The Federal Reserve Bank of New York has recently published a case study shedding light on pension fund investments in affordable apartments. Titled “Alternative Investments in Community Development: A Case Study of Pension Fund Investments in Multifamily Affordable Housing,” the study examined the investment patterns of seven pension funds over a five and a half-year period, ending in June 2023. The findings indicate a preference for preserving existing affordable housing over constructing new developments.
According to Jonathan Kivell, director of community investments at the New York Fed, "Because demand for affordable apartments outstrips the current supply, we are studying private investments in affordable housing, including investments by pension funds." Kivell highlighted the importance of maintaining affordability in the face of rising rents as affordability restrictions expire. He noted that stakeholders in affordable housing are leveraging public subsidies creatively to ensure continued affordability for low- and moderate-income individuals and families.
The study revealed that a significant portion of the capital committed to affordable housing investments by respondents went to closed-end funds rather than open-end funds. Closed-end funds, with a defined time horizon for property sales, have implications for the future affordability of a property, as affordability status could change under new ownership.
Key findings from the case study include that respondents committed an average of about $388 million for affordable housing investments between January 2018 and June 2023. Looking ahead, respondents anticipate committing an average of $178 million for affordable housing investments in the two-year period ending in June 2025. On average, affordable apartments represent about 4.4% of respondents' real estate portfolios, with respondents expecting this proportion to remain stable over the next two years.
The study, the second in a series focused on investments in affordable housing, aimed to address the lack of data on private capital investments in this sector. Kivell emphasized, "Our goal is to begin to fill in that gap."
The New York Fed's Community Development efforts, which encompass health, household financial well-being, and climate risk, underpinned the development of this case study.
