Mid-income housing fund outperforms high-priced real estate, study finds

An Austin investment fund created to support and stabilize middle-income rental housing has been recognized as an attractive and viable investment by researchers at two Texas universities.

Affordable Central Texas, which began acquiring middle-income rental communities in late 2018, was found to have higher return (9.4%) and lower risk (a 2.6% spread) than investments similar at high-income and luxury properties across the country. The eight month study University of Texas associate professor Jake Wegmann and Southern Methodist University real estate researcher Mark Roberts reviewed data from Atlanta, Austin, Dallas, Denver, Houston, Phoenix , Seattle, and Washington DC from 2011 to 2021. (New York, Chicago, and Los Angeles were excluded because they did not have enough middle-income workers to study meaningfully.)

Data collected and analyzed by the National Council of Real Estate Investment Fiduciaries showed that middle-income rental housing has performed well and performed independently of stock and bond returns, with strong returns despite higher capital costs. higher than investments in high-income housing. The study was sponsored by Affordable Central Texas and the Wells Fargo Foundation.

David Steinwedell, president and CEO of Affordable Central Texas, said the results will help assure investment advisers at major banks and other institutions that their investments will be stable and successful. Currently, the fund owns seven multi-family rental properties across Austin, with 1,740 units under its management that keep rents affordable for residents earning between 60 and 120 percent of local median family income.

“When we put together our fund, we modeled what we thought would happen, but when you raise capital, the fund advisers want everything to be verified by a third party. This study verifies what we have experienced, which is that since the inception of our fund, we have had returns north of 9%,” he said. “The caveats are that our fund has never been created before and anything new, especially if you’re a bank or a financial institution you’re wary of what to do.”

Wegmann, an associate professor of community and regional planning at UT Austin, said the steady and growing demand for moderately priced housing in major cities made the results unsurprising. He said growing interest in investments focused on environmental, social and governance (ESG) uses could make middle-income housing a priority for large organisations, with standards in place to ensure health and safety. residents.

“The ultimate vision would be for there to be some kind of defined standard, because there’s tension on the investment side right now, because it looks really great in terms of performance in terms of risk and return. If there was a standard, it would assure policy makers and those who live in buildings that some protection is offered to the people who live there.

Roberts, head of research for SMU’s Folsom Institute for Real Estate, said the study has the potential to change conventional wisdom in financial circles about which types of real estate investments offer the best long-term performance.

“I hope we’ve shed some light on the idea that just because there’s an apartment building where the rents are lower than the high-rise luxury apartments that seem to be attracting investors, that financially, they won’t overlook the typical apartment that produces higher returns and lower risk,” he said. “The real way to solve the housing affordability problem is to build more, but when you look at rising interest rates and its impact on construction financing…that means the cost of owning a single family home has gone up by about 50%.

With decades of real estate experience in Austin, Steinwedell said the moderate increase in supply expected to hit the market soon will help drive up the cost of living, though public and private efforts must work together.

“There are some decent policies that have been put in place recently, like unlocked affordability, that will help some things. There are other challenges like the fact that we can’t get the (building) code changed, and that’s really holding us back. There has to be a mix of public policy and private sector stuff like we do, and together all of those things can make a difference.

picture by Vuemobi, CC BY-SA 4.0via Wikimedia Commons.

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