Organizational Capacity And Housing Production: A Study

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Organizational Capacity and HousingProduction: A Study of NonprofitOrganizations in MichiganMichigan State University Center for Urban AffairsCommunity and Economic Development ProgramOctober 2001Sponsored by:The Fannie Mae Foundation’sUniversity-Community Partnership InitiativeandThe Aspen Institute’sMichigan Nonprofit Sector Research Fund

Research Team MembersRex L. LaMore, Ph. D., Project DirectorSusan Cocciarelli, M.A.Jose Gomez, Ph. D.John Melcher, M. S.John Metzger, Ph. D.Faron Supanich-Goldner, M.S.W.Matt Syal, Ph. D.Graduate StudentsTammy Holt, Urban and Regional PlanningChristopher Shay, Construction ManagementCatherine Stauffer, Parks and Recreation-Urban StudiesJudith Transue, Urban and Regional PlanningSupport StaffKathy Smith, Administrative AssistantKassandra Ray-Smith, SecretaryWith Financial Support FromFannie Mae Foundation, University-Community Partnership InitiativeAspen Institute, Michigan Nonprofit Sector Research FundMichigan State University, Office of the ProvostMichigan Agricultural Experiement StationMSU Urban Affairs ProgramsMSU Vice President for Research and Graduate StudiesCommunity PartnersMichigan Habitat for HumanityMichigan Local Initiatives Support Corporation

Table of ContentsI.Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1II.Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2III.Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8IV.Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16V.Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24VI.References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30VII.Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

I. Executive SummaryIntroduction and GoalsA critical question in community development is how best to organize, fund, and otherwisesupport affordable housing development by nonprofit organizations. In particular, defining andmeasuring organizational capacity have emerged as important issues. The current study is an effort tobuild upon Michigan State University’s longstanding commitment to engaging university resources inmutually beneficial partnerships with community based efforts to improve the quality of life in Michigancommunities. This study attempts to devise a valid and reliable instrument for describing and measuringorganizational capacity. The team used this instrument to identify relationships that might exist betweenthe components of capacity and the efficient production of affordable housing. In addition, the studyidentified some specific needs and opportunities for capacity building.Methods and ProceduresThe subjects of the study are nonprofit housing organizations in five geographic regions ofMichigan. Habitat for Humanity affiliate organizations were represented in the sample to permitcomparisons by organization type. Based on a model learning curriculum, the research team developed asurvey instrument consisting of 49 questions and over 150 distinct elements, which was used inconducting personal interviews with the leaders of nonprofit housing organizations. Index scores weregenerated for the five components of capacity previously identified by Glickman and Servon (1998):political, networking, resource, programmatic, and organizational. Annual average units produced(production) and comparative on-time and on-budget performance (efficiency) were calculated. Regionaland organizational comparisons were made, along with comparisons of high and low productionorganizations, high and low capacity organizations, and high and low efficiency organizations.Key Findings and RecommendationsThe 37 groups represented in this study produced a total of 4,385 housing units over a 32-yearspan. A relatively small number of organizations accounted for most of the housing production, primarilythrough multifamily housing development. Organizations with higher levels of organizational capacityhad higher levels of unit productivity; efficiency scores varied by region but did not match productivitypatterns. Specific training topics frequently requested included construction and project management,board development and training, and human resource management. Recommendations include furtherrefinement of organizational capacity measurement tools, research into the ability of the nonprofit sectorin general to fully meet the low-cost housing needs in Michigan communities, and careful considerationof the relationship between housing production and more broadly targeted community building activities.1

II. Introduction and BackgroundOrganizational capacity for housing developmentThe nonprofit sector in the United States is increasingly relied upon to play a leading role incommunity building for distressed communities. Many argue that a community building approach led bylocal nonprofit organizations is more efficient than traditional, top-down approaches because such anapproach relies less on bureaucracies and pays special attention to families and children (DevelopmentTraining Institute, 2001). Despite the fact that considerable attention has been paid to “comprehensive”development approaches since the advent of Community Development Corporations (CDCs), manycommunities have come to view CDCs as “primarily housing producers” (Mourad, 2001). Given thefundamental role that housing plays in communities, and the growing crisis in the available supply ofhousing for low-income individuals and families, affordable housing development is frequently thecentral element of a nonprofit community building agenda.In this context, the question of how best to organize, fund, and otherwise support affordablehousing development by nonprofit organizations has emerged as a critical topic in communitydevelopment. To fulfill the mission of building affordable housing for low and moderate incomefamilies, nonprofits must develop into fiscally sound organizations that can effectively utilize staff andvolunteer resources. They must also develop the capacity to plan, finance, and construct quality housing.Organizations and their funders are continuously seeking effective strategies for helping to develop thesecapacities within nonprofit organizations.Defining and measuring organizational capacity have emerged as important issues for privatesector lenders, government agencies, foundations, intermediary agents, and universities committed topromoting successful community development practice. Such stakeholders have long focused on buildingthe capacity of nonprofit organizations through activities such as providing technical assistance toorganizations, conducting training for individuals in leadership positions within organizations, andsupporting the development of more informed and active boards of directors. In recent years, those2

