A groundbreaking new cure for Richmond’s blight is on the horizon. Tuesday night the City Council voted unanimously to approve a new Social Impact Bond project aimed at flipping seized houses and offering them to financially-vulnerable buyers through an innovative bond model and financing structure.
“This is a first in the nation,” said Jim Becker, President of local non-profit the Richmond Community Foundation (RCF), which partnered with the City of Richmond for the endeavor. “The program objective is a blight strategy to create clean and safe homes, provide opportunities for first-time home buyers, and to stabilize the neighborhoods these houses exist in.”
The program is focused on making housing available for primarily low-income individuals. The RCF will use the bond money to purchase blighted properties throughout the city, flip the houses, and then offer them to graduates of the HUD First Time Home Buyer Program from the local chapter of the non-profit SparkPoint. These SparkPoint graduates, who have gone through years of work to rehab their finances, will have first access to these slightly below market rate properties.
“It’s a little like Goldilocks,” Becker explains. “The price of the houses will be close to fair market listing price, but a little below it.” This approach will ensure that the houses are affordable while not artificially lowering housing prices.
At the heart of the five-year, $3 million bond measure is an innovative approach to financing: the Social Impact Bond Financing Model. “This will use a small amount of bond financing and recycling it back into the program to maximize the number of properties in this project that can be rehabbed,” Becker says.
Working in conjunction with the financing model is the structure of the Social Impact Bond itself. The bonds are solely aimed at improving social outcomes to result in public sector savings. This negates the urgency for a fiscal return on investment carried by most bond measures.
Though this seemed promising, Councilmember Nat Bates was concerned about the impact of the city’s recent credit downgrade by Moody’s on the bond measure. “What are we looking at here in terms of our bond interest rate,” he wondered.
“The city is just the issuer of the bond,” Becker explained. “The institutional investors hold the bond, the RCF pulls together the partners, and the City will hold no liability.”
With the approval of this bond measure the RCF can begin to move forward with its plans.
To Becker, this plan is the beginning of something big: “People really are looking for Richmond to take leadership on this and to show that it can be replicated across the country.”