Kairos Investment Buys 103-Unit Forest Manor Apartments in Glendale, Colorado

With rental rates surging in the past year — asking rents were up by double digits in most major markets across the United States as of early 2022 — the need for affordable housing has come into even sharper focus.

Nearly three-quarters of households earning less than $30,000 per year and almost half of households earning between $30,000 and $45,000 per year are cost burdened, according to Harvard University’s Joint Center for Housing Studies. (Cost-burdened households are defined as those paying more than 30 percent of income for housing.)

The demand for affordable housing outstrips the available supply, which creates an opportunity for investment in the segment, notes Jonathan Needell, president and CIO at Kairos Investment Management.

As an investment class, affordable housing can be either regulated — with rents tied to area median income (AMI), often reserved for households with 60 percent or less of AMI — or unregulated, often called “naturally occurring affordable housing” or NOAH. What is often called “workforce housing” is unregulated but generally aimed at low- to middle-income renters.

“Affordable housing is an asset class that continues to be undersupplied,” says Needell. “There is simply not enough product to support ongoing demand. In fact, demand for affordable housing actually increased during the pandemic. This supply imbalance is one of the reasons this asset class is attractive to investors, as it is a relatively stable asset class that performs in both up and down markets.” Needell points out that many affordable communities have strong occupancy rates and waiting lists, resulting in very limited turnover.