Housing developer Matthew Berke wanted to know why many landlords were reluctant to rent to voucher recipients. So he asked them. They complained about tenants not taking care of the property. They said it was a headache to work with housing authorities to get their rent each month. Berke says he was skeptical. And he also saw an opportunity—he believed he could help working families and still run a successful company. He trained his eye to the suburbs.
“We discovered that tenants are not marauding folks bent on destruction,” he says. “They are often single moms wanting to raise kids in a good school district. These Section 8 tenants want better schools, and I think that is a human right.”
Berke is the founder of High Opportunity Neighborhood Partners, or HON, which buys single family homes and rents them solely to voucher holders. The company bought its first property in April 2019 and has since purchased over 250 more in seven cities, about half of which are in the suburbs of North Texas.
HON has a goal to increase housing stock for these families, choosing homes that are in good shape, priced well, and located near solid school districts. These are mostly three- and four-bedroom residences, targeted specifically at families who are often forced to live in apartments in segregated neighborhoods with higher crime and poverty rates.
“There’s been a lot of research that says your ZIP code matters,” says Brooke Etie, the vice president of the housing choice program at the Dallas Housing Authority. She is referring to the work of the Harvard Economist Raj Chetty, whose Opportunity Atlas mapped how where you live is a predictor of how much you will earn over a lifetime. “Where you grow up dictates the trajectory of your life and where you end up. We’re focusing on moving families to high opportunity neighborhoods.”
The Dallas Housing Authority has spent years following a court order mandate that it spread out its housing stock. DHA lost a well-publicized lawsuit in the 1980s for having segregated and inferior housing, and there has been no shortage of lawsuits that alleged that DHA housing was still too often concentrated in high-need, blighted neighborhoods.
In 1985, DHA resident Debra Walker sued the housing authority, the city of Dallas, and the Department of Housing and Urban Development for subsidizing segregated and inferior public housing. She won. At the time, 92 percent of Black households in the DHA system were concentrated in Black neighborhoods with poverty rates of more than 40 percent. A decree was made to improve the situation, and DHA’s service area was expanded to include a seven-county jurisdiction, including Collin, Dallas, Denton, Ellis, Kaufman, Rockwall, and Tarrant counties.
The ruling also allowed DHA to pay landlords 125 percent of the fair market rent for the area, a mechanism to convince property owners to rent higher-quality housing to families with vouchers. While these measures go a long way toward improving the situation, the subsequent lawsuits against DHA show that the decree didn’t completely solve the problem. One issue: tenants still must find landlords who are willing to rent to them. Nothing in the court order forces private landlords to rent to voucher holders.
“When you are a low-income single mom, the system doesn’t work for you,” Berke says. “You don’t understand why the government is telling you that you have a voucher but no landlord will take it.”
Federal law requires voucher holders to pay 30 percent of their salary toward rent, but the rest can be covered by the voucher. The amount landlords receive scales based on the fair market rent for the ZIP code where the home is located.
It has been a long road for voucher holders, particularly those in North Texas. In 2017, the Dallas-based Inclusive Communities Project surveyed multi-family housing owners in North Texas. It found that only 12 percent of those surveyed will rent to a family with a voucher. In majority White, non-Hispanic neighborhoods, only 4 percent of landlords said they would accept a housing voucher. In mostly Black neighborhoods, 46 percent of landlords accept vouchers. Even if DHA is willing to pay for housing in non-segregated areas and the families are willing to move there, it can be difficult to find a willing landlord.
The survey found landlords in 26 North Texas cities denied 100 percent of voucher holders.1 Seven suburbs denied 90 percent of voucher holders.2
This is the market HON entered. Berke set out buying homes with his own money and his personal credit line. When banks heard his business plan, they balked at loaning him money. He was again told that housing authorities were unreliable and regressive. Berke then reached out to Grant Herlitz, a friend from his energy days who had just stepped down as president of the Howard Hughes Corporation, a real estate development firm with $10 billion in assets.
