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Over the past two decades, affordable housing has rapidly grown as an asset class, attracting institutional investors who recognize its stability and long-term value. Often called “recession-proof,” this sector offers unique impact investment opportunities that combine financial returns with meaningful social outcomes.
However, as the ownership landscape, once the domain of small, local property owners, sees the entry of more institutional investors, concerns are raised: Will affordable housing become just another asset class where profits are prioritized over people? Could the influx of institutional capital lead to higher rents and displacement of vulnerable communities? The reality, nonetheless, is more nuanced.
Institutional investors offer the potential for enhanced services, improved quality of housing, and more stable, long-term investments. When driven by a community-focused mission, institutional investors can benefit from the financial returns of affordable housing investing while playing a critical role in addressing the affordable housing crisis.
Perception problem
At the heart of the resistance to institutionalization in affordable housing is a fear that profit will be prioritized over the health and well-being of communities. Critics argue that large investors will drive up rents while ignoring maintenance and service quality, resulting in substandard housing for low-income residents.
Another common fear is that corporate ownership disconnects decision-making from the communities it affects, marginalizing local voices in favor of distant, profit-driven management. Concerns also exist that institutional players could collaborate to artificially inflate rents, exacerbating affordability challenges in already-strained markets.
These factors contribute to a broader fear of gentrification, where residents worry their neighborhoods’ unique character could be lost, and rising rent prices could push them out of their homes.
While these concerns are valid, they often overstate the negative impact of institutional investment. In reality, when properly regulated and executed, large-scale investments can deliver a range of benefits that small, local owners may not be able to achieve.
The reality of institutional investment
While public perception towards institutionalization may lean toward suspicion, there are several reasons to believe that it can play a critical role in addressing the affordable housing crisis. Institutional investors bring long-term capital, economies of scale, and a commitment to higher standards, all of which can help drive the sector toward a more sustainable future.
While many cite institutional investing as a driver of the affordable housing crisis, institutional investors currently hold less than 3% of the U.S. rental market, according to the National Multifamily Housing Council (NMHC), meaning their impact on overall pricing is often overstated. The primary driver of rising rents is the supply-demand imbalance: the U.S. has added only about 7.3 million housing units in the past decade, while the population has grown by 22 million (U.S. Census Bureau, 2022). Institutional capital can help close the supply gap by funding new developments and preserving existing affordable housing.
Institutional investors typically deploy capital over 10- to 15-year time horizons, allowing them to make more substantial, long-term contributions to the properties and communities they serve. This commitment to long-term value not only stabilizes returns for investors but also improves housing quality and sustainability. With larger budgets, institutional investors can set higher standards for housing quality, implement energy efficient upgrades, and adopt advanced property management technologies.
For example, using sophisticated data analytics, institutional investors can ensure more responsive maintenance teams, improve property management strategies and identify areas where additional investment is needed. Properties managed by large-scale owners have been shown to have up to 25% fewer violations compared to smaller landlords, according to research by the Joint Center for Housing Studies at Harvard University.
Additionally, economies of scale allow large-scale owners to negotiate better prices on materials, services, and operations – savings that ultimately trickle down to residents. Industry research shows that larger property managers often achieve operational cost savings of 10% to 20% through bulk purchasing and more efficient management (JLL Research, 2023), which can lead to lower rent prices.
Lessons from student housing
To understand the potential of institutional investment in affordable housing, it is useful to examine the evolution of student housing. Twenty years ago, student housing was predominantly owned by small-scale landlords, with little to no involvement from institutional investors. As Wall Street began to recognize the potential of this asset class, institutionalization accelerated.
When I began my first business venture in 2000 – Off Campus Partners, an online marketplace for off campus housing – student housing was fragmented and inconsistent in quality. As the student housing market grew from $4 billion in institutional investments in 2000 to over $60 billion by 2020 (JLL Research, 2023), standards improved dramatically. Today, student housing is more accessible, safer, and better managed, offering services and amenities that were once unimaginable. This evolution shows how institutional involvement can enhance an asset class without displacing its core tenants – a trajectory that could benefit affordable housing as well.
Balancing profit with impact
Affordable housing represents a unique investment opportunity that offers both financial stability and social impact. Affordable housing, with its relative stability in times of economic downturn, can act as a “recession-proof” asset, providing reliable returns for investors while addressing a critical societal need.
As the industry grows, it is important to recognize and reward organizations committed to balancing profitability with social impact. When driven by a mission to improve communities rather than extract maximum profit, institutional investors can be powerful allies in solving the affordable housing crisis.
If we are to solve the affordable housing crisis, we must embrace a diverse range of players, ranging from small owners and regional operators to institutional investors. Only by doing so can we ensure that every community has access to safe, affordable, and high-quality housing.
Jason Bordainick is managing partner and co-founder of Hudson Valley Property Group.
