The Case for Investing in Affordable Housing

ROCKVILLE, MD–Locally-based real estate investment firm CAPREIT has invested in both affordable and market-rate housing over the years but in the last eighteen or so months it has been focusing on the former. The company has pursued low-income housing tax credit (LIHTC) properties on a one-off basis and then it really doubled down on the asset class last summer when it acquired a five-community, 978-unit portfolio of income-restricted properties for $68.5 million.

For investors used to hearing about amenity wars, high-end finishes and the math behind luxury condo development, a company that is focusing on properties on the other end of the spectrum is almost a novelty.

Here, CAPREIT president Andrew Kadish gives his take on this part of the multifamily market and why it works for him.

The simple reason why he is acquiring Class B and Class C communities.
“As the flood of capital drifts more toward core opportunities, significantly lower pricing and more attractive opportunities exist on the B and C communities. This means higher yields.”

What he would tell investors hesitant to add affordable housing communities to their portfolios.
“It’s an excellent move because the demand is skyrocketing. So many owners are focused on the value-add product, as well as core, so there is not as much competition.”

What bothers him about affordable housing availability.
“One demographic affected by the decline of workforce housing is our nation’s first responders and caregivers — firemen, police officers, nurses — who are often priced out of the neighborhoods they work in. You’re seeing a proliferation of people doubling up. Small families moving in with another small family, or a person who’d customarily live in their own one-bedroom units are now having roommates to help share the costs. Furthermore, you’re seeing people moving drastically outside of where they work and having a much longer commute.”

What else bothers him about the US’ approach to the dwindling stock of affordable housing.
“I am particularly concerned about what the state of affordable housing will be in five years. It is something that should be treated as a crisis, and yet has not demanded the attention it deserves. When we are told to come together and unite, we should ensure that our fellow citizens, particularly on the veterans’ side, have access to housing needs and shelter that they demand and require.”

On where the government regulation will come from, if it comes.
“I do not see the momentum coming from local governments. I think it has to come from top on down. There will be little or no motivation for local boards to do so without some work from up above. It will be incumbent on President-elect Trump and Congress coming together and deciding to make affordable housing a priority.”

Okay, but what about the initiatives some cities such as Denver are taking — taxing builders of non-affordable communities up to 70 cents per square foot. These funds are being devoted toward affordable housing. Will that make a dent in the lack of supply?
“I think it is a tool that will give a partial, minor aid to the crisis. When you’re losing several hundred thousand units a year of affordable housing, whether it’s due to value-add communities or obsolescence, something like this is not going to solve the crisis by itself. But I think it is a tool that should be used to help.”

Will Fannie Mae and Freddie Mac continue to back affordable housing?
“Your guess is as good as mine.”

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