Investing in Human Capital

By Flynann Janisse, Executive Director, Rainbow Housing Assistance Corp.: An unconventional category of bonds is creating buzz.
Flynann Janisse

Let’s take a step back or maybe two, oh, why not jump back to the dawn of affordable housing and put our finger on the pulse of the American people driving development, redevelopment, and preservation. Aren’t we talking about investing in human capital? When we drill into the catalyst of sustainable housing aren’t we talking about the people who reside in the communities to whom we commit our financial resources? If we are not, maybe we should be from a perspective of performance-driven frameworks.

Social investment bonds are stirring up a lot of dust around the core of what makes affordable housing thrive and become sustainable. Social investment bonds are a financing method in which funds are raised to provide needed capital to social service providers to deliver their services. The tenant base is what drives expenses and stabilized income, so certainly a little human capital investment could go a long way in the sustainability of an industry dependent on qualified low-income individuals, families, seniors, veterans, and the disabled. Impact investing is far reaching, some tangible and some not, both equally worthy of a human capital investment seeking a return socially and economically.

If we position social investment bonds and resources as the catalytic converter to social and economic advancements, we create a device that uses a catalyst (tenant base) to convert harmful compounds (unemployment/under employment, inferior education, financial illiteracy) into self-sufficient compounds such as improved employability, advanced education, and financial stability.

Investing in human capital offers advancement to social and economic barriers. In case studies we have found connectivity to resources that promote financial literacy, education, and employability will stabilize a tenant base. The investment of these resources needs to be tailored to the demographic and geographic elements of a community and easily within reach.  Community-based resource centers and services coordinators are critical to the success of programs and services.  A human capital investment need not be far reaching; it can be strategically focused on key elements that drive desired outcomes. Yet, we find the response to an investment in basic needs, that address social and economic conditions, influences the stability of an individual and family dynamic beyond easily measurable outcomes. If we want to improve the financial position of an individual or family, we connect them to resources that will establish a greater skill set either through education, technical training, or job readiness. When there are barriers to income enhancements, we focus on financial literacy and innovative means to create financial stability.

Now let’s talk about return on investment (ROI). With every investment, there is a need to understand the return. Measuring the success of a human capital investment regardless of the financial component sometimes cannot be clearly defined, although, we are fortunate that our industry has worked tirelessly to streamline financial reporting and has drilled down line items that can be correlated to human financial and social performance. On average, within two years of resident service implementation (utilizing social investment funding), assets experience dramatic expense reduction. The following statistics, derived from actual financial statements from seven properties Rainbow has been involved with, show how investment in tenant-based services as a critical element in the dissemination of human capital may be measured and a how the calculation of the ROI is derived.

Rainbow’s service-enriched sites, on average, see reductions in the following areas:

  • Vacancy costs decreased by 7 percent
  • Bad debt reduced by 34 percent
  • Turnover costs cut by 21 percent

It is important to be sure the provision of services and matrix established to gauge the success of such is easily delivered and measurable. Determining key elements such as penetration (exposure to resources and connectivity), vacancy loss, bad debt, turnover costs, reduction to security and vandalism expense, and resident retention are measurable outcomes that come full circle to the correlation of a social investment with an economic impact easily recognized in an asset’s financial statement.