When investors are looking for a hot deal, affordable housing isn’t usually the first thing that comes to mind—but this tendency to overlook the low-income housing market might be a mistake. For banks in particular, investing in affordable housing comes with a number of benefits in addition to the income it generates.

The Benefits of Investing in Affordable Housing 

Affordable housing is one of the best opportunities in the investment market, although it’s not often framed as such (for reasons that we’ll discuss below). For the savvy investor, here’s a few examples of the returns you can expect on affordable housing investment funds: 

• Affordable housing is a recession-proof, reliable source of income. The demand for high-rise apartments will drop when the economy takes a hit and people feel the need to start tightening their belts. We’re witnessing this firsthand in the present moment, as recent increases in inflation have caused demand for luxury homes to fall sharply.
  
  Not so with affordable housing. Data from 2022 estimated the shortage of homes in the United States to be at around 3.8 million units. And the biggest shortage? You guessed it—affordable homes. If anything, downturns in the economy will likely only increase that demand as more people fall on hard times.
  
  The bottom line is that although affordable housing investments often get a bad rap for not being a steady source of income, from a demand standpoint, they’re arguably the most reliable source of real estate income out there.
  
  

• Affordable housing investments usually come with tax credits. The Low Income Housing Tax Credit (LIHTC) was a game-changer for the housing investment market. Banks that are able to obtain tax credits through this program can score a dollar-for-dollar reduction of their federal tax liability. The most common way to do this is to purchase them from developers (to whom the tax credits are awarded) in exchange for capital to build or renovate low income housing developments. There are also different investment rules and credits available depending on which state you live in.
  
  For example, in South Carolina, the South Carolina Community Development Tax Credit program provides up to a 50% credit against state tax liabilities to businesses, corporations, insurance companies, financial institutions, and individual donors for each dollar invested or donated to a certified Community Development Corporation (CDC) or Community Development Financial Institution (CDFI), like Midlands Housing Trust Fund (MHTF). Further, a contribution to a CDC or CDFI can be structured as a donation or an investment, depending on what best suits a donors circumstances. This tax credit is available in addition to the standard federal tax deductions for charitable donations. As a result, supporting MHTF’s mission to create, preserve, and revitalize affordable housing options in South Carolina can be both socially responsible and financially advantageous.
  
  

• Affordable housing investments can help banks meet CRA requirements. The Community Reinvestment Act (CRA) is the equivalent of good karma for banks. Under the CRA, banks are given a score based on the degree to which they work to meet the credit needs of their communities. This score is then taken into consideration when the bank in question applies for mergers, acquisitions, and branch openings.
  
  “All community members, regardless of influence, should promote and advocate for the advancement of affordable housing. The success of this industry is the success of the community as a whole. Particularly, commercial banks that are charged with offering financial opportunity to businesses and organizations, should prioritize the creation of affordable housing so the labor force has a safe and healthy place to live.  It is also a critical element to the Community Reinvestment Act, federal law put in place to ensure banks support its community members at all levels,” said Peyton Bryant, former commercial banker and Midlands Housing Trust Fund Board Member.

If your bank is looking for ways to meet its CRA requirements, look no further than affordable housing investments.

• Investing in affordable housing strengthens the whole community. The best part about investing in affordable housing is that it allows banks to build up their communities—which, in turn, can potentially have a positive impact on their business down the line.
  
  We’ve written in the past about how everyone wins when you invest in affordable housing, so we won’t belabor the point too much here. But suffice to say, new affordable housing developments are good for tenants, good for business, and good for the broader community. And where will those tenants, business owners, and community members go when they’ve got a little extra cash they want to invest or put in savings? To their friendly neighborhood banker, of course.
  
  

• Affordable housing investments build social credit. Banks, like any other organization or company, need to be conscious of their public image. Investing in affordable housing is an excellent opportunity to signal to the wider world that your business takes its social responsibility seriously. In essence, it shows the community that your organization is willing to invest in worthy causes like reducing homelessness, promoting social equity, and improving living standards.
  
  This sort of trust and social capital is invaluable, particularly in the modern day and age when consumers tend to be inherently wary of the intentions of business entities. 

Interested in learning more about the benefits of investing in affordable housing? We can help! Midlands Housing Trust Fund (MHTF) is dedicated to improving South Carolina communities by expanding access to quality affordable housing. We provide a variety of loan products to housing developers and contractors for the purpose of creating, rehabilitating, and maintaining affordable housing for households earning less than 80% of the Area Median Income. Thanks to flexible lending limits and competitive loan rates, MHTF’s business model presents an attractive alternative to conventional retail banking. Since 2012, we are proud to have provided more than $3 million in affordable housing financing, thereby creating or preserving 512 housing units and improving the lives of over 1,200 individuals. 

Contact us today for more information about how MHTF can serve your community, or consider investing in our work.