Affordable Housing

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The definition of affordable housing may change, depending on the country and context.  As a practical matter, in most instances, affordable really means subsidized.  The critical issue for investors is, who is providing the subsidy and how will that affect expected returns?

The pursuit of affordable housing can take many forms.  There do not appear to be any easy answers and much of the effort is political in nature.  Some jurisdictions have enacted various laws that amount to rent control, putting much of the burden onto landlords.  In addition, Covid-19 and other factors have led to making eviction for non-payment of rent more difficult. 

In the case of new construction, permitting can depend on developers committing to the creation of a negotiated percentage or number of affordable units as a precondition.  Some of this activity is subsidized through a variety of government programs, including tax credits.

There is also public housing, which was established to provide decent and safe rental housing for eligible low-income families, the elderly and persons with disabilities.

All of the efforts to provide affordable housing have, over time, done some good, have had mixed outcomes, and tended to become quite complex.

Potential investors should obtain knowledgeable advice and carefully assess the potential risks in the context of their portfolio objectives.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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