SEATTLE – One year ago, Microsoft made national headlines with its largest pledge ever, a promise to invest $500 million in affordable housing.
On Wednesday, the tech giant put a potential $250 million on top of that.
Like most of its previous tranche of funding, though, the new money isn’t for free – it’s a line of credit for a state agency that administers tax-exempt bonds, a kind of low-cost financing for affordable-housing projects.
Unlike the previous round of funding, though, which targeted King County and, specifically, the county’s Eastside, the $250 million will be available for affordable-housing development statewide.
The company has had difficulty spurring affordable housing around its Redmond campus, where it’s three years into a multibillion-dollar redevelopment project. High prices for land and a lack of incentives to build other-than-market-rate housing have hamstrung affordable developments on the Eastside.
“There is capital coming in for sure, and there is interest, there is activity in affordable housing – but the pace of change in our region, the growing jobs, the growing economy, the number of people that want to live here and work here is significant,” said Jane Broom, senior director of Microsoft Philanthropies.
In 2019, Microsoft’s market value topped $1 trillion as share prices ballooned more than 50%, the company’s biggest share gains in a decade. Competitor Apple, meanwhile, promised in November to pitch in $2.5 billion to tackle affordable housing.
Broom said Microsoft is willing to continue upping its investment in affordable housing, “if opportunities come our way where it makes sense.”
“We’re proud of what we’ve done,” she said.
The $250 million boosts the financing the Washington State Housing Finance Commission (WSHFC) can make immediately available to developers building affordable-housing projects.
But at least for the next few years, as the program ramps up, the agency expects developers to only use about $150 million of the full line of credit. Microsoft says the financing tool will add an estimated 3,000 housing units in the state over the next five years.
It’s a unique agreement in America, according to Lisa Vatske, director of multifamily housing for the WSHFC, and something that states like California are interested in replicating, she said.
Other state housing-finance agencies have set up similar lines of credit to help developers secure short-term capital while they’re waiting for more permanent financing. But those arrangements have been with conventional lenders, whose high fees and interest rates are passed on to developers. Not so with Microsoft: the arrangement doesn’t cost the state anything.
Microsoft expects returns of close to 1.7% on whatever’s loaned to developers. That rate is far less than a private lender would usually demand.
The company has previously insisted its investment in affordable housing is just that – an investment, not philanthropy.
Half of the $500 million it previously pledged will be in the form of market-rate loans to developers for deeply affordable housing around Puget Sound. Another $225 million of last year’s bundle is dedicated to below-market-rate loans for workforce housing on the Eastside.
Microsoft is particularly eager to build affordable housing in its backyard, where median home prices hover around $800,000.
The company has advocated that cities on the Eastside change their policies around new construction to encourage the development of more affordable units. When Microsoft announced its first $500 million a year ago, it secured commitments from nine Eastside and South King County mayors to do just that.
But a year later, Broom said there have been conversations but no “major change” in policy in those cities.
“That will be our focus for 2020, is to really work with those cities,” Broom said. “Seattle has done some great work on the policy side to encourage development, and what we’ve been working on is trying to create (that) environment on the Eastside.”
When it launched its affordable-housing effort last year, Microsoft said it would deploy that capital over the span of three years. In the past year, it’s committed $110 million, including a $50 million investment to build low-income housing on the Eastside, also announced Wednesday.
Only $25 million of the $500 million is in the form of grants, specifically set aside for addressing homelessness around Seattle. Nearly all of that, $20 million, is already accounted for, in the form of grants to United Way, the King County regional homelessness authority and nonprofit builders.
Since 2000, Washington state has run a housing deficit of nearly 225,000 homes, according to a new report from the nonprofit housing-research group Up For Growth. Most of that underproduction is concentrated in King County.