Through “quick-strike” funds, impact-minded sponsors are competing with value-add investors that purchase older properties with the goal of raising rents.
The struggle to provide an adequate amount of affordable housing to police officers, teachers, health-care workers and other low-to-middle-income workers has plagued communities for years.
Prior to the pandemic, 30 percent of U.S. households spent more than 30 percent of their income on housing, and nearly half of these cost-burdened households spent more than 50 percent of their income on housing, according to the Joint Center for Housing Studies of Harvard University.
A chronic shortfall of federal low-income housing tax credits along with lengthy and costly development timelines have contributed to the supply shortage. Meanwhile, conventional developers by and large have focused on building high-rent Class A and luxury projects to generate returns that justify lofty land and construction costs.
But value-add investors that renovate and raise rents at thousands of Class B and C apartment communities represent one of the biggest threats to the supply of workforce rental units, often referred to as naturally occurring affordable housing or “NOAH.” As a result, social impact funds have emerged to compete with value-add investors and preserve affordability for renters typically earning between 60 percent and 120 percent of area median income.
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