A new public enterprise will fund housing developments featuring a mix of market-rate and affordable units.
If approved by City Council, Invest Chattanooga will administer the $20 million Housing Production Fund the council created in 2022.
Invest Chattanooga will offer loans to cover up to 25% of a project’s construction costs at a low interest rate, replacing the need for expensive private equity.
The high returns most equity investors require can be the difference between a housing development being built or sitting untouched for years, the city posits in a news release. In exchange for this favorable financing, 30% of units at the selected development must be affordable units.
Chattanooga Mayor Tim Kelly says Chattanooga is one of only a handful of U.S. communities that have successfully launched a fund of this nature.
“The national housing crisis is the biggest issue facing Chattanoogans today, and we have to use every resource and option available to us to make housing more affordable,” says Kelly. “Our team has done a great job identifying and addressing the gaps in how housing development is financed, allowing us to use a one-time investment to make positive change for decades to come.
After projects are built, Invest Chattanooga’s loan will be replaced with capital from investment partners, so Invest Chattanooga’s proceeds can be reinvested in new projects. This creates a revolving fund that can catalyze new mixed-income housing developments every three to five years.
Officials hope Invest Chattanooga could make its first loan early next year, with construction on the first Invest Chattanooga project to start as early as summer 2025, according to the news release.
City Council Affordable Housing Committee Chair Jenny Hill says city officials anticipate that Invest Chattanooga’s $20 million fund will lead to the development of $400 million worth of mixed-income housing in the next 20 years.
“By partnering with private developers and impact investors, Invest Chattanooga is designed to leverage the speed, simplicity and scalability of private-sector real estate deals,” adds Hill. “By not relying on limited federal funds, Invest Chattanooga will be able to operate in a business-friendly and efficient way alongside our existing affordable housing programs.”
Originally piloted in Montgomery County, Maryland in 2021, this approach to mixed-income housing development is gaining momentum nationwide. It has been successfully implemented in Atlanta and there are ongoing initiatives in Raleigh, Syracuse, Kingston, Chicago, Boston and the state of Michigan.
For Chattanooga, this approach “reflects the city’s tradition of public-private partnerships, leveraging the development capacity of the private sector while creating long-term community benefits,” notes the news release from the city.