As investors we have to conduct a detailed analysis of any asset we consider adding to our portfolio. This analysis should include the financial opportunity we’ve discovered, but in my eyes it should be more than that. Social capital has become a buzzword and it’s for a good reason. Real estate investments into affordable housing can have a positive ripple effect to communities and individuals living at or below the poverty line. The real beauty about this is that there’s a huge financial upside connected to this. It’s a principle I founded my company GPI on, however this article is not to boast about our mission, but rather talk about the background on why real estate investments in affordable housing are such an interesting opportunity for any investor.
Last week, The Washington Post reported that one of the initial drafts of Trump’s federal budget suggest $6 billion in cuts to the Department of Housing and Urban Development’s budget. (HUD’s fiscal year 2016 budget was $47 billion.)
As a consequence these changes would eliminate the Community Development Block Grant (CDBG) program, significantly reduce the voucher program that provides rental assistance to the poor and lower housing programs for senior citizens and people with disabilities.
This potential HUD budget cut comes at a time when the federal government has already reduced housing funding and the need for affordable housing is growing. The National Low Income Housing Coalition’s (NLIHC) recently released a study (“The Gap: A Shortage of Affordable Homes”) suggesting that the U.S. would need 7.4 million more affordable rental homes and apartments to house everyone living below the poverty line.
If additional cuts to HUD funding are approved, the consequences would be devastating. NLIHC estimates that it could lead to 200,000 lost housing vouchers and loss of 10,000 housing units for seniors, plus 6,800 units for people with disabilities.
The bottom line of this development is that affordable housing is needed, and there is a spiking demand for it. Jane Jacobs, author of The Death and Life of Great American Cities, stated “Cities have the capability of providing something for everybody, only because, and only when, they are created by everybody.”
It is imperative to strategically integrate affordable housing in our communities in need of the supply, creating more all-inclusive, culturally-rich and diverse neighborhoods from all walks of life. When investors deal with firms that really understand the target audience in these communities and the effects an investment will have, they are able to earn more meaningful financial returns while promoting major social impact.
If you have questions, opinions or experiences in the field of affordable housing, please reach out via our social channels. As you can tell I am passionate about the subject and always open to discuss.
