In cities around the world, the real estate market remains bullish, with prices continuing to rise unabated. With a high number of profit-seeking investors entering the market, this trend continues to push up the affordability index beyond the scope of those who need housing and creates a deficit of affordable real estate.
In the U.S., rental prices have maintained an upward trend, with a 5.4 percent increase in rental prices recorded between April 2020 and April 2021.
Conversely, wages haven’t kept pace. To illustrate, a full-time worker on minimum wage can only afford a one-bedroom rental apartment in only 7 percent of counties in the U.S. And out of those that can afford a decent apartment, half spend about 50 percent of their income on rent. This discrepancy between income and rental obligations is among the main drivers of homelessness in the U.S., with close to 172,000 individuals rendered homeless across the country.
Impact Investing as a Solution to the Housing Crisis
For many in the low-income bracket trying to put a roof over their heads, impact investing offers a promising, long-term solution to the age-old question of sustainable and affordable housing.
There are numerous ways that investors can harness opportunities in this space to improve livelihoods while generating financial returns.
Gentrification has always been a highly polarizing issue and has often led to the displacement of low-income families from previously affordable areas. Investors could counter the effects of gentrification by investing in affordable housing units in affected neighborhoods, which would help reduce the number of low-income tenants who have been displaced.
Investors could also fund the construction of new houses or apartments to accommodate low-income tenants who find themselves unable to afford housing as a result of rising rent. Opportunities here include social purpose REITs and municipal impact bonds that focus specifically on affordable housing. Investors drawn to the private sector could invest in VC funds focused on affordable housing and funding programs for affordable construction projects.
On the ground, these investments could take the form of TIAA-CREF Nuveen’s Responsible Investments that either built or supported the construction of 339,388 units in the Boston metro area for low-to-moderate-income residents. This investment platform has also helped guarantee and provide about 1.8 million affordable mortgages within the area.
There’s also the Bridge Workforce Affordable Housing Fund that invests in rehabilitation projects for affordable housing units across the U.S. This fund also provides additional resources in its properties that include youth programs and workforce development, which all help to improve livelihoods for its tenants and surrounding communities.
Impact Investing in the Global Real Estate Landscape
Impact investors in the real estate industry also have real opportunities outside the U.S. across the world.
Indonesia, for instance, the fourth-most populous country globally, has one of the fastest-growing economies. Naturally, the productive population will seek out economic opportunities only the larger cities in the country can provide.
The immediate past years have seen the middle-class, numbering some 52 million, rapidly increase from 7 percent to 20 percent of the population. Despite being considered the economic drivers of Indonesia, many of the middle class do not have proper housing. It is estimated that 29 million Indonesians live in slums, with one-third of that number lacking access to clean water and sanitation.
Steve Suryadinata, co-founder of Mata Investments explains, “Cities around the world occupy 3 percent of earth’s land but contribute to about 70 percent of the total carbon emissions. Urban concentration can impose serious health challenges. For example, in Indonesia the PM2.5 concentration level in major cities can reach 100 and above, harmful to the most vulnerable in society. Thankfully the Indonesian government has developed breakthrough infrastructures in the past decade which has stimulated new real estate developments on the outskirts of cities with better air quality, expanding green spaces, and better master planning to help address our sustainability challenges one step at a time.”
With a national deficit of eight million houses and a pandemic that affected businesses, Mata Investments through its investment in BSA Land has stepped in to take a strategic lead with its ESG-focused strategy. With its high level of positive social impact, the company has quickly become the catalyst for change to help ease the eight million housing shortfall in Indonesia.
“Typically, real estate developers want to be associated with luxury and prestige since this is the way to build a desirable brand. But we look at it from a different angle and believe that there is a greater impact that we can generate by providing sustainable homes at affordable prices for young families, newlyweds, and millennials” says Steve Suryadinata.
BSA Land is currently the largest real estate developer in Indonesia, specializing in the middle-class sector running 30 projects across the country. To date, the company has built over 20,000 residential and commercial units. It has won prestigious international awards on account of the social impacts they have generated for others, including multiple awards at the Real Estate Asia Awards 2021.
Steve Suryadinata further highlights “UN SDG 11 aims to provide affordable housing for all by 2030. With eight years left to go and global real estate prices continue to soar during the pandemic, it would be very challenging to try to come close to this target. We would need to work especially close together and push for stronger public-private partnership in the most affected countries to accelerate progress.”
There’s much to be gained from impact investing in the real estate industry globally. The positive impacts that can be provided to society often outweigh the short-term economic benefits, especially now when much of the world continues to adapt to the lingering effects of the Covid-19 pandemic. The pandemic has significantly affected the landscape for millions of families, with the Census Bureau estimating about half of the 51 million renters across the country face eviction within the coming months.
So, as we wait to see how the crisis and the resurgence of additional coronavirus strains play out, the need for additional investments in impact investment capital will only grow, creating opportunities for financial returns and social impact for affected, low-income communities.