Rick Holliday is one of the pioneers of nonprofit housing development. He’s responsible for more affordable housing in the region than almost anyone. But in the last thirty years, he’s seen the industry he helped to forge proliferate into a multi-billion dollar industry that, he warns, needs to be scrutinized.

“A lot of them are not mission driven,” he says. “It’s not unreasonable to ask if it’s a good investment of our tax dollars.”

Holliday has worked on the housing shortage from within city administrations. He’s innovated public/private partnerships to get more affordable housing on the market and now he has staked out a claim for himself in the private sector.  He was spared no amount of scorn when he transitioned to private development, in fact, he says he was “hung in effigy,” by some groups in the affordable housing community.

He doesn’t make indictments of the nonprofit housing industry self-righteously; he does it when he’s pressed.

Rick_picHolliday was raised on the lionhearted Bay Area idealism that this place is known for. His father, a “liberal professor,” inherited a “serious distrust of business and capitalism,” from Holliday’s grandfather, a victim of the Great Depression. Holliday made his way through Cal’s Urban Policy program, propelled by a commitment to social justice. His first five jobs were in the public sector, working on projects like Urban Homesteading Assistance with HUD.

In the late 70’s Holliday made his exit from the public sector, “disheartened by the lethargy and ineffectiveness of government,” to work independently. He put his energy into projects like owner-built homes and single parent housing/child care coops. Holliday has always been ahead of the curve in terms of ecological sustainability; in the 1980’s he was building some of the most energy efficient households in the region. Today, his private development projects continue to win awards for excellence in adaptive re-use.

Though he was proud of the noble work he and his partners were doing in those early years, Holliday remembers watching a private developer come in across the street and build several hundred units in less time than it took them to toil over a small fraction of that. His work, though ideologically pure, began to feel like a drop in the bucket. “We wanted to find a way to scale up the good work we were doing [to meet the demands of the housing problem].”

What happened next was he and his colleagues pioneered the model of nonprofit housing development that has since become widespread.

By way of context, it should be noted that up until the 1960’s, there were roughly two kinds of housing: private sector and public projects. The first exceptions to this were programs like College Housing, sponsored by public or nonprofit schools, and later programs for the elderly and handicapped, sponsored by a wide array of religious and civic nonprofit organizations. Later came Community Development Corporations, which work on an immediate, local scale to provide community benefits, one of which involves sponsoring affordable housing.

Holliday was one of the first to partner the virtues of private development—efficiency, professional expertise, scale—with city subsidies to build mixed-income housing.

As tax-exempt and grant-eligible organizations, nonprofit developers can afford to rent or sell a portion of their units—say 20%—at cost rather than at profit. Because they provide a public good they are given a leg up in the entitlement and contract selection process. “I discovered that I was really good at developing,” says Holliday. It’s hard to pin down exactly what that entails but what is clear from Holliday’s record is that he knows how to reach out to and generate support from members and representatives of the neighborhood. He knows how to make things happen.

“In a year or two we were building affordable housing at an unprecedented rate,” says Holliday, about the first affordable housing developer he founded, Eden Housing. His second, BRIDGE Housing, cofounded with the esteemed Don Terner, continues to be a leader in the industry. “We [BRIDGE] made it on the Builders 100 list… Nelson Mandela came out because he was interested in replicating our model in South Africa,” he recounts. Holliday played a part in drafting many of the state’s housing ordinances with Terner during Terner’s tenure as the head of the California Department of Housing and Community Development. There was no shortage of affirmation that their model was progressive.

Here’s the catch: nonprofit developers are not required to build below-market-rate housing. The only thing that distinguishes a nonprofit from a for-profit, legally, is that the nonprofits cannot distribute income to shareholders and investors. They are required to reinvest all of their profits in the furtherance of their mission; although there are no requirements in the amount of income they can distribute to themselves.

The reason, in theory, why it is sensible to use tax dollars to subsidize development, even if the developers are not building low-income housing, is that low-income areas will not undergo development without subsidies. It is not profitable or affordable for the unassisted private sector to build housing in lower-rent, lower-income parts of town, according to Holliday’s description of conventional wisdom. Therefore, those parts of town will never get the boost in tax revenue, in political leverage, in all of the benefits associated with middle class neighborhoods, unless government greases the wheels of development.

Ghettoizing low-income families in subsidized housing is not good urban planning, Holliday argues. “In order to attract retail and jobs you need a balanced economy, in order to have thriving public schools you need [parents who have extra time and money], in order to get the city to fix deteriorating streets you need the promise of more people coming in,” he argues.

In fact, Rick Holliday is of the opinion that new market-rate housing can be more beneficial to a neighborhood than new affordable housing. In the case of his West Oakland Pacific Cannery Lofts, completed in 2009, he believes the neighborhood shared this opinion with him.

“In 2000 [when planning for The Cannery began], West Oakland was not what it is now. There were about 8,000 units of affordable housing. People were leaving for East Oakland and renting out their spots in West Oakland to people with section 8 vouchers,” says Holliday. “What I heard from the neighborhood was ‘When is it going to be our turn?’” 163 market-rate lofts, Holliday determined, would inject the neighborhood with the money it needed to bring opportunity to the neighborhood.

When the deliberations over the proposal for The Cannery began, Causa Justa and other anti-gentrification activist groups protested the project. But when it came time for the hearing, as Holliday describes it, the community showed up to support his proposal and it was passed with an 8-0 vote.

As it happened, Holliday Development lost $20 million on The Cannery. The cost of the building project was $400,000 per unit but because the lofts went on the market at the height of the recession, they ended up selling for $200-$350,000. The value of the appreciation—on average $100,000 in the last two years since the market has recovered—belongs to the individual buyers. So, as Holliday grimly jokes, they accidentally ended up building affordable housing.

Holliday stands by the argument that Oakland will benefit from increasing its stock of green, infill and mixed-income development. But he admits that the shortage of housing for low-income people isn’t likely to be resolved by the current model of tax-exempt development. The fact that Holliday went private suggests that development in Oakland, even in the least expected neighborhoods, is no longer cost prohibitive. One comes away from speaking with him wondering why it is, then, that we continue to subsidize it.