Capital Absorption

What makes community investment successful in a place?  The IRI’s work on the concept of “capital absorption”—the ability of places to attract and deploy capital in support of low and moderate income communities—aims to support the exploration of these questions to better channel capital in support of the public good.

With support from the Kresge Foundation and the John D. and Catherine T. MacArthur Foundation, the IRI is working with Robin Hacke at the Kresge Foundation and Marian Urquilla at Strategy Lift to lead ground-level research on the roles that stakeholders such as foundations and local governments can play in increasing capacity to attract community investment. Mainly focusing on urban areas, our work has paired the development of a theoretical framework for community investment infrastructure with in-depth work with cities, issues, and actors to test the applicability of the model.

This work began with a March 2012 working paper, The Capital Absorption Capacity of Places, which presented a basic frame for thinking about capital absorption and a model to assess  capacity. In the following years, the team has produced further works including:

In further exploration of the applicability of the concept, the team has been working with cross-sector collaborations in the greater Denver, Los Angeles and San Francisco Bay Area regions to test efforts to improve capacity over time. These three regions were selected as beta sites for the project in 2014, and have all focused on equitable transit-oriented development. The team has also recently started work on a project with the Federal Reserve Bank of Boston to expand place-based assessment to a regional scale through the Capital & Collaboration initiative, a one-year project to apply the principles of capital absorption analysis and interventions to the Working Cities in Massachusetts.

Seeking to explore opportunities for new actors in the community investment system, the team has been working with the Council of Development Finance Agencies to better understand the role that development finance agencies like housing and port authorities can play in supporting community investment. Additionally, the team has been working with the Robert Wood Johnson Foundation to explore to the roles that health institutions might play in community investment.  

Recent Activity

Collaboration by Design: Pro Neighborhoods through a Capital Absorption Lens
February 28, 2018
Applying the framework of capital absorption, this brief review suggests some initial thoughts on how support for formal collaboration may foster CDFI capacity development in new areas of expertise at three levels:

  1. At the level of the individual CDFI
  2. At the level of collaboration among CDFIs
  3. At the level of the community investment system

The PRO Neighborhoods focus on innovation and collaboration led practitioners to engage a variety of actors in the broader ecosystem, including community advocacy groups, political and governmental bodies, trade associations, and collateral financial services. The challenges of engaging actors in a necessarily transaction-focused environment could be explicitly incorporated by grant makers into program design and adaptation. The interviews point to the importance for CDFIs of thinking not just transactionally but strategically— of considering not just the transaction at hand, but the broader system of community investment in which CDFIs operate.


Improving Community Health by Strengthening Community Investment:  Roles for Hospitals and Health Systems
March 15, 2017
“What can communities do to make it easier to attract and deploy capital and leverage other assets to achieve their social goals?”  This question, central to the concept of capital absorption, is addressed in this report which applies the concept to hospitals and health systems.  With support from the Robert Wood Johnson Foundation, Robin Hacke (Kresge) and Katie Grace Deane (IRI) expand their work on capital absorption into the area of hospitals and health systems, examining how these institutions may be able to drive community health improvements by investing in the social determinants of health.

Introducing “Mission, Money & Markets,” New Article Series on Social Investing
January 30, 2017
In the launch of their new series sharing their work towards investing $350 million in impact investing, the Kresge Foundation mentions our capital absorption work as one of three ways they are "using social investing to change outcomes for low-income people".  The Kresge Foundation has recently "invested $3 million in a new entity, The Center for Public Purpose Finance" to extend the research and implementation of the principles of capital absorption.

Helping Cities Absorb Capital (podcast episode, 17 minutes)
November 28, 2016
The Kresge Foundation’s podcast Talking About Cities features an interview with IRI collaborator Robin Hacke, a Senior Fellow at the Kresge Foundation, discussing social and impact investing in U. S. cities. 

Community Development Financial Institutions:  On the Front Lines
October 25, 2016
Text of a speech by President and CEO of the Federal Reserve Bank of Atlanta, Dennis Lockhart, in which he notes that "Other research work on the capital absorption capacity of communities suggests they struggle to absorb double or triple bottom-line investments . . . This work leads us to urge communities seeking investment to organize their demand for capital into an agreed set of priorities yielding a pipeline of investable opportunities."

