The Investors Role in Easing Affordable Housing Crisis

The Investor’s Role in Easing the Affordable Housing Crisis

By Faina Rozental, Eventide Asset Management

America’s housing affordability has severely deteriorated over the last two years. Mortgage rates reached a 23-year high this October, and the limited supply of homes for sale has kept a floor under home prices. Home sales in September dropped to their lowest levels since the foreclosure crisis.

Roughly 85% of American homeowners are locked into lower interest rates from past years, and many have experienced rising home equity values, with the median home price up 2.8% over last year. This is a contributing factor to why the overall U.S. consumer is still fairly healthy, but also why the housing market is all but frozen.

For first-time homebuyers, persistent inflation and soaring home insurance rates are creating additional barriers to homeownership. Lower income families in particular are left bearing the brunt of the adverse effects in this current economic environment. These families are often left to rent, unable to front the costly barrier to entry into the housing market. For those that have locked in a 3% mortgage rate, however, they reap the benefit of steadily growing equity that will increase over time.

So, while some may say that only the rich are getting richer, investors seeking to advance human flourishing have a critical role to play in improving housing affordability so that more people can experience the potential benefits of homeownership.

First, investors can consider homebuilders and real estate investment trusts (REITs) whose core business is to address the affordable housing crisis. Some manufactured housing REITs are making homeownership more affordable for retirees and lower-income families. And the way that homes are built today can also help reduce their environmental footprint. Many new construction homes are more energy efficient with features like improved insulation and more innovative heating and cooling technology. Whether it’s a smaller design or more energy-efficient construction, affordable housing coming out of this era has the potential to benefit both the buyer and the community at large. 

Allocating investments towards companies that are committed to improving housing affordability could show that it takes many – companies, governments, nonprofits – working together to solve market-entry challenges for today’s American families. 

There are many potential factors contributing to the shortage of affordable housing in this country. One of the contributing factors has been decades-old zoning laws, which have restricted the size and type of construction that can be built in certain neighborhoods. For example, some municipalities have made minimum residential lot sizes bigger and added height requirements. In many cases, the outcome of zoning restrictions has limited affordable housing options in highly sought-after neighborhoods, including those with high quality schools. 

Today’s regulatory barriers don’t have to deter investors from contributing to affordable housing initiatives. Some states and municipalities are tackling the hard work right now of reforming single-family zoning laws, and investors have the opportunity to work in tandem with those working toward reducing barriers to new supply. 

Second, investors can help address the affordable housing crisis by considering municipal bonds in their active fixed-income portfolios. In August, San Francisco announced that it is borrowing $60 million in the municipal bond market. The city with the highest rent in the nation intends to deliver 500 affordable housing units in an underutilized commercial district. 

While San Francisco has among the worst housing shortages in the country, such action in more cities and states could help rebalance the market in the coming years and reintroduce the opportunity for low-income families to build generational wealth through ownership. 

According to a report by the National Association of Realtors, institutional investors purchased 13.2 percent of properties sold in 2021. As of 2022, they owned approximately 700,000 single-family homes and some analysts believe they are on track to own 40% of U.S. single family rental homes – around 7.6 million homes – by 2030. 

This may be one of the factors making the U.S. into what some are calling more of a “nation of renters.” Renters, on average, spend more than 30 percent of their income on their housing. And for 26% of renters, the burden is even higher; 11.6 million renters spend over half of their income on housing expenses – a weight that falls most heavily on low-income families. 

It is no wonder that a recent Australian-UK study found that renting can have negative impacts on individuals’ biological and sociological health, like increased stress and a heightened risk of falling into poverty, along with worsened biological aging. While renting could provide families opportunities to save more in the short term, it could also stall their efforts to build long-term financial security and stability through homeownership. 

Even in an uncertain housing market, values-based investing can play a role in helping to solve housing affordability needs and contribute to a healthier, more stable US consumer – which is good for the economy and business over the long term.

No one holds the crystal ball for when a more stable housing market will emerge, or when the new affordability challenges of these last two years will ease. But it is unlikely that we will return to a world of 3% mortgage rates soon. While homeownership isn’t the only path toward financial stability, it is certainly an important one. Working toward a more affordable housing market and making homeownership obtainable from one generation to the next is in the interest of our collective prosperity and worthy of the effort. 

Investors who intentionally contribute to solving some of society’s most significant challenges can make a positive impact by unlocking human flourishing. 

 

Article by Faina Rozental, who serves as a Research Analyst for Eventide Asset Management. She is primarily responsible for evaluating and monitoring new and existing investment opportunities in the portfolios.

Ms. Rozental has an MBA with certificates in finance and sustainability from the MIT Sloan School of Management. During her time at MIT, she worked at Goldman Sachs and the MIT Office of Sustainability. Prior to MIT, she managed social due diligence at Root Capital, an agricultural impact investor, and earlier was responsible for OECD research sales in North America. Ms. Rozental holds a B.A./M.A. in Economics from Boston University.

This article is provided for informational purposes only and expresses the views of Eventide Asset Management, LLC (“Eventide”), an investment adviser, and is not intended for further distribution. This does not constitute investment advice nor is it a recommendation or offer to purchase or sell or a solicitation to deal in any security or financial product.  Eventide does not provide tax, accounting, or legal advice. Eventide’s values-based approach to investing may not produce desired results and could result in underperformance compared with other investments. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses.

The above expresses the views of the Adviser, and there is no guarantee that such views are accurate.

Third-party sources referenced herein have not been independently verified, nor is Eventide affiliated with any third-parties referenced, unless otherwise noted. Eventide has not independently verified the accuracy or completeness of third-party information. There can be no assurances that the information is accurate or complete. The information is subject to change without notice.

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