While there has been long-term, stable growth in the economy since the financial crisis in 2007 and 2008, the lack of affordable housing may ultimately play a significant role in slowing growth and increasing the economic divide in local economies. Cities across the nation have expressed frustration about the lack of affordable housing for their workforces. With commute times reaching up to two hours in some regions, an increasing number of businesses are getting frustrated as well, contemplating or already planning an exodus to more affordable locations solely for the benefit of their employees. Individuals, institutions and foundations that have built their success within these metropolitan zip codes must strongly consider investing in their own local affordable housing supply — either new build or renovation of the old — in order to save their beloved cities.
Multiple states, and California in particular, face a large gap in supply and demand for housing that’s affordable. More than half of Californians are rent burdened, meaning they spend more than 30% of their income on housing, the highest rate of any U.S. state’s population. F. Noel Perry, founder of Next 10, describes the high relevance of housing issues in relation to larger economic trends in his article “Growth Amid Dysfunction: An Analysis of Trends in Housing, Migration and Employment.” Perry concludes that if California is unable to accommodate the growing demand for affordable housing, home prices will continue to increase, inevitably driving out laborers and reducing productivity.
Those who turn to the rental market will find similar affordability issues. New York City remains the nation’s priciest rental market. The average monthly rent for a New York metro apartment was $3,611 in first quarter 2018, “followed by San Francisco ($3,052), Silicon Valley ($2,578), Boston ($2,272) and the Oakland-East Bay area ($2,177). Nationwide, apartment asking rents averaged $1,382 a month in first quarter [2018], up 4.4 percent year-over-year.”
It’s safe to say that housing affordability issues disproportionally target low-income workers, because they make less money in comparison. In California, wages for low-income workers, whose salary average is $27,000 a year, increased by 17% over the past decade. Meanwhile, high-income Californians making an average $83,000 a year have seen a 42.5% wage increase. With less expendable income, low-income workers, who are responsible for much of the foundation of our economic structure and have no or few affordable housing options available to them, must relocate to less expensive areas, reducing economic growth in metropolitan areas, or face eviction.
The issues surrounding the dwindling supply of affordable, decent living spaces for those across the socioeconomic spectrum are obvious and well-documented. Affordable housing is a basic need (i.e., shelter, safety, security) under Maslow’s five-tier Hierarchy of Needs. When people do not have an affordable place to live and thrive, they are at an increased risk of falling below the poverty line. According to the Public Policy Institute of California, 18.9% of Californians lived near the poverty line, and 38.2% were poor or near poor in 2016. Supplying people in the working and low-income classes with affordable housing options plays an integral role in the fate of these residents and the overall goal of “ending poverty.”
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While further research on the topic may illuminate alternative methods of relief, it’s clear that widespread, major investment — by all financially capable participants (i.e., impact individual investors, institutions, foundations, etc.) — is undoubtedly necessary to thwart economic stagnation and rising poverty, both looming unintended consequences of high housing and living prices. There remains a multitude of deserving social causes in need of economic support and revitalization; however, it’s my opinion that none will affect the stability of local, domestic economies and fellow citizens quite like the lack of affordable housing for the working class and low-income populations.
Although personal investments remain a valuable tool to bring affordable housing to deserving people and cities across the nation, it’s my belief that foundations and endowments may ultimately hold the weight necessary to meaningfully curb these worrisome economic and socioeconomic trends brewing just beneath the surface through their mission related investments (MRI), defined by the Impact Finance Center as “any investment activity that furthers the investor’s organizational mission.”
An investment in workforce and affordable housing is therefore the ultimate impact mission related investment for these organizations to combat poverty, blight and neglect here at home. It may not be the sexiest, “in favor” investment of the day, but the solid cash flow generated from workforce housing certainly is appealing.
As such, I am calling on all foundations and endowments to examine their missions closely, and if poverty is anywhere even remotely close to that mission, I urge you to consider investing in the greatest mission of our time: affordable housing and distressed communities. This is a mostly defensive play that will provide profit with a purpose, raise the standard of living and increase the quality of living for low-income and working class individuals, while simultaneously enabling continued, steady economic growth in some of our nation’s largest metropolitan areas.
Having spent much of my career spearheading the push for high-quality affordable housing rehabilitation and development that provides necessary safety and dignity for low-income Americans, I am excited to facilitate this movement surging forward and urge our nation’s foundations and endowments to join me.Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?Eddie Lorin
Founder of Strategic Realty Holdings, affordable housing preservationist, Alliant Strategic Preservation Funds, Impact Housing REIT.