I was asked several times to explain the reasons behind my investments in affordable housing for the long haul. I thought, why should I explain to one person at a time when I can get it done once and for all.
So, here are my 4 reasons for investing in affordable housing and why you should also do the same.
1. The wealth gap is still growing
There seems to be no stopping for the ever-increasing income disparity and wealth gaps.
Even though unemployment rates have decreased but there is no solid change or increase in median income. Consequently, the gap of riches between wealthy and poor is constantly increasing. In this stretch of two poles, the middle class is suffering most.
From the recent economic statistics, we can logically predict that more and more middle-class families will be diving into affordable houses as time goes by. Naturally, the demand for affordable houses will increase which is why I’m investing in them from now.
2. Very limited supply
I have done some digging and as far as I can see, this type of asset has a tight supply. Besides, there are no signs that this assets’ supply will be increasing any time soon. This limited supply and increasing demand for affordable housing only mean one thing, increased rents.
In supply shortage and increasing demand incidents, assets tend to become more valuable. However, the increasing rents should be done wisely.
You should remember that the people who will be taking the places are middle-class families, looking to save a few bucks by renting an affordable/budget place. So, increase only a certain amount which you think is justifiable to keep up with the inflation and cost of living, don’t become a predator.
3. New construction, even for affordable housing is expensive
It is true that the number of new construction sites is growing exponentially but the builders and investors don’t usually go with the construction of affordable housing.
These metropolitan constructions are mostly done to build either A or B+ category of apartments and homes with luxury amenities and finishing. Most of the builders for new construction are institutional investors. As they have a lot of capital to work with, they decide to target the upper class with luxury properties.
In this situation, concentrating on affordable housing may be a bad idea, especially when the demand for work forces will be adding a good sum to the cost of construction.
4. Recession-resistant demands
Real estate is local, we all know that. We also know that the real estate market is cyclical as any other market.
The recent economic indicators indicate that we are a lot closer to the end of a cycle (the top of the cycle) and we should expect a downturn soon. But in the downturn of real estate, the affordable housing demand will stay strong,unlike other assets; which is another good reason to start investing in them.
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