Impact Investing in Affordable Housing: Why invest and how to evaluate opportunities

Executive Summary

The rise of income inequality is becoming increasingly tied to costly housing. As housing burdens begin to rise, ordinary families are seeing a significant portion of their income absorbed by rent, resulting in a decrease in their disposable incomes. Consequently, they are experiencing economic and financial constraints, limiting the scope of their opportunities and future development. Increasing housing costs are associated with inducing educational interruptions, household instability, mental health issues and job insecurity. A sustainable and viable solution to disrupt the current steep increase in housing costs is through the use of value-driven impact investments.

In order to rebuild the current housing market and make it more accessible to ordinary citizens, significant capital investments need to be made into the housing industry. Impact investments in affordable housing are a means by which affordable housing can once again become attainable. Prospective impact investors should consider affordable housing investments through measures of impact and the level of need in the particular sector. By restoring housing costs to affordable levels, impact investors are directly empowering communities and enhancing their economic freedoms. The benefits of affordable housing are numerous: reduction in intergenerational poverty, increased educational attainment, and positive social and economic effects for the beneficiary, to name a few.

Although the affordable housing market has generally viewed as being difficult to access by private investors, the inability of government subsidies and financial institutions to meet the financing needs of the industry has led to recent developments in alternative investing methods that would allow the participation of private investors. Community foundations and nonprofits are experiencing an increase in the demand for affordable housing investing opportunities. As a result, new products are being developed to address this demand. This presents a timely opportunity for impact investors who are seeking to enter a market that presents promising potential as well as a great need.