The Alpha in the Apartment Building

A few years back, Southern Methodist University and the University of Texas teamed up with the Texas Housing Conservancy to answer a straightforward question:

Are affordable rental housing properties a financially viable institutional asset class?

Their research findings were clear: Affordable multifamily properties consistently delivered better risk-adjusted returns than higher rent, market-rate multifamily properties. 1

In other words: Yes, they are.

How Affordable Makes Alpha

Using national multifamily property performance data from the NCREIF Apartment Index, the research analyzed the performance of rental housing properties that were affordable to renters making less than 80% of area median income and then compared the performance of those assets to higher-rent properties in the same market over a ten-year period ending in 2021. They identified four key findings:

1. Strong returns: The average annual un-leveraged return for affordable assets was 9.4%. This outperformed higher-rent multifamily properties by 149 basis points, beat the overall NCREIF apartment index by nearly 100 basis points and placed it solidly in the middle across asset classes.

2. Low volatility: At 2.6%, the volatility rate for affordable multifamily properties was lower than all other asset classes in the study. While other asset classes were riding rollercoasters across the credit cycle, affordable assets maintained a steady cruising altitude.

3. Low correlation to public markets. The affordable asset class also demonstrated extremely low rates of correlation with the S&P 500, Nasdaq, Treasuries, or even publicly-traded REITs. For investors who value a diversified portfolio, low volatility and low correlation to public markets is a nice thing to have in your back pocket. And it makes the affordable multifamily asset class pretty darn attractive.

4. Increased capital expenditures: The study also confirmed that affordable rental housing assets require higher annual capital expenditures (1.5% vs. 0.88%) than their market-rate counterparts. This is not surprising given their age and condition. However, because investors who purchase affordable properties typically have a longer investment time horizon, they are able to absorb higher up-front renovation costs with longer payback periods that allow them to benefit from the accumulation of more savings over time.2

All of these findings are consistent with other research reports3 recently conducted on the financial performance of affordable rental housing properties. And it is becoming crystal clear that the affordable multifamily asset class produces stable returns on investment that perform as well or better than other asset classes and are less susceptible to unpredictable market fluctuations.

Affordable Housing is Investable. It Must Also be Scaleable.

While the Robert-Wegman research report offers further proof as to why institutional investments in affordable rental housing are growing, it also emphasizes the importance of maintaining a common framework of multifamily impact standards that make it easier for institutional investors to allocate more capital to support the preservation and creation of more affordable rental housing.

This is exactly the gap the Multifamily Impact Council’s Multifamily Impact Framework™ was designed to help fill. And as more institutional investors recognize the financial value of long-term investments in affordable rental housing, the value of that framework has never been more clear.

Since it was first published in 2023, the Framework has been downloaded for use by more than 600 organizations across the United States4. It establishes common definitions and reporting guidelines that help translate impact practices and financial outcomes into a common operating language for investors, owners, lenders, and policymakers. It standardizes how affordability is defined, how renter outcomes are measured, and how financial and impact performance are evaluated together.

In practical terms, it helps reduces friction - shortening diligence timelines, improving comparability across portfolios, and giving investment committees the confidence to make impact-driven investment decisions that are part of (and not separate from) their broader capital allocation strategies.

For investors who already see the value highlighted in this research, industry standards are the next step. They turn conviction into a repeatable investment strategy. They make affordable housing legible to institutional capital without diluting either fiduciary discipline or positive renter outcomes.

As capital continues to look for more places to grow, the Multifamily Impact Framework provides the infrastructure needed to transform affordable multifamily housing from a collection of isolated success stories into a durable, investable asset class - one capable of attracting significantly more capital that will help make rental housing more affordable across the United States.