Looking Ahead - Affordable Housing in 2024

Introduction

Reflecting on 2023, the affordable housing landscape has been characterized by a concerning supply-demand imbalance that is deteriorating, as demand for affordable housing continues to rise and the current aging supply continues to dwindle due to lack of effective preservation efforts. The year has also experienced a challenging operating environment with delayed impacts from covid policies on rent collections, increased insurance and other operating costs, and the increased cost of financing from the current rate environment which will continue to influence transaction volume for the foreseeable future.

So what does this mean for 2024 and beyond?

Looking ahead, we expect to see institutional investor interest in the sector  intensify, with plenty of new investors entering the space and existing ones expanding their current allocations. While many institutions remain on the sidelines more broadly, we expect that when the ice thaws that there will be a recalibration of allocations within real estate sector to include a larger allocation to sectors like affordable housing while reducing exposure to others (i.e. US Office). This surge of institutional interest in affordable housing will encourage consolidation at an accelerating pace within the sector, as legacy owners exit and well-capitalized groups like HVPG continue to expand. We’re planning to make some large strategic acquisitions to further expand our footprint and portfolio, setting the stage to leverage the scale for some exciting new offerings to our residents (more to come on future newsletters) In addition, we also expect the following next year:

• Fewer Deals, Lots of Capital Sidelined – As experienced in 2023, we expect transaction volume to continue to be down until the market sees signs of rates stabilizing and/or declining. Inflation has been stickier than originally expected but is also likely to continue to slow in 2024. In this environment we see a lot of capital on the sidelines, as many investors try to time ‘the bottom’ and wait to deploy their money into the market until a consensus is reached that the market has hit the bottom. The expected change of Fed policy from rate increases to decreases in 2024, along with projections of inflation trending towards 2% (even if we don’t see that level in 2024) will set the stage for the return of capital.
• Greater focus on technology – We expect to see a broader integration of proptech (technology servicing the real estate industry) software & services, with increased utilization and penetration across every facet of affordable housing. We also expect a notable expansion of WiFi-based services and programming in the space, reflecting a growing emphasis on connectivity and technology that enhances residents’ overall living experience in affordable communities. We’re proud to be early adopters and look forward to piloting some exciting, promising new technologies in the year ahead.
• Regulatory changes – In 2024, one of the expected regulatory changes to keep an eye on are the recent updates to the Community Reinvestment Act. These updates make debt opportunities in the market more interesting than equity to banks and encourage banks to expand access to credit, investment, and banking services in LMI areas - ultimately promoting financial inclusion programs for many affordable communities. We’re also hoping for an expansion of the low-income housing tax credit (LIHTC) program in both the volume available and its applicability to serve a broader segment of the population.

Conclusion

This year has certainly had its challenges and then some, but the affordable housing landscape in 2024 is poised for a transformation, influenced by a confluence of investor dynamics, tech integrations, and regulatory changes. At HVPG, we know affordable housing properties can be a path to a better standard of living. We look forward to navigating any and all that 2024 brings, strengthening our capabilities and reputation as a leader in the space, and continuing to deliver the highest value and quality of living for our affordable communities across the country.