Pension Funds Are Tapping Affordable Housing for High Returns — Not the Social Benefits

When most of the new apartments are sold, new buyers could drop affordability restrictions or convert the properties to market rate rents, the FRBNY said.


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While affordable multi-family housing has become a key part of some pension funds’ real estate allocations, most of these funds are selecting investments that don’t have long term affordability in mind.

This is according to new research from the Federal Reserve Bank of New York. The FRBNY has embarked on a research project to explore investments by institutions, specifically state pension plans, in multifamily housing. This is the second in a series of papers on the subject. The first, “Alternative Investments in Community Development: A Case Study of Managers of Multifamily Affordable Housing Private Investment Vehicles,” focused on managers’ sources of capital for affordable apartments and and how they deployed it.

“There’s a lack of data about private capital investments in affordable housing,” said Jonathan Kivell, director of community investments at the New York Fed in a statement. “Our goal is to begin to fill in that gap.”

The sample size is small: seven pension plans that made 25 investments over the five-year period ending June 2023. But even with a small sample size, New York’s Federal Reserve Bank was able to get a relatively detailed picture of how pension funds think about the sector.

Investor demand for affordable housing, particularly since inflation has started to rise, is at a fever pitch. Meanwhile, other areas of the real estate market, like commercial office space, have fallen out of favor among investors.

According to one statistic from CBRE and cited by the New York Fed in the paper, the value of investments in affordable multifamily housing has increased from about $75 billion in 2011 to $365 billion in 2022.


The pension funds surveyed committed about $388 million on average to affordable multifamily housing over the past five years. They expect to commit about $178 million on average before June 2025. The FRBNY defines affordable housing as buildings that serve households earning up to 120 percent of the median income in the area. By way of example: A two-person household in New York can earn up to $135,000 annually to be considered for affordable housing.

Within the respondents’ portfolios, multifamily affordable housing made up an average of 4.4 percent of their real estate allocation. The funds expect this level to remain the same over the next two years. Most of the capital was deployed in New York, California, and Florida.

But it’s also important to note how the investors are accessing affordable housing investments. Almost all of them are tapping closed-end investment vehicles, rather than real estate investment trusts, the New York Fed found.

According to the New York Fed, closed-end fund exits have different implications for whether a property remains affordable. “A new buyer of a property may be able to maintain or extend existing affordability restrictions, change the area median income targets served by the units, or convert the property to market rate,” the paper said.

The largest category of investment by pension funds was designed for people in the top quartile of area median income — between 101 and 120 percent. On average, this quartile made up 30 percent of the respondents’ affordable housing portfolio. Meanwhile, 27 percent of their portfolios were available to renters making up to 60 percent of the area’s median income.

“Because demand for affordable apartments outstrips the current supply, we are studying private investments in affordable housing, including investments by pension funds,” said Kivell. “A growing number of affordable apartments may be at risk of higher rents as affordability restrictions expire. We’re seeing affordable housing developers, owners, and investors creatively leverage public subsidies to keep rents affordable for low- and moderate-income individuals and families.”