Berke and Herlitz went to work speaking to banks and convincing them of their model. They hoped to break the cycle that plagued so many of these housing arrangements. Landlords often buy the cheapest housing and hope to get the highest yield from voucher holders. Neither the renter nor landlord has the incentive to maintain what has become a depreciating asset.
The team wanted to flip the script and create a “virtuous cycle” rather than a “vicious” one, Berke says. They found the capital to buy quality homes, giving the tenant incentive to maintain the house while the housing authority helped pay the rent.
Because the homes were being purchased by an institutional landlord rather than an individual, banks were suddenly more likely to extend credit, and neighborhoods were less worried about absentee owners. They gained traction with some regional banks and have recently convinced larger investors to help them buy even more homes—in fact, US Bank just granted the company a $120 million credit line to purchase more homes.
A similar model has worked in Seattle and other locations around the country. HON also provides case management, quick repairs, and what the company calls “Services Enriched Housing,” services aimed at helping the tenants get on their feet. That means part of the lease includes financial literacy, help with transportation, health and wellness guidance, and job training resources.
Making a move from what is usually an inner-city neighborhood where families have lived for generations to a far-away suburb for better opportunities is not an easy decision. Electricity bills may be higher. Public transportation may not be an option, so tenants may need to have access to a car. Tenants are more likely to be Black and Latino and are deciding to live in majority-White neighborhoods.
“It’s heroic for these kids. It is not a free lunch,” Berke says. “It is not easy for them. It’s a self-selecting group that does it because they want better for their kids, and the kids are grateful.”
Regina Carter and her three children live in a HON property.
They had been living with Carter’s mother in southern Dallas when they received a housing voucher. She had trouble finding something to her liking that would allow the voucher. She had only 90 days to find housing before the voucher expired. She found a home in Arlington and was initially excited to have her own place. Despite paying her bills on time, Carter says her landlord was not responsive. When she complained about rodents in the house, a pest control company came out, but that only revealed the depth of the issue.
The morning after pest control came, Carter says her home was littered with dead rats: two on the side of her bed, three in a closet, more around the house. “It was not living conditions,” Carter says.
Carter reached out to DHA, which connected her to HON Partners. The company facilitated a move to a northern suburb of Dallas. Carter says she and her family love their four-bedroom home, even though it is far from the rest of her family. They live across the street from a park where her kids play. They have joined a traveling track team.
“They used to be very shy around people, but now that we’re out here and they are on track, they’re more of a people person and like to communicate,” she says.
Carter works from home so doesn’t have to travel for work. She is nervous about driving on the highway, so trips back to Dallas to see her family can be time-consuming. Still, she is happy with the move.
“I have no complaints,” she says. “I love my house.”
Rising home prices across the country have slowed HON’s growth, but Berke hopes the company’s scale and volume and can solve those financial challenges.
“Our first priority is to spend time with mobility-minded housing authorities, and Dallas is one of them,” Berke says. “I would expect that the market would settle down over the next year, so we’ll be able to buy more in this market, but it has been a lot more difficult.
“What I can tell you authoritatively is that Dallas Housing Authority is the most progressive in the country,” he adds.
The company has seen support for this kind of initiative on both sides of the political aisle, Berke says. North Texas received 1,100 additional vouchers last year as part of the federal American Rescue Plan, so the need for more voucher-friendly housing is only going up.
HON is committed to working with housing voucher recipients, even when they could make more money renting to private clients. They want to be able to come to the housing authorities with “clean hands” and the assurance that the authorities can count on HON homes for their clients. The company wants to make money, Berke says, but its strategy thinks about more than just the return on investment. It already has locations in the suburbs of Dallas-Fort Worth, Houston, San Antonio, Tampa, and Minneapolis. It plans to expand to the Charlotte and Atlanta areas in the coming years.
“That policy was anchored and cemented because we talk to tenants all the time, and they were crying. They could not believe that someone prioritized them,” Berke says. “They have never been prioritized. In fact, they had been denigrated. The ROI to society, to the housing authority, to the mission, to the families, to future generations, is big.”