Moderate-Income Rental Housing a Viable Asset as ESG Investments Grow

A new report sponsored by Affordable Central Texas and Wells Fargo proves the current misconception that rental apartments priced for the middle-income workforce —such as teachers, nurses, and first responders— have a lower return on investment than apartments with higher rent levels, paving the way for Moderate-Income Rental Housing to be a competitive ESG investment.

The report defines a new asset class as Moderate-Income Rental Housing (MIRH), or large, multifamily rental properties occupied by tenants earning between 60% and 120% of the Median Family Income (MFI) with at least half the residents earning less than 80% of MFI. Analyzing data since 2011, the report demonstrates MIRH assets outperformed rental properties with higher rents, averaged an unleveraged return of 9.4% and had the lowest risk, a near 3% spread when compared to other real estate asset classes.

Total Return vs. Risk vs. Major Asset Class Over Last 10 Years from Q2 2011 - Q2 2021

"Demand for affordable rental housing for moderate-income households is surging as homeownership becomes unobtainable for many," said David Steinwedell, President and CEO of Affordable Central Texas. "At the same time, interest in Environmental, Social, and Governance investments is growing rapidly."

In 2021, Environmental, Social, and Governance (ESG) funds accounted for 10% of worldwide fund assets. According to a new report by Bloomberg Intelligence, global ESG assets may surpass $41 trillion by 2022 and $50 trillion by 2025. ESG's in the U.S. are taking the lead with more than 40% growth in the past two years and are expected to exceed $20 trillion in 2022.

The report drew on data from the National Council of Real Estate Investment Fiduciaries Property Index and analyzed eight metropolitan areas from Q2 2011 to Q2 2021:

1. Atlanta
2. Austin
3. Dallas
4. Denver
5. Houston
6. Phoenix
7. Seattle
8. Washington, D.C.

The nation's three largest metros, New York, Los Angeles, and Chicago, lacked enough MIRH assets to allow for analysis due to their well documented affordability challenges.

"We can't afford to lose the people who power our communities, and we have a market solution to a market problem," said Steinwedell. "MIRH delivers consistent, predictable returns and makes a real difference in the lives of our neighbors."

To read the full report, including methodology and further information about MIRH's performance, click here.