Solving Affordable Housing Problems with Technology

7 min read

Examples Drawn from Other Industries 

Working collectively and collaboratively is the difference between mediocrity by yourself or success as a team. You have to share the pain and the responsibility and if you do then you will also share in the rewards.   — Michael Bloomberg

What will it take for the affordable housing industry to work collectively and collaboratively to achieve more success than ever before and share in the rewards as a team? Intuitively, we know it won’t be something we’ve seen or done before. It will take serious dedication and innovation from all involved, and life as we know it will never be the same.

Rather than peering into the foggy future, perhaps we can find some clarity by studying the past. Adjacent industries, such as the commercial mortgage-backed securities market in the 1990s and the bond market in the 1980s, experienced innovations that drastically changed the efficiency of the markets. Other examples can be drawn from platform companies in the software industry today, with well-known examples, such as Uber and Airbnb. These companies have created successful digital platforms to help us connect better, effectively matching consumers and providers in the marketplace. What the Bloomberg Terminal did for the bond is an example that could translate to the affordable housing industry.

What the Bloomberg Terminal Did for Bond Managers
The story of the Bloomberg Terminal is very relevant to the affordable housing industry. Our summary is based on the 1997 book Bloomberg by Bloomberg written by Michael Bloomberg, and a conversation with a former user of the Bloomberg Terminal, Timothy Neumann, who spent 19 years at JP Morgan Chase as a bond manager and currently serves as CFO at ProLink Solutions.

In the 1980s and decades prior in Wall Street, the bond market was a dark and obscure place in terms of bond pricing data and analytics. Pricing data was not transparent, and analytical tools were typically built internally by each money management firm. Any bond manager, whether at a small or large firm across the globe, to buy or sell a bond, had to navigate a process that included:

  1. Check pricing published in Telerate (by Dow Jones) and Reuters for very liquid Treasury and other global government bonds (limited to the previous closing daily price).
  2. Call two or three Wall Street brokers with access to the most current and historical pricing on bonds. (These Wall Street brokerage firms gathered the pricing data through their own executions and kept it proprietary.)
  3. Receive verbal quotes from the brokers and determine whether the quoted bond suited his portfolio. (The analysis was performed on his spreadsheet model and limited analytical tools were available.)
  4. Recommend the purchase to his chief investment officer, sharing their analysis.
  5. Once approved, call back the brokers for the current price and submit an order with the broker with the best price.
  6. Receive a trading confirmation from the broker via fax within a few hours.

It was a time-consuming process for bond managers, who did this every day, ultimately, making decisions based on anecdotal information gathered manually and tediously.

Having some IT background as a partner at Salomon Brothers, Michael Bloomberg challenged the status quo and asked: What if bond managers are presented with all relevant data at their fingertips, so they can focus solely on making the right investment decisions for their clients?

What’s known as the Bloomberg Terminal was initially a little, black-screen computer that displayed lots of numbers and charts in green. A terminal was located on each bond manager’s desk and hooked up to Bloomberg’s central system via its own independent cables. This hardware-software combined solution made it possible to deliver data instantly to end users.

Initially, the value provided by the Bloomberg Terminal was in creating information transparency and much-needed standardization of metrics, which ultimately informed its users on which bonds are expensive and which ones are cheap, by the minute, day and week. Over time, the Bloomberg Terminal became an analytical tool that informs and educates its users on why bond prices fluctuate.

Bloomberg transitioning from providing information to insight took the foresight of Michael Bloomberg. Data collection and scrubbing was not done by low-level temps at his company – Michael Bloomberg hired some of the best of Wall Street to collect and scrub data intelligently. The care and investment put into understanding and digesting raw data resulted in advancement of data analytics and outputs valued by all users of the Bloomberg Terminal.

At that time, there was no one standard calculation for measurements of value and risk on bonds. Without standardization, it was difficult to make apples-to-apples comparisons, making the bond manager’s job difficult and inefficient. The end result of Bloomberg and other analytical tools introduced into the finance industry since the ‘80s was improving the quality of the decision making of bond managers. Creating transparency significantly reduced transactional costs for bonds, which resulted in better returns for bond investors. It ultimately led to much greater liquidity in the capital markets, thus lowering the cost of funding for bond issuers.

Implications for the Affordable Housing Industry
The affordable housing industry could benefit greatly from standardization, transparency, data sharing and automation. We are leading conversations across the industry to answer questions such as:

  • What might help affordable housing developers gather market intel to support them as they put together a deal? What might help them perform profitability and financial feasibility analyses upfront?
  • Can cash flow projections be stored more efficiently and be automated throughout the asset management life cycle?
  • Can compliance tasks be more automated?
  • Can operating financials line items be standardized so that performance metrics are standardized?
  • Can development budget line items be standardized so that industry participants can compare apples to apples, increasing transparency, and improving our understanding of why developing affordable housing is so costly?

ProLink Solutions has unique exposure to the whole spectrum of industry participants in both public (government) and private sides of the market. ProLink understands how data flows across the industry, where data jams and redundancies are created, and where data exchanges are fragmented, and we believe that technology and data sharing can be positive disrupters in many of the above identified questions.

Using Data Sharing to Reduce Financing Costs

       Progress is not inevitable. It’s up to us to create it. — Michael Bloomberg

Progress – a powerful word that we all strive to achieve in our work. In this case, achieving progress in the affordable housing industry is critically needed.  We are all aware of the tremendous unmet need for housing throughout our nation. Better sharing of information will lead to a lower cost of funds and lower risk for investors. The end result will be more affordable housing. As an industry, we will require stronger collaboration among all stakeholders than ever before. We should all ask the questions that will drive standardization and efficiency across the market. No single entity can achieve this kind of advancement alone. The affordable housing industry, as a whole, represents a team that has the potential to strengthen our nation by ensuring no American goes without a roof over their head. It’s not about a lack of resources; it’s about how we use the resources we have to the utmost potential as one unified ecosystem.

As part of the affordable housing ecosystem, ProLink Solutions provides technology solutions to support all industry participants. Over the years, ProLink has developed a single end-to-end platform that manages data from initial concept through development to ongoing asset management and compliance. As one of a few tech players in the industry, we are focused on how the industry can evolve into the future.

Since early 2019, ProLink has created opportunities across various venues to support a cohesive industry ecosystem, bringing participants together to discuss the benefits of accessing and sharing data both vertically and horizontally (see the diagram on p. 32). The ecosystem will enable us to participate in the sharing economy where we exchange and consume data, thereby creating value together. The industry data pool and benchmarking will be a natural product of this ecosystem. Ultimately, it will enable us to perform our jobs more efficiently and produce more affordable housing across the nation.

Creating such an ecosystem will only be achieved through continuing dialogues across the industry, so ProLink Solutions invites you to join us in this dialogue.