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Financing the Missing Middle: Creative Solutions on the Rise

Updated: Sep 18, 2023

Financing housing development for the missing middle target has long been a challenge – it’s one of the core reasons why workforce housing is built the least. Middle income earners typically make too much money to qualify for income-restricted subsidized housing but don’t make enough to afford market-rate housing. The need for developers to hit certain price points to accommodate this segment, coupled with skyrocketing homebuilding costs in everything from materials and design to labor, makes it difficult for missing middle housing investments to pencil out.


We talk about the need for innovation in four key areas to help lower the cost and time associated with building missing middle housing. Financing is one of those quadrants. Missing middle housing developers desperately need access to capital, and at lower rates and more favorable terms. Access to institutional forms of debt and equity has been limited since missing middle projects are often too low in volume or do not reach the required scale to merit these larger sources of investment. Local forms of capital are being relied upon more heavily, as lenders/investors are more willing to take on more risk with smaller returns to see greater benefit for their communities.


Although Oregon faces one of the biggest housing underproduction crises in the nation, we are hopeful to see different models of financing innovation for middle income housing evolving in our backyard. Let’s take a look at three.

Alphaledger seeks to facilitate access to capital at lower costs and time. They have created a blockchain technology platform that provides a direct, transparent municipal loan and bond marketplace that streamlines debt financing and increases direct engagement with lenders and investors. Manish Dutta, one of Alphaledger’s Co-founders and CEO, likens the company’s model to the evolution of Uber from calling 1-800 Taxi companies. Their technology helps connect borrowers and lenders directly to collect bids and originate loans/bonds under the most favorable terms available.


The ability to connect directly with more interested parties creates more competition in the marketplace, which helps to reduce the structural cost to borrow capital. It can also shorten the time to access it. During COVID, Alphaledger demonstrated its ability to expedite project turnaround time to approximately three days. And the company’s technology allows the issuer to raise capital to help fund projects and facilitate funding and investments of all sizes, from $50K to over $20M because they are no longer married to the traditional structural challenges of financing that require high level of investments to merit the higher costs of underwriting.


“Over the next 3-5 years we see us further developing a fixed income blockchain infrastructure that democratizes debt investments and issuances,” said Dutta. By allowing borrowers and investors to connect directly and have access to projects and resources of any size that maybe they hadn’t heard of before, Alphaledger is poised to do precisely that.

RootedHomes is using a land trust model to create more affordable homes in the Bend and Central Oregon region. A community land trust invests in the land and leases it to potential buyers in a land-lease agreement. By maintaining ownership of the land, RootedHomes has the ability to lower the selling price and can ensure that housing is made available for their target area median incomes.


According to Jackie Keogh, RootedHomes’ Executive Director, the company determines what the gap is between the sales price of the homes and what the target group can afford to pay based on their income. They then work to finance the gap with private and public subsidy. The land is leased in a 99-year renewable land lease agreement, which ensures that when the home is sold, the land and home it is on are available and affordable for the next restricted target homeowner (typically those making under $80K per year for a household of four). The financing structure also allows homeowners to take out some equity as area median incomes and home prices grow, which can be applied to their next home purchase (and the incoming homeowner will still have an affordable place to live despite the rising costs). The revolving model reaps benefits for everyone in the community.


Additionally, RootedHomes builds net zero homes that are energy efficient and help reduce the costs of utilities. According to Keogh, while an average size home costs owners approximately $100/month in utilities, a RootedHomes home costs their owners $12/month. This stems out of the company’s desire to not only make affordable homes but beautifully and smartly designed ones as well. “Affordable housing shouldn’t be the cheapest, worst housing in our community. When you build housing that people love, you open up opportunities to build more housing that people want to be a part of,” said Keogh.


Rooted Homes has more communities in the works, including multiple large developments in partnership with Housing Works that feature homes for sale and rental units. Their model is now thriving and attracting grants and investments from public and private sources, which is a change over the last 8-10 years. Keogh explains, “Now people understand the critical need for, and importance of, more affordable housing and I don’t have to convince anyone. People understand that a lack of affordable housing affects everyone – employers and the community – so more people are willing to help.”

Edlen & Co. is a real estate developer and investment firm that leverages its long history, with roots as Gerding Edlen, to build relationships and create community and economic impact projects that feature affordable housing at its core. Edlen & Co. is developing more housing for the middle income target while also reducing barriers for lower income residents to access and maintain more affordable housing long-term. The company has focused on Yamhill County due to the “perfect storm of motivation and desire” driven by the public and private sectors.


Edlen & Co. raises and deploys investment vehicles, including tax exempt bonds, the value of which is determined by the level of affordable housing they are trying to achieve in combination with a product-based approach. According to Matt Edlen, Co-founder of Edlen & Co., this strategy has taken hold due to the emergence of a class of investors who want a steady, predictable rate of return and are also mission-aligned. These two factors come together to make it possible to replace more traditional and costly construction financing debt.


The company has developed a strong partnership with Quantum Assembly, who we have profiled in an earlier blog post on product innovation. Over the past 2.5 years, the two groups have worked together to incorporate a lower cost housing product into the investment picture to create a more holistic economic solution. Deployment on the product side is just as important as the financing instrument, said Edlen.


Additionally, Edlen & Co. has established a holistic operating system to help renters of its properties access apartments and stay in them longer, despite any financial challenges they may experience due to economic conditions. This operating suite includes, Rentable, which helps manage the up-front costs associated with rental deposits, Flex, which helps tenants make rental payments based on the variable nature of their income, and Esusu, which issues rent relief assistance. These services make the home rental process easier and more humane, while helping to improve credit scores and reducing unit turnover. “We don’t just bring the best financing tools, we bring the operating system together as well, which absolves some of the risk,” said Edlen. “We can use all of this to go beyond and make lives better.”


All three of these innovators have one thing in common: they are focused on creating more economic opportunity through new ways of financing and sustaining housing development. They agree that when more middle income housing is created, everyone in the community can benefit.



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