Investing for Impact with Affordable Housing

If you resonate with the 12th-century Jewish scholar Maimonides, who argued that the highest form of charity includes an affordable loan or dignified employment, then you’ll be interested in the developing field of impact investing.  Investors are now offered new tools to meet the most basic needs of their communities and the world around them, while also making a profit at the same time.

The day Charles Bolling of Richmond, Virginia became a first-time homeowner was memorable. Before Charles could celebrate this new reality, he first needed to sign a pile of closing documents—a tedious rite of passage. The problem was that Charles had too much nervous excitement to hold his pen straight. He asked the closing attorney for a moment. After pacing down the hallway a few times and taking a few deep breaths, Charles sat back down and opened a door that only a few years prior he questioned that he would ever enter—as a homeowner.

In order for Charles to become eligible for a home loan, he needed pay off a number of debts, repair his credit, and save for a down payment. It took personal dedication and a partnership with a local affordable housing group, Urban Hope, to make this possible. Before Charles left the closing attorney’s office, he asked if he could keep the pen he used to complete his many signatures as a small token to remember this very important day in his life.

All of this was financed by investors who were rewarded with a 5% return on their investment in partnership with Urban Hope and the Bolling family. This may be a little less than other market rate investments, but it’s certainly not bad when you compare it with the going rates for a bank savings account or a CD. And how do you even begin to calculate the ROI for a father who’s just accomplished a life dream?

The need for new capital to enter the affordable housing marketplace couldn’t be more timely. As the fears of inner-city living wear off, many urban neighborhoods around the country are experiencing an economic renaissance as new residents create demand for upscale housing, restaurants worthy of culinary praise, etc. At the same time, the most economically vulnerable are facing an affordable housing crisis. Consider for a moment how it must feel for a low income family to learn that the national average wait time for Section 8 housing vouchers is 2.5 years and that many public housing waitlists across the country are currently closed to new applicants.

A unique attribute of affordable housing investments is the opportunity to target your capital to a specific geographic region. Those interested in supporting affordable housing in Denver, Baltimore, or the San Francisco Bay Area should consider the Calvert Foundation’s Community Investment Notes. Others can start by searching for the closest Community Development Financial Institution (CDFI) in your region. Many of these mission-aligned banks have major investments in affordable housing. One such bank of Columbia, Maryland has created the Enterprise Community Impact Note, which can broadly spread your affordable housing impact across the country.

As a financial advisor, I should say that these investments aren’t for everyone. Most affordable housing investments require a lengthy time commitment, and many families simply don’t have the margins to sacrifice liquidity. Also, anytime you emphasize positive outcomes that look beyond the financial bottom line, there’s an opportunity to lose sight of financial underpinnings entirely. One of my friends often quotes a Catholic nun who regularly quipped, “No profit, no purpose”—an important proverb for impact investors. The best impact investments are designed to provide a measurable and accountable social good while also earning a financial return.

The time is right to reconsider the impact of our savings and inherited wealth. Collectively, we can invest in a brighter future, one affordable house at a time.

 

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