for its own employees, as corporations have done in the past, too. Rather, Microsoft is trying to help fix a market failure — a job government typically does. “It really represents something almost unprecedented,” said Matthew Gordon Lasner, an associate professor of urban studies and planning at Hunter College. “What we’re seeing Microsoft do is in effect privately assume the role that historically the federal government and the states have played.” Microsoft’s announcement is welcome news in the Seattle region, where housing costs have risen faster lately than in any other part of the country. But the fact that a tech company has to step in to help ensure the development of affordable housing points to a long-building reality nationwide: The federal government has largely retreated from this role. The government spent about three times as much on housing programs in the 1970s as it does today, according to the National Low Income Housing Coalition. In the years since, the government has gotten out of the business of building public housing. And capital funds to repair the remaining public housing stock have been cut in half over the last 15 years.<doc-sep>Last week, Microsoft announced it would set aside $500 million to create a workforce housing fund—the largest philanthropic commitment in the company’s history. It comes as Microsoft is expanding its headquarters in Redmond, Washington, to make room for 8,000 more employees. Those people won’t have too much trouble in bidding wars in the Seattle suburbs. But the company says the Puget Sound–area housing crisis for teachers, firefighters, and service workers is ultimately its problem too: Advertisement Ultimately, a healthy business needs to be part of a healthy community. And a healthy community must have housing that is within the economic reach of every part of the community, including the many dedicated people that provide the vital services on which we all rely. Cynical? Maybe. Impactful? Probably. Solving the regional housing crisis? Definitely not. Advertisement Advertisement Not that even one of the world’s most valuable companies would expect to. According to the Seattle Times, Microsoft executives started to think about a housing commitment in 2018, after threats from Amazon killed a Seattle employment tax that would have raised money for homeless shelters and low-income housing. After working with consultants, a local nonprofit, and Zillow, Microsoft decided its best path forward was to get into housing finance. Advertisement What that means, exactly, is complicated. Over three years, the company says it will commit $25 million in grants and subsidies to address regional homelessness. It will also lend $250 million to low-income housing developers and another $225 million at below-market rates to workforce housing developers. Then, as that money is repaid, Microsoft will make more loans. To start, let’s look at the first part, which is the only piece of this that qualifies as straightforward corporate charity. Seattle is the nation’s 18th-largest city, but it has the third-largest homeless population. To start, Microsoft is giving grants to support legal aid for tenants and a new local homelessness agency. It’s the kind of thing that corporations regularly do in their home cities. Advertisement How far can Microsoft go in the region just by issuing targeted or low-interest loans? From there, things get more complicated. Microsoft is basically starting a housing trust fund—an idea that’s become the go-to city- and state-level affordable housing tool as Washington has steadily retreated from housing policy. The approaches of the country’s hundreds of housing trust funds vary, but they mostly include some combination of grants and loans. Counties, cities, and states generate nearly $1.3 billion in revenues for housing trust funds every year. Then they lend some of that money out to affordable housing developers, and distribute some of it as grants to fund housing for very low-income families or formerly homeless individuals. So, if you’re a developer trying to build low-income units, you might look to your local housing trust fund for financing. You’ll probably get it on better terms than you would from a bank, which would permit you to select a slightly more expensive site for the project or open up apartments to lower-income tenants. Advertisement Marty Kooistra, the executive director of the Housing Development Consortium of Seattle-King County, said it was good to see corporations taking a role in housing construction. “I think you need to be honest with the reality that Microsoft doesn’t do anything without studying it to death,” he said, speculating on the fund’s potential impact. “If there’s below-market financing available, that will change the entire pro forma and inspire more development to take place.” Advertisement Housing trust funds typically boast that they leverage their contributions heavily, ensuring that $1 in fund investment can pull in $7 from other sources. That appears to be Microsoft’s vision: that knocking the debt service off a bunch of loans can open up a whole new range of housing possibilities. Advertisement It might give affordable developers a leg up in competing with their luxury peers. “We have to act quickly,” said Sharon Lee, the executive director of the Low Income Housing Institute. The nonprofit owns a handful of properties in South Lake Union, where Amazon has built its campus. Lee added, “We have to apply for state and city funds to put together financing, and to the extent Microsoft can help us with acquisition or bridge financing that would be terrific. The person that shows up with all cash at closing will get the property, so we need to be able to say to an owner, ‘We’d like this site for affordable housing, and here’s the money.’ ” $225 million of Microsoft’s money is in low-interest loans. With another $250 million, the company is seeking market-rate returns—but only investing in low-income housing. One nonprofit developer I spoke to was skeptical about that: “It sounds more like a business. We need lower-cost financing, otherwise we could just get it from the bank.” Advertisement Advertisement How far can Microsoft go in the region just by issuing targeted or low-interest loans? Even the company doesn’t know, and there aren’t many precedents. Silicon Valley has a (much smaller) nonprofit housing trust fund that served as a model for Microsoft. Even Washington state’s housing trust fund is dwarfed by the company’s proposal. “If you look at a project, the cost of the debt is not typically one of the biggest line items,” said Danny Natsch, a managing director at McBride Capital, an advisory firm in Portland, Oregon, that arranges debt financing for real estate projects. “There’s a lot of liquid capital in the markets right now for real estate.” At the end of the day, he said, housing production in the Pacific Northwest isn’t expensive because of interest rates, but because of the costs of labor, materials, and land. The potential impact of grants and subsidies that don’t have to be repaid is virtually limitless, given the scale of housing insecurity in the region. King County, which includes Seattle and Redmond, needs 244,000 new affordable units by 2040, according to a December report from a countywide task force. The current annual production rate is about 80 percent lower than that. But that’s not where Microsoft is focusing. How much of a bottleneck is dedicated finance for developers? We’re about to find out.<doc-sep>In response to the housing crisis in Seattle, Microsoft announced late Wednesday it is pledging $500 million to build affordable housing in the region. Microsoft is based in the suburb of Redmond, and in many areas where tech giants have their headquarters, low-and middle-income homeowners are being priced out. During a meeting attended by New York Times reporters earlier this week, Microsoft President Brad Smith and CEO Satya Nadella said they were worried about their employees being able to afford housing in an area where prices are skyrocketing. "We are going to invest quite a bit," Nadella said. "Of course, we have lots of software engineers, but the reality is that a lot of people work for Microsoft. Cafeteria workers, shuttle drivers. We have a real challenge. We don't have enough affordable housing units." In December, the government published a report that found the Seattle region needs 156,000 more affordable housing units, and if the area continues to grow at its current rate, an additional 88,000 units are needed by 2040.<doc-sep>Gain a global perspective on the US and go beyond with curated news and analysis from 600 journalists in 50+ countries covering politics, business, innovation, trends and more.<doc-sep>
The explosive growth of tech hubs in Seattle has created an affordable housing crisis. The area is home to both Microsoft and Amazon. Microsoft is putting up $500 million to help address the problem. The tech giant supports the idea that the industry has an interest and responsibility to help people left behind in communities transformed by the boom. The plan is for the money to fund construction for homes affordable not only to the company’s own non-tech workers, but also for teachers, firefighters and other middle- and low-income residents. "If we're going to make progress, we'll all need to work together as a community," said Microsoft President Brad Smith and Microsoft Chief Financial Officer Amy Hood in a joint blog post. "Ultimately, a healthy business needs to be part of a healthy community. And a healthy community must have housing within the economic reach of every part of the community, including the many dedicated people who provide the vital services on which we all rely." Microsoft has warned about the potential negative effects of technology, like privacy or the unintended consequences of artificial intelligence. Executives hope the housing efforts will spur other companies to follow its lead. A number of other tech businesses have tried to address the homelessness crisis. Amazon’s chief executive, Jeff Bezos, has supported homeless service providers through his personal foundation, and Salesforce chief executive, Marc Benioff, helped fund a proposition in San Francisco to tax businesses to pay for homeless services, according to the New York Times. CLICK HERE TO GET THE FOX BUSINESS APP Microsoft plans to lend $225 million at subsidized rates to preserve and build middle-income housing in six cities near its Redmond headquarters. It will put an additional $250 million into low-income housing across the region. Some of those loans may be made through the federal programs that provide tax breaks for low-income housing. The company plans to invest the money within three years, and expects most of it to go to Seattle’s suburbs.