Letter from the CEO
At NHPF we often describe our organization’s business model as one that combines a charitable mission with the professional management and financial discipline of a for-profit enterprise. In our 31st year of creating and preserving safe, clean, affordable housing for low to moderate income families and seniors, we continue to expand our mission by including an extensive array of programs to improve the quality of life of our residents.
As the shortage of affordable and workforce housing continues to grow, so grows the need for increased investment from a variety of sources including institutional and cross-border investors. We maintain positive relationships with a host of committed institutional investors who invest for social good without sacrificing profits and have made possible the creation and preservation of a great many affordable housing units. But insatiable demand and limited supply means there’s always room for more.
So, what is the case for institutional investors and high net worth individuals to get into affordable multifamily housing?
For starters, this type of housing generates strong, risk-adjusted returns. Affordable multifamily housing outperforms market-rate properties with its lower vacancy rates and experiences steady rent growth over extended periods. Coupled with the fact that low to moderate income workers currently face a dearth of affordable homes for sale in many markets, affordable multifamily rental apartments have become a necessity for them.
Contrary to what some private and institutional investors think, the affordable sector is not an alternative or “niche” opportunity. Look at the numbers. Around 6.3 million units or nearly 41% of all the rental apartments in the US fall into the affordable/workforce category. According to a 2017 US Census Bureau report, over 58% of renters earn less than $50,000 a year, with the average household income coming in around $57,000 annually. This means that affordable and workforce housing investments actually serve the majority of Americans. We recently found that 85% of Americans earn less than $60,000 annually.
Here is another consideration. Over the past ten years many older developments have been demolished to make way for market-rate or high-end multifamily complexes. Others have become uninhabitable resulting from lack of capital repairs over an extended period. The multifamily industry actually loses upwards of 100,000 housing units each year – typically workforce and affordable. And as rent increases for more costly amenity-rich market rate units have slowed and vacancies creep up in several markets, the data show that affordable properties are consistently full, making them more resistant to a recession.
In summary, private and institutional investors should consider an affordable/ workforce housing investment strategy, partnering with knowledgeable developers experienced in the affordable business.
And if those investors are so motivated, they will see affordable housing investment total returns in the high single, low double digits, similar to what investors would earn from traditional core investment funds. Of course, social investing has the added “halo effect” of allowing institutions and individuals to invest in positive social change. In Global Impact Investing Network’s (“GIIN”) latest Annual Impact Investment Survey, more than 60% of investors reported that they track the financial performance of their investments alongside the UN’s Sustainable Development Goals (SDGs). Clients and companies are increasingly seeking investment opportunities that demonstrate positive social impact in addition to returns, creating a perfect climate for investment in affordable housing.
As many investors are motivated to be socially responsible and see affordable housing as a way to align their values with profits, they also have the opportunity to supplement federal programs where they fall short.
Ultimately, regardless of how much the government invests, it won’t come close to solving our housing shortages. A serious commitment by institutional investors to smart, green social investment at solid, risk-adjusted returns offers a solution that works for everyone.
Richard F. Burns
NHPF President & Chief Executive Officer