Investing in Affordable Housing: A Strong Asset Class

Pepper Tree Manor, Houston

addition, affordable housing is a very stable per- former. “While the conventional market is riding really high right now, it’s a lot more cyclical than affordable housing is, because there is so much more demand than there is supply,” notes Burns. Some investors have an impact investing mandate, or simply a desire to be more socially responsible, to support investments in their com- munities. The growing focus on environmental, social, and governance (ESG) scores, and spe- cifically the social component of ESG also is bringing impact investing and affordable hous- ing more to the forefront. ESG refers to the three central factors in measuring the sustainability and societal impact of an investment in a com- pany or business. Increasingly, investors have an opportunity to look at the benefits of affordable housing more holistically and the overall value in terms of the risk-adjusted returns and port- folio diversification, as well as the value to be gained for a brand in corporate social responsi- bility and higher ESG scores. When asked to describe their clients’ primary motivations for investing in affordable housing, one survey respondent wrote: “De nitely to ll

ESG requirements, as well as to nd favorable returns. If we see that there is a need for afford- able housing and we can nd a way to make it accretive as well as promote ESG, that’s what we’re trying to do.” Investors’ strategies span different vehicles There are different entry points into afford- able housing on both the equity and debt side. The U.S. system has been built around tax credits that leverage private capital to support affordable housing. The Low Income Housing Tax Credit (LIHTC) program has long been a key financing tool for affordable housing projects. “Especially, in the United States where we have these different forms of blending public and private subsidies; the role of private capital in marrying up to phil- anthropic and government subsidy in order to generate affordable housing is part of the way we produce it,” says Wood. Additionally, private capital investors have been actively partnering with developers and sponsors in joint ventures and commingled funds. For example, Prudential actively invests

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