Affordable housing has always been a stable investment asset through up and down economic cycles, but the pandemic has deepened demand and exacerbated supply constraints. The dynamic is pulling more investment capital to the market from both foreign and domestic investors.
"We have noticed that affordable housing tends to perform in times of economic uncertainty and in a growing economy," John Williams, president and CIO at Avanath Capital Management, tells GlobeSt.com. "This is appealing to investors as it can act as a stabilizer in a portfolio and allow for diversification. Foreign and domestic investors alike continue to be attracted to US affordable housing for these reasons as it offers downside protection and is a durable investment option."
Affordable housing was in a state of crisis before the pandemic. Nationally, all segments of affordable housing—from low-income to workforce—have been supply constrained for years. During that time, demand has only grown. "Demand for affordable housing has always outpaced supply. As home prices continue to increase and the gap between wages continues to widen, demand has rapidly increased," says Williams. "According to the National Multifamily Housing Council, prior to the pandemic the US would need to build an average of 328,000 new apartments every year by 2030 in order to keep up with growing demand. NMHC also states that this is a number that has only been reached three times over the last 30 years, resulting in a significant lack of affordable supply."
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The disruption from the pandemic has put more stress on the market. "The pandemic exacerbated this need, making the call for affordability even deeper. At the start of the pandemic, the economy came to a startling halt and unemployment rates reached historic highs," says Williams. "This had a significant impact on the demand for affordable properties nationwide."
But, it isn't only demand that is pushing investors into the asset class. The pandemic also highlighted the stability of affordable housing. "Compared to class-A luxury and market-rate apartments that may have experienced dips in rent collections and high vacancy over the last year, rent collections at our properties were stable and occupancy across our portfolio remained at 98%," says Williams.
Avanath has also seen investors focus on purposeful investing, which has also driven capital to the asset class. "Our investors are also extremely drawn to Avanath's commitment's to investing holistically through social programming as it further contributes to resident retention and the long-term success of a property," says Williams.
Investors are only just waking up to the potential of affordable housing, and Williams expects interest to grow over the next several years. He says, "We may also see local governments and municipalities work with developers to increase the development pipeline of affordable properties to meet this growing need."
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Kelsi Maree Borland
