Impact Voices | April 16, 2024

How innovative financing structures can help close California’s housing gap

Kevin Schuster

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Guest Author

Kevin Schuster

The way housing is financed and constructed in the United States has experienced little change in decades, leading to skyrocketing costs, barriers to developing newer housing models, and a nationwide housing shortage. California is experiencing this problem acutely. The state has an estimated need for 2.5 million new homes by 2030, with at least 40% of these units for lower-income households.  

The good news is California has adopted over 100 policies in recent years aimed at unwinding exclusionary land use practices and increasing housing production – which has unlocked development potential to meet the ambitious and necessary goal of 2.5 million new housing units. Now it’s time to realize this potential.

Part of the equation rests with the public sector, which must follow productive legislative sessions with policy implementation and ongoing public funding. This public sector commitment must be coupled with the private sector, including philanthropy, bringing forward creative financing solutions.

Creating the enabling conditions

At the Chan Zuckerberg Initiative, or CZI, we believe one of these solutions is catalyzing innovative approaches to financing housing to increase the pace of development, including increasing access to capital, reducing financing costs, and seeding novel approaches.  

CZI’s Housing Affordability Program comprises two complimentary portfolios: one supports a network of pro-housing organizations aimed at fostering the conditions necessary for structural changes, and the other focuses on innovation, providing the risk-tolerant and patient capital necessary to pilot and scale promising models for housing production and preservation.

These portfolios work best together, by legalizing more housing types and making a more inviting, responsible policy environment, so that mission-driven lenders, developers, and social entrepreneurs can accelerate production across income levels.

An example of this work is the South Los Angeles Connecting Capital & Community (3C) initiative led by Genesis LA, with grant and program-related investment support from JPMorgan Chase and CZI. The 3C team is exploring strategies to expand affordable homeownership options with low-density infill housing models made possible by legislative wins like Senate Bill 9, which eased California’s zoning laws, including allowing single-family homeowners to divide their lots.

Investing in intermediaries

CZI’s housing finance strategy centers intermediaries, often community development financial institutions like Genesis LA, to support an ecosystem-level reach. This reach is critical to our investments in pilots seeking to reassess risk – either where perceived risk is greater than actual risk, or into a newer area without sufficient data points to evaluate the risk. We look to provide flexible and risk-tolerant capital for intermediaries to test new financing products, with the hope that these pilots contribute to the long-term evidence base required for behavior change. This behavior change could be the intermediary continuing lending once our capital is removed or the pilot creating the interest and comfort from capital market actors and the public sector to invest.

One nationwide experiment into reevaluating risk at the intermediary level is the Community Investment Guarantee Pool, which aggregates guarantees from foundations, including CZI, to provide credit enhancements to CDFIs and others to unlock capital in affordable housing, small business, and climate. Guarantees have incentivized CDFIs to launch new loan products and expand underwriting criteria by removing layers of real or perceived risk. There are promising signs of success, including a CDFI applying the expanded underwriting criteria from the guarantee-backed lending product to other lending products in its portfolio.

Incentivizing leverage

In addition to building an evidence base for a more accurate and inclusive view of risk within our housing markets, we look to structure investments to increase funding into the sector – both net new funds and existing funds configured in new ways. The scale of California’s housing shortage relative to our program budget necessitates partnering with others and incentivizing leverage.

We’ve set a target for our investments to directly leverage $1 billion in funds by 2028, and we are nearly 70% of the way there. This is in no small part due to seeding the Partnership for the Bay’s Future in collaboration with The San Francisco Foundation and LISC Bay Area, which in the last five years has financed over 4,400 affordable homes for 11,000 people.

In high-cost markets like San Francisco and Los Angeles, where it can cost over $1 million to develop a tax-credit financed affordable housing unit, simply increasing funding isn’t sufficient. We can’t keep adding more subsidies without also addressing the exorbitant and rising costs. This is another type of incentivizing that CZI focuses on within our housing finance strategy. 

A leader in this space is the Housing Accelerator Fund (HAF), which is structuring lending products that encourage developers to set and meet aggressive targets for delivering affordable housing faster and cheaper, including incorporating modular construction and other industrialized construction techniques. One such HAF financed project in San Francisco was built in half the time and for 30% less cost than comparable projects.

Launching the Innovative Housing Finance RFA

California is home to a strong ecosystem of mission-driven lenders with a strong commitment to enacting solutions for addressing our state’s housing gap. CZI is excited to be supporting this ecosystem through the launch of our first-ever Innovative Housing Finance Request for Applications (RFA). The RFA is seeking to invest in funds held by intermediaries with approaches to bringing down the cost to produce and preserve housing, unlocking or leveraging other funding sources, or funding housing project types with unique financing barriers.

Everyone deserves a safe, stable, and affordable place to call home. The policies are now in place to drive meaningful transformation to strengthen and grow California’s housing landscape. It is up to us as funders and the private sector to create new, bold approaches to financing housing – both rental and homeownership – to improve housing affordability and access so people from all backgrounds, income levels, and zip codes can live, work, and thrive in California and beyond.


Kevin Schuster is a Senior Manager for Housing Affordability at the Chan Zuckerberg Initiative, and leads the team’s Invest in Innovation portfolio.