Affordable Housing Capital Still Not Enough

The deep demand for affordable housing has spurred investment interest—but even as demand has grown, there is still too little capital playing in the affordable sector to make an impact. More investors and capital sources are beginning to understand that affordable housing, through several avenues, offers healthy returns, particularly in supply-constrained markets. Still, there are some misconceptions about affordable housing investment that has prevented more investors from entering the affordable space.

“While affordable housing is seeing an increase in investor interest, it is a drop in the bucket compared to what is needed,” Jonathan Needell, president and chief investment officer of KIMC, an employee-owned, entrepreneurial real estate investment company, tells GlobeSt.com. “Investments that involve owning, managing, maintaining, and preserving affordable housing, either naturally occurring or specific purpose-built, are increasing in number. However, we believe that the total capital raised in the space to date has not been sufficient enough.”

Launching social programs on site is a way to drive success at an affordable asset. These programs can help to drive occupancy as well as reduce tenant turnover. “By creating a sense of community at a property we believe tenants will be more satisfied and engaged in a sense of community,” explains Needell. “This provides for a pride of place and increased tenant enjoyment of a property leading to renewals and higher occupancy. Landlords can foster this environment by running social programs for the benefit of tenants, which compliments the sense of community that we believe drive occupancy.

In a world where amenities have become king, social programs in affordable properties make sense. While the programs at an affordable property may be much different than a class-A building, social services similarly serve as an amenity. “Just as free yoga may be an amenity building social connections in a class-A downtown apartment property, a social program may be equally as valuable to tenants in an affordable property,” says Needell.

In terms of strategy, social impact models have become a top avenue for affordable housing investment. It helps to eliminate misconceptions that affordable investment is void of returns. “Most people believe that impact investing comes at a cost to returns,” says Needell. “We believe running our affordable housing investments within an impact strategy is accretive to returns and mitigates some risks.”

This strategy is gaining momentum, according to Needell, and it is becoming a more mainstream or accepted investment plan. “Affordable housing can be regulated, unregulated, or naturally occurring which can sometimes be referred to as workforce housing, and we believe all these subsectors have positive attributes for investment that are starting to be recognized in the mainstream real estate investment community,” he says. “We believe these attributes include higher occupancy, more stable occupancy, lower credit loss from tenants not paying rent, and lower turnover costs from the cost to make ready a vacant unit for a new occupant.”