Building belonging

Opinion: Does the housing affordability crisis offer an investment opportunity

Hello and welcome to "No Monkey Business."

You're right. There is an affordability crisis in housing. In Britain, young adults are facing a combination of weak wage growth, job insecurity, and unaffordable housing. Dissatisfaction with the availability of affordable housing is not only an issue in Britain, but also in other countries. Stock markets are booming but many people are not sharing in this wave. Sustainable economic prosperity requires employment stability and income equality.

Now comes the hard part. With stretched housing affordability, is there an opportunity for institutional and professional investors to help provide residential housing across a wide spectrum (from affordable housing and student accommodation through to senior living); both in Britain and elsewhere?

We know that affordable and safe housing improves standard of living of families.? Housing is a precursor to enabling people access to employment opportunities, education, good nutrition and healthcare – and to improving the social and economic vitality of communities. In short, real estate will be critical to achieving greater social equality.

This time, let me spotlight Jay Oberai , Founder and CEO of Swiss-headquartered Synergy Asset Management SA. Our conversation dives into practical strategies for solving the issue of housing affordability.

Impact of Urbanisation

“What is a home?” asks Jay, before addressing his question with a personal flourish:? “A home is about people.? Home is where housing and belonging come together." For many of us, a house provides a centre for an individual and a basis for family life; emerging as an important symbol of social standing and aspiration.

You may recall Marlow’s famous hierarchy of needs where after fulfilling our most basic need for physical survival and the next level of security and safety need, we have a need for love and belongingness.? As Matthew Desmond eloquently wrote in his 2017 Pulitzer Prize winning book, Evicted: Poverty and Profit in the American City: “…without stable shelter, everything else falls apart.”

In 2008, 50% of the global population lived in urban areas, whereas it’s predicted that by 2050 the figure will be more like 80%. Despite the rise of cities, along with it comes a number of unintended consequences, including rising house prices, affordable housing shortages and inflexible housing stock. Due to growing urbanisation and worldwide development, the demand for dwellings that are accessible to those in society who earn less than the average household income has increased.

Affordable Housing Finance

Interestingly, real estate investors can directly contribute to an increase of affordable housing. Private capital from real estate investors can be a force for positive change; an asset class that can deliver measurable social outcome in addition to attractive financial returns (so-called Impact Investing).? Today, many real estate investors are committed to quality and affordable (social) housing in developed markets.? For example, the recent Patrizia Sustainable Communities strategy offers an option to commit capital to social and affordable housing projects across Europe.

Impact investing is gaining momentum with smart real estate investors looking further afield to diversifying their portfolios. Jay is adamant that the benefits of investing in affordable housing in developing markets, such as India, cannot be overlooked.?

Housing Demand in Urban India

Jay is the right person to talk about India being of Swiss-Indian heritage. He has seen India’s economy growing rapidly in recent years, aided by meaningful structural reforms introduced by Narendra Modi’s ruling Hindu nationalist BJP government and significant infrastructure investment. Its long-term growth path will be powered by a fast-growing young population and rapidly expanding middle class. India's real estate market will be pivotal in the country's determined journey to become the next great economic power. There have been many positive steps, including various government initiatives to promote affordable housing.

As India continues to urbanise, solving the affordable housing crisis will ensure continued growth and social stability. Indians, like us in Europe, have aspirations for affordable, safe and secure accommodation.

An Economic Opportunity

As I listen to Jay, I sense his excitement with India’s rapid urbanisation and concentration of population in urban areas.? As per recent Census of India, around 31% of the Indian population (380 million) live in urban areas.? Yet, Jay sounds a note of caution.? It is apparent that substantial housing shortage looms large in urban India.? There is a wide gap exists between the demand and supply of affordable housing, both in terms of quantity and quality.? He states that India’s urban housing shortage is estimated at nearly 18 million households.?

Traditionally, the big developers in India have focused on the high-end and upper-middle segments of the housing market as those fetched high margins.? He explains that the Economically Weaker Sections (EWS) and Low-Income Group (LIG) together accounts for around 96% of the total urban housing shortage.? To address the significant affordable housing shortage, the current urban housing policy and supportive measures have taken steps both on the demand and supply side to improve home ownership.? For instance, the Government of India initiated the Interest Subsidy scheme for home buyers from the EWS/LIG segments.? Cheaper debt and external commercial borrowing? are important steps in addressing India’s urban housing crisis.

Positive Social Impact with attractive Financial Returns

Let me defer to Jay’s local knowledge on the best way for an investor to participate in this space.? Having the experience and contacts to select the right location, design of dwelling units, improved technology and modularity to achieve scale and a profitable proposition in affordable housing seems important.? He and his real estate team seek locations where the residents from the EWS and LIG group get maximum access to labor market in poly-centric Indian cities, as well as the sustainable social infrastructure and transportation network.?

There's no doubt that institutional investors are aware of their significant role in funding comprehensive affordable housing solutions in developed and developing countries.? Urbanisation marches on and demand for residential housing is only going to get stronger. Investors may benefit from diversification into different residential housing sectors and geographies. For some investors, I've observed, affordable housing in India is consider a financially viable impact investing proposition, but remains daunting for the majority. Maybe it is the right time for some broader thinking on the social objective of your real estate portfolio.

Until next time,

Christian (Chris) Elsmark

This article was first published on the leading event discovery platform for professional investors (www.assetcircle.com ).

Profile

At university, I studied economics and law. Early in my career, I was introduced to Behavioral Finance through Harvard University, which ignited my interest in the human element of these subjects. Life can easily be derailed by misinformation, biases, and challenging individuals. Since human behaviour and expectations are constantly evolving, writing to "educate and inform" has helped me stay grounded and avoid unnecessary distractions. My hope is that it does the same for you.

Outside of work, I enjoy coaching youth football, mentoring students, skiing, running, traveling, and spending quality time with family, friends, and our black Labrador, Koda.

The views expressed herein do not constitute research, investment advice or trade recommendations - and are subject to revision over time.

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