Chief Investment Officer, February 12, 2019 How Institutional Investing Can Build Housing and Reap Returns by Richard F. Burns, President, CEO & Trustee, NHPF
Determining the next generation of housing and what to expect return-wise.
Where will they live? Many older multifamily developments have been acquired by investors who upgrade them for rents unaffordable to the current residents. Other older properties have become uninhabitable from lack of capital repairs over an extended period, resulting in a loss of more than 100,000 housing units each year—typically in the workforce and affordable categories. With lower vacancy rates (often accompanied by waiting lists) and steady rent growth over extended periods, affordable, multifamily housing generates strong, risk-adjusted returns. Affordable housing investment produces total returns in the high single, low double digits, similar to what investors would earn from traditional core investment funds. Today’s institutional investors need only look at the influx of near-term and future renters to strongly consider an affordable/ workforce housing investment strategy. In addition to solid returns, partnering with knowledgeable developers experienced in the affordable business can provide a “halo effect,” allowing institutions and individuals to invest in positive social change. Impact investing is now estimated to be a $250 billion market and growing as many investors successfully drive profits via socially responsible investments. Affordable housing is appealing as it is one of the few issues of the day enjoying strong bipartisan Congressional support. It is also a natural draw for millennial investors who have grown up with a strong sense of social justice and philanthropy. Fund managers and CIOs thinking seriously about catering to investors, who want a sense of purpose along with their dividends, would be wise to invest in the future of America’s affordable housing.
There are a number of forces determining who will need affordable housing next and those seeking future investment opportunities may expect to see returns of both social good and significant profit.
Richard F. Burns
First the facts: • The new tax laws will cut affordable housing by 235,000 units over the next 10 years and cost the country 260,000 jobs • About 10,000 baby boomers hit retirement age each day and 73% of them expect to delay retirement, while 31% have no retirement budget or savings • Today, no state has an adequate supply of affordable rental housing for the lowest income renters • 70% of college students graduate with significant debt • Between 2000 and 2015, the US produced 7.3 million fewer homes than it needed to keep up with demand and population growth • Half of Americans over the age of 55 who earn less than $60,000 per year—accounting for 25% of households—feel they can’t afford to cover both housing and healthcare This data presages two new cohorts of Americans expected to need more affordable housing: millennials, unaccustomed to searching for affordable housing, and an unprecedented swell of baby boomer retirees also forced to rethink housing. While the industry will always be able to count on some level of government investment, the future is murky. Now is the time for institutional and cross-border investors to commit to putting resources into affordable housing. We currently maintain positive relationships with a host of committed institutional investors who invest for social good without sacrificing profits. These forward-thinking entities have made possible the creation and preservation of a great many affordable housing units. However, insatiable demand and limited supply means there’s always room for more, because affordable and workforce housing actually serve the majority of Americans. Around 6.3 million units or nearly 41% of all the rental apartments in the US fall into the affordable/workforce category. With 2017 US Census Bureau numbers showing more than 58% of renters earning less than $50,000 a year, this segment of the population is considerable.
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