The good news: New York is thriving again. Crime is plummeting. Jobs are on the rise. And property values are through the roof.

The bad news: All that prosperity means fewer places to live for the working poor and other families with limited incomes. In other words, this city is facing an affordable housing crisis.

What a change from 30 years ago – when the streets were dirty and dangerous, jobs were scarce, and people were leaving in droves. Back then it was so unprofitable to own residential housing that landlords were abandoning their properties by the thousands.

Those tax-foreclosed lots and buildings eventually ended up in the city’s overextended hands. For years they remained vacant. Then, in the 1980s and ’90s, as neighborhoods revived, those apartments were rebuilt. What was once a stockpile of more than 6,300 abandoned buildings dwindled to a few hundred.

A remarkable success. But where do we go from here to provide affordable housing to hundreds of thousands of New Yorkers who still need it?

That’s the question the Starr Foundation chairman, Hank Greenberg, asked us two years ago when it became clear that New York City would soon rehabilitate its last derelict properties. “It’s impossible for the city to remain diverse if thousands of New Yorkers are priced out of the housing market,” he said. Mr. Greenberg wanted a program that would help solve the problem. The Starr Foundation was willing to put up $12.5 million – provided someone could find a way to leverage that into the production of thousands of low-cost homes. The Enterprise Foundation went to work on solutions.

It took some doing, but we found a way – with the help of the Rockefeller, Ford, and MacArthur Foundations, the Open Society Institute, the city’s Department of Housing, Preservation and Development, the Local Initiatives Support Corporation, and the local banking community. This unprecedented teaming of foundations, banks, and government will leverage Starr’s initial $12.5 million grant into a $200 million acquisition fund – enough money to spur the creation of an estimated 30,000 affordable homes over the next decade, as Mayor Bloomberg announced last month.

Dubbed the New York City Affordable Acquisition Fund, this new financial power tool makes it possible to convert more expensive private land into affordable housing. This is critical now that the city’s inventory of cheap abandoned properties has virtually dried up.

How does it work? Currently, affordable housing developers are at a huge disadvantage in the sizzling real estate market. During the months it takes them to line up the financing to purchase a property, developers building more expensive market-rate housing can secure financing faster – and pay top dollar.

Through the new fund, affordable housing developers will be able to obtain rapid, short-term loans while they seek permanent financing. The fund will offer guarantees to banks so that they won’t shy away from backing riskier affordable developments. Finally, affordable housing developers will be able to access financing on better terms and partner with the city to assemble permanent financing, allowing them to compete with their market rate counterparts.

What this means is that thousands of the city’s elderly and working poor won’t have to choose between paying rent and the utility bill each month – choices that people living in a wealthy, caring society like ours should never have to make. But, sadly, they do.

That’s why this new paradigm of foundations, financial institutions, and government collaborating together is so important. As we proved with affordable housing, the partnering of these three sectors can stimulate market based solutions to social ills that none of them could take on alone.

Ms. Davis is the president of the Starr Foundation. This article was written in conjunction with the chairman and chief executive officer of the Enterprise Foundation, Bart Harvey.