3 Reasons Why We’re Investing in Affordable Housing

3 Reasons Why We’re Investing in Affordable Housing

July 13, 2022

The lack of affordable housing in the U.S. has reached the point that no state in the country has an adequate supply, as per the National Low Income Housing Coalition.1   

As forecasted demand continues to grow for this essential real estate class, investors can play a role in filling this need while potentially benefiting from affordable housing’s relative stability and attractive risk-return profile.

Below is an explanation of what affordable housing entails, along with three key reasons why we think now is the time to consider investing in affordable housing.

What is Affordable Housing?

Affordable housing provides cost-accessible housing for members of society with limited income, particularly for low-income households, students, seniors and people with disabilities. Funding traditionally comes from state or local governments, although the private sector has assumed an increasingly larger role, and this support can take on multiple forms ranging from public housing and rental assistance programs to emergency housing.

On the other side of the equation, property owners receive tax credits if they construct or rehabilitate units for affordable housing,2 or use a percentage of their property as affordable housing. 

Section 8 Housing

One of the most ubiquitous affordable housing programs in the U.S. is Section 8 Housing, which helps lower-income families afford a home by paying a subsidized portion of the market price for rental units. The program is funded by the federal government via the Department of Housing and Urban Development (HUD) and administered by local public housing authorities (PHA).

Section 8 subsidies come in the form of a tenant-based voucher program whereby the program issues subsidies in the form of vouchers to qualified households to be used to pay all or a portion of the household’s housing costs. The PHA pays the voucher amount for an eligible household directly to the rental property owner, and if the total housing costs are more than the voucher amount, then the household must pay the difference. To be eligible for this program, a household must have an income that is 50% or less than the area median income in addition to additional requirements, and households generally pay no more than 30-40% of their monthly income toward their rent share.3 

That being said, what are the main reasons why you should consider investing in affordable housing?

Rent is subsidized and assets can be comparatively stable

From an investment standpoint, affordable housing is historically characterized by better occupancy rates and less volatility than market-rate units.4 As a percentage of monthly rent is subsidized by the government, there is a built in stable income in an affordable housing investment property.

There is a chronic lack of affordable housing options in the U.S.

The U.S. needs 7 million more affordable housing units as per the NIHLC.1  There is a shortage of affordable housing in every state and major metropolitan area across the United States, with only 36 affordable rental homes for every 100 low-income renter households on average nationally. Availability of units is as low as 18 for every 100 low-income renter households in some states.1 

Supply is currently so low that States are increasingly adopting new measures in an effort to encourage the development of affordable housing.5 

Purchasing power is stagnating at the lower end of the economic spectrum

While average home prices across America have been surging, with a 20% YOY increase reported in February 2022,6 US household incomes are not keeping pace.7

Americans are losing their purchasing power and home ownership is already unattainable for many, while others are being squeezed out of the market. Inflation is causing further stress on the income of families across the country, and some of those who had been aiming for home ownership or middle-market rentals may be required to seek other options.

In conclusion

We believe there are a variety of compelling reasons for real estate investors to consider investing in affordable housing now. And while there are no easy solutions to the economic challenges some individuals and families are faced with, investing in affordable rental properties can serve to benefit those who need it most while serving as an effective part of an investment strategy.

Our affordable housing portfolio is our fifth such portfolio with a local, experienced sponsor in Chicago. An average of ~80% of the sponsor’s portfolio is subsidized by the government under Section 8 housing regulations as outlined in this article.  Log in to our platform to find detailed information.


(2) Tax Policy Center – What is the Low Housing Income Tax Credit

(3) Property Metrics: The Definitive Guide to understanding Section 8

(4) Globe St: Investors are Overlooking the Yields in Affordable Housing

(5) Arbor: Affordable Housing Report 2022

(6) CNN Business: US Home Prices

(7) Business Insider: Average Home Price in the US