The Need for Affordable Housing
Housing ranks as one of America’s most pressing challenges. According to the National Alliance to End Homelessness, more than 580,000 people experienced homelessness in 2020. In addition, many people are one job loss or health crisis away from losing their homes. The Harvard Joint Center for Housing Studies estimates that more than 20 million renters pay an unsustainable 30% or more of their income for housing, while more than 10 million dedicate more than half of their income to rent.
Creating affordable housing can help those people, but it can also have a broad positive impact on whole neighborhoods, communities and the nation as a whole. A 2021 study by UCLA’s Elior Cohen found that providing homeless people with targeted housing assistance reduced emergency room visits by 80%, cut jail days by 95% and reduced the probability of committing a crime by 80%. People who participated in housing programs were 24% more likely to be employed than those who did not.
Affordable Housing Explained
What is affordable housing? The federal Department of Housing and Urban Development (HUD) defines housing as affordable if it costs 30% or less of a resident’s income. Because wages vary from state to state and city to city, what’s affordable in one area may be unaffordable in another.
In many areas, the supply of affordable housing has failed to keep up with demand, often because of restrictive zoning and market incentives that favor luxury and upper income development. Impact investing in affordable housing can help maintain, improve and add to the stock of affordable housing.
In addition, investing in affordable housing is good business. Demand is high, so properties tend not to stay vacant for long. Subsidies, like Section 8 housing credits, provide a steady stream of income directly from the Federal Government, further reducing risk.
Investing in Affordable Housing*
As a result, social impact real estate investments in affordable housing can potentially offer attractive yields and appreciation for investors. A 2019 study from the Global Impact Investing Network, tracked investment returns on 113 affordable housing impact investments and found that on average, debt investments earned 6% a year and private equity investments earned 9%, in addition to providing measurable positive social impact in the communities they served.
There are a number of different ways to make investments in affordable housing programs, including through public REITS (real estate investment trusts) and private funds. NAREIT recently published a helpful list of public REITS investing in affordable and workforce housing. On the private side, investment managers such as Enterprise, Kimpact and Jonathan Rose offer affordable-housing funds designed for high net-worth investors. These can be structured as debt or equity offerings. Social impact real estate offers many of the same types of benefits as traditional real estate, including the potential for consistent income, appreciation in value and diversification versus other asset classes.
Investments in affordable housing programs offer an exciting opportunity to investors who want to potentially earn attractive returns and create positive social change. However, finding the right opportunities can be challenging. As with any investment, there are important risks that must be understood and evaluated. In affordable housing, property location and condition, tenants and management, revenue and expense, and financing, regulation and tax treatment are all important considerations.
Our experts can help you identify social impact investments in real estate assets designed to work within your overall portfolio strategy and meet your needs. To find out more, get in touch with our impact investing specialists today.