As the need for affordable housing continues to climb, a number of investors are looking for profitable ways to participate in this sector. While there are a variety of ways to provide affordable housing and profit as a big or small investor, mixed-income housing could be a big opportunity for investors.
Why mixed-income communities?
Our current housing policies are built on the backbone of racially biased laws that for the most part have kept our country and neighborhoods segregated. Low-income housing is concentrated in high-poverty areas, which often lack resources and have high crime and blighted housing opportunities. On the contrary, middle-income and high-income earners have access to higher-quality housing and amenities, including schools, businesses, and public spaces.
Mixed-income housing attempts to dismantle this natural segregation by providing rental housing to both low- and moderate-income families in geographically diverse areas. This not only bridges the social gap by creating more diverse neighborhoods that serve a wide variety of incomes, races, and classes but also helps lift up low-income earners, allowing them access to different schools, as well as amenities such as parks, grocery stores, or businesses that most don't have access to in low-income neighborhoods. A study conducted on public housing by Thomas Boston, a Georgia Tech economics professor, found that each new mixed-income community provides on average a $123 million net benefit to society.
How mixed-income communities work
In a mixed-income community, some units are rented to low-income earners at a discounted rate, using subsidies or other incentives for the low-income housing units, while the remainder of the units are rented at market rents, which helps increase revenues and offset certain holding costs related to the property.
Mixed-income housing still offers many of the amenities that appeal to market-rate tenants, such as modern living units, pools, gym facilities, or communal outdoor areas, but may also offer additional services to better serve lower-income residents, such as social service coordinators, healthcare facilities, or on-site childcare.
Challenges of mixed-income communities
Bridging the social differences between mixed-income classes can be challenging. There are often different social norms and expectations, which can make it difficult to establish rules and regulations for the community that feel inclusive and nonrestrictive to all residents. Imposing rules that limit where residents can congregate (for example, on their front porch or backyard), noise ordinance hours, or restricting exterior decor can feel especially limiting to low-income residents.
Additionally, the type of businesses and establishments provided in the immediate area, especially if the community has retail establishments as a part of the community, can cause dispute. Residents should have access to both high-end and economical grocery stores, restaurants, retail shops, and public transportation.
Landlords have to tread the line of offering a balanced number of subsidized units as they relate to market rent and still appeal to market-rent tenants, all while determining the best way to advertise and market their community to all residents. Widely advertising the use of subsidies can create a stigma amongst residents, which creates its own natural segregation. For this reason, most mixed-income communities don't actively market the fact they offer subsidized units so as not to deter tenants from wanting to rent there. Tenants instead find this information out after moving in. Creating an inclusionary community relies heavily on active management to help create the right environment for all residents to thrive.
The Millionacres bottom line
Mixed-income housing isn't the only solution to the affordable housing crisis; it's merely one option for investors to consider. The system still relies on private investors participating in public housing through the housing voucher program and public housing. There are far more low-income renters in need of affordable housing than market-rent tenants who need housing, meaning mixed-income housing will never be able to fully support the demand or replace the supply public housing projects currently provide.
That being said, a well-thought-out and carefully designed mixed-income housing community can potentially reduce class-based stigma, promote resident engagement, and help improve the quality of life for low-income residents while still providing a positive return for the investor. But a poorly designed and executed project can do the opposite. It's important for investors who decide to participate in a mixed-income community to understand the needs of all residents in order to provide a diverse number of amenities and neighboring establishments that set the community up for long-term success.