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What Keeps Investors Away from Affordable Workforce Housing- An Insight by Maxwell Drever

The housing shortage is a global crisis. The segment that suffers the most is the low and middle-income population. You can take an example of the US explains Maxwell Drever. The affordable housing sector faced the issue of undersupply even before the pandemic. COVID-19 changed everything by compelling countries to introduce stricter social norms to curb the infection rate. While stay-in-home orders became a mandate for everyone, a considerably large group of people felt crippled due to expensive rents and a lack of affordable options. Some had to move out of the city boundaries to survive. Since most of these people are wage earners and help societies run their daily lives smoothly, their absence created another difficulty level.

Although it is not a new problem, the growing demand and supply gap requires close attention to prevent severe damage to the national economy and check the issues of homelessness. Such scenarios can lead to more unfavorable conditions. Experts like Maxwell Drever believe that reforming existing unusable assets can be ideal. But investment is the primary concern. Investors face various challenges, and one has to show them the correct picture.

The funding challenges in the affordable workforce housing sector 

One common factor that prevents private investors from testing the waters is the ambiguity around affordable housing models. Some think they will get tax relief on their investment, and property market rates will be lower. However, you must know that the focus is on affordable workforce housing that serves people earning 60% to 120% of the area’s median income. It can give institutional investors a better understanding of this real estate market. Still, developers and other agencies have to communicate this to them.

Another reason for their disinterest has been the frequent use of the terms like impact or social funding, emphasizing the non-financial aspect. Some investor communities don’t align with this. They want to have a proper balance between impact and returns. Whenever one of them gets more prominence, the scenario becomes lopsided. Also, the new construction costs tend to be higher for even these types of residential units. As a result, good returns can be out of reach. According to Maxwell Drever, it is where hotel reformation comes into play. Transforming closed or old hotels into affordable homes for the workforce will not be expensive as most structures will be in place. A few modifications and the local body’s permission can ensure quicker completion. 

Is hotel conversion a good idea?

Investors want to contribute to society, but they cannot detach financial aspects. The main challenge for these projects is the land, development cost, and others. For this, one needs increased funding amount. However, projects like hotels can be easy to manage, and the speed with which they complete can be another fascinating aspect. Even if rents are much below the market rate, you don’t have to doubt that these would be primarily long-term leases. Vacancy rates could also be lower.

Essentially, convincing investors of the brighter side and informing them about the favorable government policies can be the key to getting their attention here. In this, arrangements around the smooth project delivery can also be interesting for them.

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