committed to capacity building are paying increasing attention to understanding when and how capacitybuilding activities do in fact translate into more effective action by nonprofit groups.Models for understanding organizational capacityOne approach for evaluating the effectiveness of community development organizations has beento simply equate organizational capacity with housing production. As Glickman and Servon (1998)observe, this approach overlooks many important community building functions that nonprofit groupsperform that may supplement the production of housing units. Stoecker (1997), in arguing that theadoption of a development mission may diminish a community based organization’s ability to effectivelyadvocate for members of the community, implies that the capacities required for housing productiondiffer significantly from capacities for other community building work. Others have noted that, to beeffective over time, community building must be “comprehensive,” simultaneously addressing themultiple challenges that a community may face (Development Training Institute, 2000).Even so, as long as affordable low-income housing remains scarce, unit production remains animportant measure of success for nonprofit organizations with housing-related missions. In order toincrease their unit production in an increasingly demanding environment, affordable housingorganizations must build capacity. By carefully defining and measuring capacity in terms of itscomponents, those committed to building the capacity of affordable housing organizations can betterunderstand their own potential roles in the process.In interpreting the findings of this study, the research team builds upon the conceptual frameworkof Glickman and Servon, who describe an organization’s “capacity” as a complex of five components:political, networking, resource, programmatic, and organizational. While other promising conceptualmodels are available for articulating the components of capacity,1 the components proposed by Glickmanand Servon were selected because of their direct relevance to housing development activities and theirattention to the community building context.1E.g., USAID (2000) offers a model for assessing capacity that includes four components—administrative/supportfunctions; technical/program functions; structure/culture; and resources—each of which has subordinate elements.3

Glickman and Servon suggest that overall capacity of organizations may be understood in termsof five interacting components (see Figure 1). According to Glickman and Servon, resource capacityreflects an organization’s ability to “attract, manage, and maintain funding.” Organizational capacityrefers to the capability of a group’s “internal operations.” Programmatic capacity “measures the types ofservices offered.” Networking capacity reflects ability to “interact and work with other institutions.”Political capacity is the “ability to credibly represent its residents and to effectively advocate on theirbehalf” (1998, pp. tyFigure 1. Interaction among Capacity Components (Glickman and Servon, 1998, p. 505)This model, as Glickman and Servon themselves note, may be refined by improving ourunderstanding of the relationships that exist among the components of capacity, and by exploring therelative significance or centrality of one or another component. In addition, there may be furtheropportunities to refine the model. For example, the political component of capacity might be betterunderstood as an element within networking capacity, rather than as a distinct component. Theprogrammatic and organizational components, which each comprise a wide range of organizationalactivity, might be more useful if subdivided into distinct elements.4

Michigan State University and Michigan community buildingThe current study is an effort to build upon Michigan State University’s longstandingcommitment to engaging university resources in mutually beneficial partnerships with community basedefforts to improve the quality of life in communities. As a land-grant university, MSU is committed to astatewide mission that combines teaching, research and outreach. Since being established in 1968 as anoutreach scholarship program of MSU, the Center for Urban Affairs (CUA) has been actively involved inissues of affordable housing along with a variety of other issues related to community and economicdevelopment. Training programs for first-time homeowners, board development for nonprofitorganizations, and technical assistance to community based groups on a wide range of topics were amongthe early projects of the CUA and its Community Economic Development Program. In the past decadeMSU has established outreach offices in six Michigan cities (Lansing, Detroit, Flint, Grand Rapids,Pontiac, and Saginaw), which serve to link faculty and students with communities and groups around thestate that might benefit from training, technical assistance, and outreach activities.In conjunction with outreach activities to assist communities in their local development efforts,the Center for Urban Affairs engages in research to help increase practical understanding of communityand economic development issues. For example, the Community Income and Expenditure Model, whichmeasures economic flows into and out of communities, was developed by the CUA as a research tool andlater refined as a self-administered handbook for use by local communities. Other research initiated bythe CUA has focused on the development of Individual Development Account programs within Michigancredit unions; the adoption and use of information technologies by low-income parents and children; andeffective planning practices for sustainable economic development among disadvantaged communities.The MSU CUA has been an active partner with nonprofit affordable housing developmentorganizations in Michigan. In cooperation with an advisory committee of established communitydevelopment practitioners from around the state, the CUA designed a comprehensive model for buildingthe capacity of nonprofit housing development groups through training, technical assistance, peernetworking, seed capital, student involvement, and applied research. In the course of seeking financial5

