Affordable housing is known for its stability during economic disruption, but this downturn doesn’t look like anything seen before.
March 30, 2020
Affordable housing is well known for maintaining stability during an economic recession. Data shows that the asset class has better occupancy and more stable rents during past recessions, making affordable housing a recently popular investment class for investors.
“In previous recessions, we have seen rents more stable in affordable housing,” Jonathan Needell, president and chief investment officer of KIMC, tells GlobeSt.com. “Traditionally, LIHTC also has lower credit loss and high occupancy through a recession. In the Great Financial Crisis, LIHTC was 97% occupied and market rate occupancy was 91%. The gap in occupancy is usually that affordable housing is 3% to 6% higher during a recessionary period. With more stable rents, affordable housing is usually a safe haven, not only for income production but also for value.
The trend, however, will be tested in the months ahead because this recession doesn’t look like anything seen before. “Today’s environment is a little different because the tenancy of affordable properties is more likely to be suffering from unemployment,” says Needell. “That has been true in past recessions, but today, we aren’t talking about staff reductions; they can’t work. This is obviously a big impact to the affordable tenant base.”
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