Austin Housing Conservancy illustration

New research shows that rentals for middle-income earners have a better return on investment than luxury rentals.

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report found new information that might be of interest to Dallas developers and investors, as well as city leaders eager to solve our affordable housing shortage (watch for an October Lake Highlands Advocate magazine story on the topic).

The “trailblazing” study by Affordable Central Texas and the Wells Fargo Foundation refutes what it calls the “misconception” that rental apartments priced for the middle-income workforce—such as teachers, nurses, and first responders—have a lower return on investment than apartments with higher rent levels.

The study, according to the authors, paves the way for moderate-income rental housing to be a competitive and socially responsible investment.

The report defines a new asset class as Moderate-Income Rental Housing (MIRH), or large, multifamily rental properties occupied by tenants earning between 60% and 120% of the area median income (AMI) with at least half the residents earning less than 80% of AMI.

Analyzing data since 2011, the report demonstrates MIRH assets outperformed rental properties with higher rents, averaged an unleveraged return of 9.4%, and had the lowest risk, 2.6% spread when compared to other real estate asset classes.

“Demand for affordable rental housing for moderate-income households is surging as homeownership becomes unobtainable for many. At the same time, interest in Environmental, Social, and Governance investments is growing rapidly,” David Steinwedell, Affordable Central Texas’ CEO and president says. “We can’t afford to lose the people who power our communities, and we have a market solution to a market problem. MIRH delivers consistent, predictable returns and makes a real difference in the lives of our neighbors.”

In 2021, environmental, social, and governance (ESG) funds accounted for 10% of worldwide fund assets. (According to a new report by Bloomberg Intelligence, global ESG assets may surpass $41 trillion by 2022 and $50 trillion by 2025.

The report drew on data from the National Council of Real Estate Investment Fiduciaries Property Index and analyzed eight metropolitan areas including Dallas (Atlanta, Austin, Denver, Houston, Phoenix, Seattle, and Washington, DC, too) from first quarter of 2011 to the second quarter of 2021. (The nation’s three largest metros, New York, Los Angeles, and Chicago, lacked enough MIRH assets to allow for analysis due to their well documented affordability challenges.)

The research was prepared by Mark G. Roberts, Director of Research at the Folsom Institute for Real Estate at Southern Methodist University Cox School of Business, and Jake Wegmann, Associate Professor at the Community & Regional Planning Program at the University of Texas at Austin School of Architecture.

You can download the full report here.