Affordable Housing Investment Incentives

Photo of Jack D. Hepburn
Jack D. Hepburn
Associate, Corporate Department
January 29, 2024

Demand for affordable housing continues to surge in New England. Not surprisingly, the number of affordable housing projects has also seen a significant uptick in recent years. These projects are often a win-win for real estate investors, as they can help ameliorate community housing challenges while also providing substantial return on investment.

There are several incentives for real estate investors to participate in affordable housing projects, including:

Stable Demand

There is a consistent demand for affordable housing amongst a large segment of the population. This demand can lead to steady occupancy rates, reducing the risk of vacancies. While rental rates may be lower compared to luxury properties, steady occupancy rates can provide stable cash flow over time.

Government Incentives

Federal, state, and local governments often provide various incentives to encourage affordable housing development. These incentives may include tax credits, subsidies, grants, and regulatory concessions. Local municipalities may be more amenable to granting zoning variances for affordable housing projects, such as waiving certain density or parking requirements. Investors can benefit from these incentives to improve project feasibility and financial returns.

Diversification of Portfolio and Mitigation of Economic Downturns

Including affordable housing in a real estate investment portfolio can offer diversification benefits. Affordable housing tends to be more resilient during economic downturns, with the demand for affordable housing remaining relatively constant. This can provide stable income for investors.

Appreciation Potential

While current rental rates may be below market, affordable housing projects can often experience substantial appreciation over time, especially in areas where demand for housing is expected to increase. This potential for future appreciation can contribute to the overall return on investment.

Public-Private Partnerships

Some affordable housing projects involve partnerships between private investors and government agencies. These partnerships can provide investors with access to additional resources and support.

Social Impact

In addition to financial incentives, investing in affordable housing projects allows investors to contribute positively to society by addressing the housing needs of low-income individuals and families.

It is important to note that the specific incentives for affordable housing projects can vary based on location and state and local regulations. Investors should conduct thorough due diligence and engage competent real estate counsel when pursuing these opportunities.