Across the country, affordable housing projects are reshaping the real estate market. These properties generally cater to households earning 60% or less of the area median income (AMI). They can be found in a range of settings, including multifamily rental buildings and single-family homes. Despite the recent slowdown in construction, these developments continue to be in high demand among low- and moderate-income households.
Whether investing in affordable housing or building new projects, investors must carefully consider three key factors: profitability, marketability and finance. As the economic landscape continues to evolve, identifying and managing these risks is critical to long-term success. Read more https://www.happygoluckyhomebuyer.com/sell-your-house-fast-in-greenfield-in/
In this article, we discuss how to best invest in these types of projects, and the unique challenges that can arise. We also explore the role of public-private partnerships in creating and preserving affordable housing, as well as the importance of the right data to assess the market’s supply and demand for these units.
The most obvious challenge is the limited number of affordable housing projects currently in construction, as compared to market-rate apartments and townhomes. This imbalance is expected to persist in the near term, as developers prioritize luxury developments and existing subsidy expirations constrain new production.
This market imbalance is being compounded by a range of factors, including a shortage of skilled labor and rising construction costs, which are making it more difficult to make projects pencil out. In addition, median market rents are stagnating relative to inflation, which reduces the cross-subsidization that helps make affordable housing projects viable in some markets.
One way to alleviate this pressure is to purchase private land, which allows for the creation of more affordable units than would be possible on publicly owned land. Unfortunately, the process of purchasing private land for affordable housing is often lengthy and expensive. Consequently, the affordable housing community needs an institution that can quickly spring into action when there are market opportunities for this type of development. The Community Preservation Corporation was such an institution during the market downturn in the early 1990s, when it bought and renovated dozens of defaulted Freddie Mac mortgaged apartment buildings with little direct public subsidy other than an expanded version of the City’s now expired J-51 real estate tax benefits.
Major mission-driven investors such as The Vistria Group, Tredway and Asland Capital Partners in association with Goldman Sachs recently made sizable investments in New York City’s affordable housing market during the second quarter of 2023. This boosted dollar volume to more than a fourth of the $3.91 billion in multifamily sales, according to the Ariel Property Advisors Q2 2023 Multifamily Quarter in Review report. As this trend continues, we expect to see more deals by investors pursuing the opportunity to preserve and produce affordable housing in the face of rapidly evolving market dynamics.
