About | Mission | Blog. Has affordable housing become an… | by Flat World Partners

6 min readMay 14, 2024

Has affordable housing become an oxymoron? The media has focused lately on the lack of housing affordability in the US overall, but particularly in urban and semi-urban areas. Despite declining home sales and construction rates, combined with reduced rent growth and increasing vacancies, home prices and rents still remain elevated compared to pre-pandemic levels.[i]

Homeownership rates in the US, which were rising prior to the pandemic, continued to rise through it due to low interest rates and higher savings levels. However, this increase in demand for housing, combined with the sharp increase in interest rates in 2022, led to a 41% rise in the monthly payments on US median priced homes. This coincided with a 22% annual decline in the number of mortgage originations to first time home buyers that year. The number of cost-burdened homeowners (those spending more than 30% of their income on housing) reached 19.0mm in 2021, or nearly 23% of homeowners. Of these, 46% were considered severely cost burdened, meaning that they spent more than 50% of their income on housing.[ii]

Meanwhile, the number of cost-burdened renters in the rental market reached a new high of 21.6mm households in 2021. Of these, 54% were considered severely cost burdened. Overall this implies that a total of 40.6mm households were cost burdened, including 20.3mm that were severely cost burdened.[iii]

The national housing shortfall underpinning the affordability crisis will require a mix of public and private funding and policy engagement. The US market is not unique in its shortfall challenges — a similar trend is also happening in other developed markets, notably in Canada. There is also a need to invest in the existing housing stock. The need for additional, affordable housing and improvements to existing units exists across the single and multi-family market, in both owner-occupied and rented properties. It presents potentially interesting opportunities for investors in affordable housing.

Impact investors have taken several approaches towards investing in affordable housing. The most common has been to invest in multi-family, rental properties targeting populations eligible for certain government programs (such as Section 8 housing), those either at or below specific levels of area median income (AMI), or to invest in strategies providing housing for middle income professionals such as teachers or police officers. Single-family rental strategies also exist, as do those focused on helping families defaulting on their mortgages renegotiate terms so that they can remain in their homes.

While some strategies offer concessionary returns, many are market rate, and there is a mix of closed end and evergreen investment structures. Strategies often offer a mix of current income at regular intervals during an investment’s life through cashflows backed by rental payments, and also capital appreciation when the asset is sold. Many also offer investors a “green” component as well, as existing buildings can be made more energy efficient during their renovation. This usually has the benefit of reducing the operating expenses related to the properties, which can benefit the return to investors. The need to scale dollars into affordable housing strategies of all types is only growing. Rent is just too damn high.

[i] THE STATE OF THE NATION’S HOUSING 2023 (harvard.edu)

[ii] THE STATE OF THE NATION’S HOUSING 2023 (harvard.edu)

[iii] THE STATE OF THE NATION’S HOUSING 2023 (harvard.edu)

Jennifer Leonard, Managing Director, Investments & Research

How factory-built homes could help solve the affordable housing crisis (cnbc.com)
America’s Affordable Housing Crisis — The New York Times (nytimes.com)
In Hospitals, Affordable Housing Gets the Long-Term Investor It Needs — The New York Times (nytimes.com)
Americans say it’s the worst time ever to buy a home | CNN Business

The Federal Home Loan Mortgage Corporation (FHLMC) publishes monthly outlooks on the housing and mortgage market in the US that are useful in understanding macro trends in housing markets: Forecast & Outlook — Freddie Mac
The Harvard University Joint Center for Housing Studies publishes an annual State of the Nation’s Housing report that is extremely useful in understanding affordability: The State of the Nation’s Housing 2023 | Joint Center for Housing Studies (harvard.edu)

The US Department of Housing and Urban Development (HUD) offers resources for rental assistance, including searching for an apartment, local rental information, and public housing: Rental Assistance | HUD.gov / U.S. Department of Housing and Urban Development (HUD)

This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited

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