Impact Investing/Social Sector Finance – Housing

Housing

What are the key issues and challenges related to access to affordable housing in the world, and why do they matter?

In both developed and developing countries, many economically active people lack access to affordable housing solutions. As more people migrate from rural to urban areas, this urban housing shortage becomes increasingly acute. The challenges faced include not only insufficient supply of housing units and construction, but also inadequate housing finance, cost-effective and energy-efficient construction technologies, and (especially in the developing world) lack of land title and/or related property rights.

To put the issue in historical context, 2008 marked the first time in history that more than 50% of all people live in urban areas; this figure is expected to increase to more than 70% by 2030. When the rate of urbanization is coupled with overall population growth, the results are staggering. For example, in 1950, 30% of a total population of 2.5 billion (or 850 million people) lived in urban areas; by 2030 the projected global population will be 9.5 billion people, 70% of whom (or 6.5 billion people) will live in urban areas. That reflects a nine-fold increase in less than a century, and the global housing market–especially in marginalized urban areas and urban slums–has not kept pace.

Access to appropriate mortgage financing is often difficult for economically active poor people to secure, due to the fact that it typically requires larger amounts and longer terms. In addition, the larger financing amounts means that the informal financial sector (which often plays a key role in developing country economies) typically is unable to get involved. Therefore, there is unmet demand for "micro"-mortgage financing for both new housing construction and improvement of existing housing.

What can be done about it?

There are many possible avenues to meet the housing needs of the world’s growing population. They mainly focus on real estate development, housing finance innovation, and construction technologies. Private and public sector stakeholders alike should focus on partnerships with construction companies to develop high-quality affordable housing, as well as partnerships with banks, employers, local financial institutions and government agencies to provide mortgage products tailored to people living in urban communities. Investment in this type of longer-term asset creation requires a deep understanding of the realities of urbanization, and provides great social returns over time.

In addition to private sector investment and public-private partnerships, governments have a key role to play in ensuring a legal and regulatory regime that appropriately acknowledges and ensures property rights. Governments and public sector agencies can also get positively involved by offering tax breaks and other incentives for organizations to develop and promote lower-income housing solutions.

How does Orrick get involved?

Orrick advises clients on transactions that bring innovative financing options to cities in the developing and developed world to increase the breadth of scalable, affordable housing solutions for marginalized communities. We also advise clients developing energy-efficient materials and cost-effective construction techniques. ​

  • Engagements

    Mercy Corps Northwest

    A public finance team is assisting Mercy Corps Northwest (MCNW) with an investment program to help its mission to provide essential services, combat poverty and build communities in the Pacific Northwest. Currently, MCNW, in partnership with Willamette University, among other community partners, is developing a community-led model for a REIT (Real Estate Investment Trust) investment option in the Lents neighborhood in Southeast Portland. As currently conceived, the REIT will provide renters with the opportunity to make investments that will provide them asset-equity value gain over time in their own neighborhoods. MCNW is uniquely positioned to develop, promote and implement a REIT and similar programs. The Orrick team will assist MCNW in the development of the REIT program by providing advice and reviewing and preparing program, loan and other documents related to REIT programs, including initially advice on compliance with applicable federal and state laws to permit interests in the REIT to be offered to targeted investors.

    Living Cities

    Orrick advised Living Cities, Inc. in connection with an $80 million debt financing transaction that will provide funding to five major U.S. cities as part of Living Cities' Integration Initiative, which focuses on innovation to address systemic issues related to affordable housing. The five cities—Baltimore, Cleveland, Detroit, Minneapolis-St. Paul and Newark— submitted proposals for grant and loan funding to tackle their cities’ respective municipal problems.