Dear Impact Investors: Reconsider Affordable Housing

By: Eddie Richardson

In the United States, it's no secret that the nation is in the midst of an affordable housing crisis, making it nearly impossible for the families with children, people with disabilities, and low-income seniors to pay rent and make ends meet. Only 28 of every 100 extremely low-income renter households in the U.S. are able to find decent, affordable homes. However, this is not just a low-income problem. In the 25 most expensive cities in the US, over 75 percent of households are cost-burdened, making this a widespread issue that can lead to high levels of financial instability.

Despite the widespread nature of this issue, very little has been done by the federal government to fully address this crisis and improve the affordability and accessibility of affordable and workforce housing in recent years. Demand for affordable housing far exceeds the supply of available units across the country, yet many cities have been allowed to persist restrictive land-use regulations and other NIMBY (not in my backyard) policies that limit the supply of affordable housing that can be built.

Although affordable housing is often looked at as a niche opportunity for institutional investors, there are plenty of reasons why it can be both a privately- and socially-beneficial investment. Due to the low vacancy rates and strong demand, REITs (real estate investment trusts) and other institutional investors are increasingly finding that affordable assets can provide returns that consistently exceed the performance of market-rate units. Affordable housing developments are also historically recession-proof, as demand strengthens in periods of economic instability. From a social impact lens, the potential of affordable housing is undeniable. Increased accessibility to affordable housing has been shown to lead to healthier households, increased educational attainment for children, and overall improved quality of life for all types of populations. Affordable housing is more about just housing; it helps transform communities into inclusive spaces and empowers residents to become productive members of society.

While these types of investments have not historically been structured in a way that is accessible to the typical small affordable housing developer or consultant, it’s clear that this is a socially beneficial venture for all parties involved. The current housing system in the US is filled with regulations that limit a growing supply of housing, and by empowering impact investors, both small and large scale, to engage in these markets, we can greatly alleviate this issue and help many families struggling to stay afloat.