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Bridging the Affordable Housing Gap With Impact Real Estate

Watch the Conversation From Sorenson Impact Institute’s Virtual Convening

The United States faces a severe shortage of affordable housing, with a national development gap of 5.5 million housing units and counting. On top of that, 49% of all renter households identify as rent-burdened, spending more than 30% of their income on housing. Half of those households are severely cost-burdened, meaning they spend more than 50% of their income on rent. These numbers continue to rise due to soaring construction costs, inflation, and increasing interest rates.

At a recent Sorenson Impact Institute virtual convening, Alan Lo, Manager of Impact Finance at the Institute, discussed the issue with two leaders in impact real estate: Kate Murray, Director of Impact Strategy and Measurement at TAS, and Jeremy Keele, Founder and Managing Partner of Catalyst Opportunity Funds.

“When I started Catalyst five years ago, the notion of lack of affordability was something that you thought about in big coastal gateway markets like New York and San Francisco,” said Jeremy Keele. “In places like Salt Lake City, where I live, or other secondary markets, it was not the big issue in those communities… In every community we’re investing in, this has become arguably the top policy issue for local government officials and the top complaint of the average person on the street.”

When so much is spent on housing, little is left over for other necessities. “What it means in practice for a lot of folks is a cash crunch,” explains Keele. “They’re being forced to make trade-offs and sacrifice other priorities within the family or household budget. When you think about investing in education or nutritious food options, retirement savings, wealth building, et cetera, all of those things come off the table when so much of your income is going to your rent.”

Catalyst Opportunity Funds is a private equity firm focused on transformative investments in historically underserved and underrepresented communities in the U.S. They concentrate their investments on projects that will bring new economic activity to these communities, such as healthcare, nutrition, and housing.

TAS forges a similar path in Canadian markets, where the gap in affordable housing units amounts to about 3.5 million. “In Toronto, home buyers need an annual income of $217,000 to afford to buy the average home, which in Toronto is now over a million dollars,” said Kate Murray. “About 40% of people in Toronto spend more than 30% of their income on rent.”

To support their work, the real estate company developed an impact framework and theory of change data structure with consideration of future impact funds and innovative financing structures. “We are a B Corp and have been for about a decade. So we look at every single opportunity that we have to generate positive impacts through our business operations,” explained Murray.

TAS’ impact framework was the foundation for their collaboration with Sorenson Impact Institute to develop an in-depth impact measurement and management system. Murray stated, “We’re excited about how this will help to embed our strategy in day-to-day operations and align everything from capital right down to bricks and mortar on the ground and ultimately to measure outcomes.”

Their strategic approach uniquely focuses on community, with a section of their measurement system specifically designed to capture community feedback. “That’s a big part of our approach and strategy,” said Murray. “We’re now working closely with Sorenson Impact Institute to see how we can leverage the insights and knowledge and the evidence-based approach that we can generate from a measurement system to align capital and capital structures with the ultimate outcomes identified by the community.”

This worsening housing crisis is made more complex because many investors don’t want to invest in new housing projects. As Keele explained, “There’s something like 40% higher construction costs than we had in the decade prior to the pandemic. So there’s a nasty combination of high interest rates to finance new projects coupled with high construction costs, which means there’s very little supply hitting the market.”

Keele and Catalyst have been applying their focus to invest their funds in new construction to help reduce the housing supply deficit. “Our focus is targeting that workforce demographic…folks that have jobs but that increasingly can’t afford to live in their own communities, and certainly not live and work in the same community in a lot of cases.”

Catalyst looks for two kinds of housing investors: those who need market rate returns and are less interested in the impact and those who focus on the impact these investments can have and not as much on the return. “We’ve created a structure where we sort of blend those two capital types into the same fund.”

TAS and Catalyst are working hard to increase affordable housing in their respective markets. Their commitment and unique solutions make a significant impact and build a framework for others to replicate.

 

Watch the full conversation here:

Sorenson’s Virtual Convening Series features solutions-oriented discussions with members of the Institute and its community of impact leaders. Together, we take a deep dive into the most pressing issues of our time, exploring challenges, opportunities, and learnings to scale actionable solutions. Watch other past convenings and join our mailing list to be the first to know when a new conversation is scheduled.

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