Today, the affordable housing industry is considered a challenging section in real estate. One factor that adds to this issue is the housing market. While the conventional renters will focus on the credit scores, financial situations, and various other factors, most of the affordable housing renters can’t retain the same standard. And when it comes to the low-income housing units, several tenants have previous evictions and poor credit as a record says Maxwell Drever.
The Census Bureau data suggests that close to 28% of the families are not on the mortgage or rent and foreclosures or evictions in the forthcoming months. That aside, other crucial news resources reported that even a little debt can result in poor tenants getting evicted when it comes to public housing. And there are times when an unexpected debt can result in a snowball effect, especially for the low-income tenants that have the challenge to stay current with their respective bills.
The cap rate and the changes in the current price
Every market has its cycles. And this is also true for the real estate market says Maxwell Drever. Currently, most researchers have found that the Class C and D properties. Which is usually the low-income and affordable housing units are getting sold at a cap rate between 5 and 6. And that has made many people think about. Whether the United States is moving on the path of the new-housing bubble! Today, the price for median homes has increased to 20% over the years, insinuating the bubble base. The fund’s availability and the reduced interest rates on the loans are some of the essential drivers. Which led to the housing costs increase.
The primary issue is that the industry cap rate is changing, indicating business risk. Low-income housing comprises an increased risk of property upkeep, cash flow, taxes, securities, materials, and maintenance where the 6% cap rate is unacceptable. The other contributing factor for this bubble is that the emerging players are making their presence felt in the market. For instance, big insurance funds and pensions looking for new investments. Start investing money and funding on the Class C and D properties that possess increased returns. Other than the conventional investments, placing the overall system at a risk.
However, before the pandemic outbreak, the affordable housing investors had managed their property all by themselves. They have also micro-managed their management organization. Today, the management organizations are the vast winners, thereby maximizing their portfolio from the investors. Who have fast access to the funds and do not have access to the risk of affordable housing. For instance, before the pandemic outbreak, there were over 20 multifamily properties available for sale in Memphis. And in 2021, there wasn’t a single property left as the management organizations had acquired the clients. All these aspects according to Maxwell Drever, result in new challenges and hassles to a market that is already facing a housing crisis risk.