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Real estate

Affordable housing: The need for affordability preservation

Pamela West
Managing Director and Portfolio Manager, Impact Investing, Nuveen Real Estate
Daniel Manware
Director of Research, Real Estate, Americas
Bottom view of building

The U.S. has an inadequate supply of affordable housing units available for renters who qualify based on their income brackets. The undersupply of affordable housing has created significant demand resulting in long wait lists for properties across the country. Ultimately, lower-income renters on those wait lists are forced to seek other housing options, usually in market-rate apartment units, further increasing rent-burdened levels across the country.

The share of renters who are rent-burdened, paying more than 30% of their income towards rent, has increased from 41 percent in 2001 to 49 percent in 2021.1 The share of renters who are severely rent-burdened, paying more than 50% of their income towards rent, increased from 20 percent to 26 percent in the same period. According to the U.S. Census Bureau American Community Survey, half of renters are rent-burdened in 57 of the 100 largest U.S. metros. Given rent-burdens have reached record levels, we believe there is a critical need to expand access to affordable housing across the U.S.

The supply/demand mismatch for affordable housing

Renter households in lower-income brackets currently outnumber the available supply of affordable rental homes (Figure 1). Extremely low-income renters, those earning 30% and below the area’s median income, must compete with higher-income households for the limited number of rental homes affordable to them. According to a National Low Income Housing Coalition analysis, 11 million extremely low-income renter households occupy or have access to only 3.7 million affordable and available units, leaving a shortage of 7.3 million rental homes.2 For very-low renter households, those earning 50% and below the area’s median income, there is an incremental increase of 6.8 million households, but the number of affordable and available rental homes increases only by 6.1 million units, leaving a cumulative shortage of 8 million rental homes. While no market has an adequate supply of affordable and available rental homes to meet demand, markets in Texas and Florida including Orlando, Dallas, Austin and Jacksonville have particularly severe shortages of rental homes for extremely low-income households.

Risks associated with TOB trusts

Threats and opportunities in affordable housing

The need for affordable housing has been a multi-decade crisis. The Low-Income Housing Tax Credit (LIHTC) program, which supports affordable housing through public-private partnerships, gives state and local LIHTC-allocating agencies an annual budget to issue tax credits for the acquisition, rehabilitation or new construction of rental housing targeted to lower-income households. The program has supported over 3 million homes since inception and currently represents nearly half of publicly supported housing stock.3

The benefit of tax credits for investors typically last for 10 years but properties must commit to 30 years of restricted affordability. A resyndication is an attractive option that many owners pursue to receive a new allocation of credits to rehabilitate and preserve an existing LIHTC property, reducing future capital needs. The new allocation of credits also allows for significant impact through implementing improved sustainability and other positive environmental changes through upgrades within the asset. Ultimately, the resyndication provides for the successful execution of achieving a double bottom line for responsible investors. The investment addresses the underlying mission of providing quality affordable housing they can invest in long-term.

There are nearly 650,000 units at-risk of losing their income and rent restrictions by 2030 (Figure 2). The expiration of these restrictions ultimately exposes low-income residents to unrestricted rental increases and displacement. Over the last two decades, two-thirds of LIHTC assisted homes lost their affordability restrictions 10-15 years early (Figure 3).

Risks associated with TOB trusts
Risks associated with TOB trusts

Our analysis of the U.S. Census American Housing Survey validates that lower income renters have a higher share of households living in physically inadequate housing conditions (Figure 4). Responsible institutional investors of affordable housing are providing residents with a safe and sustainable living experience. There have been numerous benefits from institutional investment entering the affordable housing sector including:

  • Enhanced resident satisfaction because of improved living conditions, ultimately resulting in lower resident turnover.
  • Increasing seniors’ ability to age in place given the enhanced focus on health and wellness.
  • Integrated sustainability plans that lower utility bills for residents, ultimately creating more room in the budget for other essentials.
  • Providing free Wi-Fi for residents to access telehealth, work and learn/learn remotely.

Risks associated with TOB trusts

A clear need for further affordable housing investment

There is a critical need to expand access to affordable housing across the U.S. The share of lower-income renters with cost-burdens remains high and has not improved over time. Across all income cohorts, renters’ cost-burden rates are near or above rates experienced two decades ago (Figure 5). Nearly half of extremely low-income renter households are senior citizens and citizens living with diverse abilities (Figure 6). Further, one-third of extremely low-income renter households are in the labor force, 85% of whom are working 40+ hours each week.4

Risks associated with TOB trusts
Risks associated with TOB trusts

Given that the greatest household expenditures are housing related, the underlying mission of these impact investments is to provide residents with affordable rent, supportive services and an opportunity to spend their income towards more essential items, such as improving health outcomes and increasing educational advancement and financial security.

The preservation of affordable housing endeavors to provide safe, quality housing for underserved populations and maintain the supply of below-market rental units in high-growth areas. We believe there are attractive opportunities for impact investors to build resilience among low-income communities in the U.S. by preserving access to safe and deeply affordable housing while making environmentally sustainable improvements.

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1 U.S. Census Bureau, American Community Survey 2021
2 The GAP Report 2023; ACS PUMS 2021
3 NHPD, 2021
4 The GAP Report 2023; ACS PUMS 2021

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