ESG Investing

For ESG investors, A Hot Housing Market Offers Opportunities for Change


These are heady days for just about anyone selling a house in the United States as the country slowly emerges from the pandemic and demand continues to surge. The average price of American homes, in real terms, is skyrocketing—reaching the highest it has ever been. The housing market frenzy has not been as kind to buyers, especially low-income families looking for affordable housing either as buyers or renters.

For ESG investors, the situation offers wide-ranging opportunities to shape the future of a high-demand industry with a profound impact on people’s lives and the environment. The stage is set for efforts as ranging as widely as funding affordable housing and supporting green construction to continue in the coming year.

Supply and Demand

The mayhem in the housing market stems from many factors. Demand has increased as potential homebuyers rush to purchase homes amid record-low interest rates. At the same time, there is also a low supply of housing, thanks in part to a slowdown in building during the pandemic.

For low-income households, many of which were already in the midst of a housing crisis before the pandemic, the results have put secure housing even further out of reach. Tightening lending standards have compounded the problem; although some standards have loosened over the past several months, mortgage credit availability still remains close to the lowest supply since 2014.

Some investors are likely to take a different tack by targeting both green and affordable housing.

New Funds and Tactics

Investor interest in ESG has been met with a growing number of social impact funds aimed at building or preserving affordable housing while also generating competitive returns. Some, like the Washington Housing Initiative, focus on Class B and C apartment buildings, which are less pricey than luxury Class A locations and often termed “naturally occurring affordable housing,” or NOAH. The objective is to preserve these properties as affordable housing and keep them out of the hands of developers seeking to renovate them and then substantially raise the rent.

In another vein, former New York City Deputy Mayor Alicia Glen last year launched MSquared, a real estate development and investment platform creating mixed-use, mixed-income projects. It raised a $108 million housing fund with financing from such partners as Citi Community Capital, Goldman Sachs’ Urban Investment Group, and Wells Fargo.

Heavy Hitters

A growing roster of big names has also entered the fray. In July, the Blackstone Real Estate Income Trust revealed it would buy AIG’s interests in a US affordable housing portfolio for $5.1 billion. This followed a May announcement that the company would purchase about 5,800 apartments in San Diego County from the Conrad Prebys Foundation for $1 billion with the intention of keeping the rents at an affordable rate.

RBC Global Asset Management Responsible Investment recently invested in MLK Gardens in Englewood, New Jersey. With 100 units of affordable rental housing, the multifamily property boasts an average monthly rent of $443—compared with an average of $2,560 for a one-bedroom rental in the same area.

Looking Ahead

Although efforts to provide safe and secure housing are sure to continue, some investors are likely to take a different tack by targeting both green and affordable housing. “The focus on carbon will define the decade ahead, without a doubt,” said Dan Winters, head of the Americas region for GRESB, a global ESG benchmark for private equity real estate and infrastructure portfolios.

Current forecasts predict that housing market price spikes will continue next year. However, there is disagreement about the level they will reach. Add to that the rising interest in sustainable investing, and ESG investors may see yet more opportunities to invest to tackle America’s housing crisis in the year ahead. The effects of housing parity have the potential to extend well beyond real estate, promoting progress on other issues as diverse as supporting health outcomes and enhancing gender equity.

Any company, security, fund or other investment identified herein is provided solely for illustrative purposes and should not be construed as a recommendation or solicitation for the purchase or sale of any such investment.

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