ESG Investing: Moderate-Income Rental Housing as a Viable Real Estate Asset Class

Abstract

The authors propose a new real estate investment class, moderate income rental housing (MIRH). Drawing on multifamily total return performance data from the National Council of Real Estate Fiduciaries (NCREIF), they classify multifamily properties as MIRH or above-MIRH according to whether they offer housing costs affordable to tenants earning less than 80% of median income. MIRH assets are found to offer comparable and favorable return and risk characteristics relative to above-MIRH assets and other investment alternatives. This basic finding is robust nationally, across 11 metros that provide sufficient data coverage, and across three vintage-year cohorts beginning in 2005, 2010, and 2015. Counterintuitively, MIRH assets typically exhibit slightly lower occupancy levels but higher capital expenditures and higher earnings yields over the analysis period (2005 to 2021). A new MIRH asset class aligns with rising interest in ESG investment, as it has posted compelling performance metrics while also providing an affordable rent.