Investing in Affordable Housing: A Strong Asset Class

Candid and confidential answers from the leading global investment managers participating in the study reveal that a majority (74%) currently invest in affordable housing, 10% do not invest, but plan to in the future, and 16% do not currently invest and have no plans to do so. However, the barriers for those who do not invest, those who invest because of requirements, or those who wish to do more but aren’t, fall into three very compelling categories that set up fascinating opportunities for affordable housing developers and providers. 1.The Federal Government’s “onerous rules and regulations” The first issue investment advisors cited as a challenge to investing in affordable housing, is “onerous government regulations in the development and funding process” commenting that government red tape and bureaucracy make investment in affordable housing “more cumbersome than investment in conventional multifamily projects.” Additionally, those who do not invest in affordable housing and do not intend to in the future, perceive the regulations and “specialized knowledge on how to navigate these unique rules” as their top reason for staying out of this asset class. Respondents indicated that the bureaucracy around housing programs should be simplified, to create a more streamlined process. There is also this question raised by some participants: Since the most common form of government subsidy, the Low Income Housing Tax Credit (LIHTC), does not offer a real benefit to public pension funds since they are already tax-exempt, how do such investors profit? INDUSTRY TAKEAWAY: The discussion around government barriers provides the industry with an opportunity to work with top housing advocacy groups to lobby Congress to simplify the rules and look for a different set of benefits to encourage more pension fund investment. 2.The miseducation (or under-education) of the investment community According to respondents, the second greatest roadblock to institutional investment in the affordable housing sector is miseducation or under-education. The areas cited here include confusion or lack of resources to determine “the right return on investment,” though half of those who currently invest cite “good return on investment” as incentive for continuing work. The lack of awareness of proven ROI coupled with a solid way to categorize returns (Core? Core-plus? Core-minus?) keeps many investors out of the sector but a majority believe that simple case studies of successful projects will help generate more interest. INDUSTRY TAKEAWAY: The affordable housing ecosystem needs to develop more tools to communicate accurate information and create more opportunities to present the data. 3.Investing in affordable housing solely to meet a mandate Based on the quantitative and qualitative interviewing conducted by Kingsley, it was concluded that the third challenge for those considering affordable housing investment is finding ways to affect an attitudinal shift. Those who currently invest in affordable housing strictly because “it is required by the local jurisdiction as a set-aside for the development rights” or to “satisfy an ESG or Environmental, Social and Governance mandate” will benefit by decision-making that couples financial returns with the halo effect of investing for social good. There are growing segments of investors—particularly environmental and socially conscious millennials and women—who look past the requirements and invest because “doing well to do good” is inherent in their lives. INDUSTRY TAKEAWAY: Those in affordable housing need to use creative and thoughtful storytelling—in addition to financial returns—to engage investors. The Top 3 Industry Challenges Very simply, NHPF leadership was seeking answers to two primary questions: “Do you currently advise clients to invest in affordable housing?” And “If not, why not?”


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