Scaling Solutions:  A How-To Guide for Unleashing the Potential of Public-Philanthropic Partnerships Based on Lessons Learned from the Sustainable Communities Initiative
September 2016
Our paper What Can Foundations Do to Foster Community Investment? is cited in this new resource by the U. S. Department of Housing and Urban Development's Office for International and Philanthropic Innovation.  

Capital and Collaboration: An In-Depth Look at the Community Investment System in Massachusetts Working Cities
August 2016
This publication presents the work of the Capital & Collaboration Initiative, a cross-sector effort designed to increase the scale, efficiency and impact of investments in Massachusetts Working Cities. Included are reflections from the partners, summaries of research conducted to inform the group’s deliberations, and calls to action from subgroups focused on downtown revitalization and small business development.  By the Kresge Foundation, the Initiative for Responsible Investment, and the Federal Reserve Bank of Boston.

Capital and Collaboration: Strengthening Community Investment in Smaller, Postindustrial Cities
Fall 2016
IRI Assistant Director Katie Grace co-authored this piece as part of the Capital and Collaboration project at the Federal Reserve Bank of Boston with Robin Hacke from the Kresge Foundation and Carmen Panacopoulos from the Federal Reserve.  The article previews their forthcoming research paper on the community investment system.

Making Communities Investable:  Attracting and Leveraging Private Investment for Public Good
September 2016
This video of a panel discussion at the Lincoln Institute of Land Policy features IRI Director David Wood, Robin Hacke from the Kresge Foundation and Christopher Goett from the California Community Foundation explaining our work in the area of capital absorption.

Community Investment: Focusing on the System
March 2015
Focusing on the community investment (CI) system – its functions, boundaries, practices and culture – can help reduce the transaction costs and increase the scale and impact of CI. In this paper, we encourage people to think about the system for organizing CI demand, suggest ways to make the system visible and tractable in a given place, and offer some suggestions based on current and past efforts on how to make the CI system more robust.

What Can Foundations Do to Foster Community Investment?
December 2014
Foundations can magnify their impact by steering private investment toward social goals. They can do this not only in their role as investors, as important as that can be, but also as grant makers and as advocates, conveners and supporters of research. In this paper, we describe ways in which foundations can shape how capital is used to support positive social outcomes in marginalized communities.

Denver, Los Angeles, and San Francisco named beta sites for testing new approach to community and economic development
Kresge Foundation
October 2014
Announcing the next phase of the capital absorption work, focusing on equitable transit-oriented development in the Denver, LA, and San Francisco metro areas. 

Expanding the Geographic Reach of Community Investment: The IFF Case Study
November 2013
An in-depth CDFI case study, building on research around the Capital Absorption Capacity of Places, this work looks at the process of geographic expansion for IFF. Capital absorption is described as “the ability of communities to effectively use [private] investment capital to serve pressing needs,” with a focus on understanding community investment as an ecosystem with many different kinds of actors--public, private, and nonprofit--doing many different kinds of things. This piece provides a way to describe all those things that, along with investors and projects, were necessary to invest for social benefit in marginalized communities.

5 Guiding Principles to Build Capacity and Attract Capital” by Robin Hacke in Rooflines
October 2013
Five considerations should guide local leaders as they think about how to achieve important public purposes, especially when they are seeking to build the capacity to attract and deploy capital.

Letting the Dollars Land” by Robin Hacke in Shelterforce
October 2013
To realize the promise of community investment, the capacity of specific places to absorb available capital needs to grow.

The Capital Absorption Capacity of Places: A Self-Assessment Tool 
October 2013
Combining the introduction to our Capital Absorption framework with an assessment worksheet allows interested stakeholders to figure out how their city or metropolitan region performs on each of the functions we’ve laid out.

Putting Dollars to Work in the Community: 9 Things Local Government Can Do to Harness Private Capital for Public Good
August 2012
Leadership from the public sector can make an enormous difference in creating the conditions that attract private capital and ensure it is utilized effectively to build sustainable and equitable communities. This paper outlines some key steps for public sector officials to consider and provides examples of places that have implemented these steps.

The Capital Absorption Capacity of Places
March 2012
This working paper is a first effort to describe the community investment ecosystem as a way to better evaluate and understand how community investment capital is absorbed and deployed in specific metropolitan regions. Part I describes the functions that must be performed in order to put capital to work in underserved communities. Part II offers an initial diagnostic framework that analysts can use to understand how functions are being performed in a given place and what is missing. [Atlanta Chicago]