support for implementing this capacity building model, MSU was awarded a research grant from theFannie Mae Foundation’s University-Community Partnership Initiative, to explore the presumedrelationship between organizational capacity and housing development. With supplemental supportprovided by the Aspen Institute Nonprofit Sector Research Fund, the study was extended to include twomore geographic regions.Goals of this researchThree principal goals guided the affordable housing research effort. First, the research teamsought to devise a valid and reliable instrument for describing and measuring organizational capacity, inboth qualitative and quantitative terms. Such an instrument would be useful to stakeholders in severalways. Practitioners would benefit from a tool for self-assessment, which could help an organizationidentify goals and activities that match its strengths and to identify capacity-building opportunities itmight pursue to better achieve its objectives. Researchers interested in community and economicdevelopment could use such an instrument to identify the specific components of capacity that areespecially crucial to achieving particular organizational outcomes; this would help intermediaries andother supporting partners to more effectively devise and more efficiently target training resources tosupport organizational objectives. Finally, the emergence of a clearer understanding of the capacities andlimitations of the nonprofit sector would assist policymakers, community leaders, and other partners tohave more realistic expectations of nonprofit housing groups, and may foster a greater appreciation of theneed such organizations have for resources and other support.The second goal of this research was to use the preliminary instrument to identify relationshipsthat might exist between the components of capacity and the efficient production of affordable housing.Levels of capacity are therefore compared for groups in different community settings, and for Habitat ofHumanity affiliates and more traditional Community Development Corporations.2 In addition to2Habitat for Humanity International is a nonprofit, nondenominational Christian housing organization with themission to build simple, decent, affordable houses in partnership with those in need of adequate shelter. Houses arebuilt by Habitat volunteers and homeowner families under trained supervision, and sold to homeowner families at noprofit, with zero interest charged on the mortgage (Habitat, 2001).6

geographic and organizational comparisons, levels of organizational capacity are compared for groups ofvarying levels of productivity (in terms of units produced) and efficiency (in terms of on-time and onbudget housing production).Finally, the project was designed to identify specific needs and opportunities for capacity buildingamong the respondent organizations. This was done directly by asking groups to identify their trainingpriorities, and indirectly by considering the relative levels of capacity demonstrated by responses to thesurvey.7

III. MethodologyInstrumentIn the course of developing a comprehensive capacity building model for Michigan organizations,the CUA and its community partners in recent years outlined a detailed skills base learning curriculum fornonprofit affordable housing development groups. This curriculum incorporates general nonprofitmanagement practices (e.g., board development, strategic planning, financial management), along withskills unique to housing development (e.g., financial packaging for real estate acquisition, techniques ofconstruction management, management of rental properties). The various units of this curriculum,informed by the years of practical experience represented by those contributing to its design, served as theprimary basis for generating the items included in the survey questionnaire.On the basis of this model curriculum, the research team developed a survey instrument for use inconducting a personal interview. The final questionnaire consisted of 49 questions including over 150distinct elements. After Phase One interviews, the questionnaire was modified slightly to collect morespecific information about certain elements.3 (Questionnaires are reproduced in Appendix A). Thequestionnaire was organized by topic into nine sections. Section topics included: Organizational Profile;Community Assessment and Participation;Financial Packaging;Construction Management;Project Management;Homeownership Programs;Organizational Administration and Development;Professional Development and Linkages to Educational Institutions; andPublic Policy and Housing Advocacy.In addition to the survey questions, respondents were asked to provide supplemental informationregarding their organization’s tax-exempt status, by-laws, mission statement, organizational chart, board3The research team discussed making more extensive changes to the survey, but limited the changes that were madein order to maintain comparability between the Phase One and Phase Two samples.8

of directors, service area, strategic plan, business plan, annual budget, annual report, and newsletters orother publications.SampleThe subjects of the present study are nonprofit housing organizations in selected regions ofMichigan (see Figure 2) whose activities include the production and/or rehabilitation of affordablehousing. The organizations interviewed are in many cases also involved in related community buildingactivities, such as homeownership counseling, volunteer management, or home repair, weatherization,and a variety of other community development initiatives such as community organizing and youthprograms. The identified sample does not include providers of public housing, for-profit developers, orhomeless programs/shelters.For the initial phase of the study, three geographic regions were selected: the Detroitmetropolitan area including Wayne, Oakland, and Macomb counties (a large urban region); the Lansingarea including Clinton, Eaton and Ingham counties ( a mid-size urban region); and northern lowerMichigan, including the counties of Antrim, Charlevoix, Cheboygan, Emmet, Montmorency and Otsego(a rural region). In each region, housing groups were identified using databases of the Center for UrbanAffairs and the Michigan State Housing Development Authority’s Office of Technical Assistance.Community development specialists located inDetroit and Lansing assisted in reviewing thelis

Research Team Members Rex L. LaMore, Ph. D., Project Director Susan Cocciarelli, M.A. Jose Gomez, Ph. D. Jo