It’s well-known that there is a demand for affordable housing in Europe.
As countries get a better understanding of the economic impacts of the pandemic, policies surrounding those eligible for social housing is expected to change. It will also mean there is likely going to be a demand for more accommodation to get built, particularly in metropolitan areas. The problem though is in the current supply of affordable housing options.
The simple solution is to build more properties. Unfortunately, this isn’t possible without more developers contributing to the cause. But what are the risks of investing in affordable housing solutions? Are you more likely to lose money on these types of initiatives?
If you’re a developer who’s on the fence as to whether investing in affordable solutions is a good idea or not, take a look at this guide to get all your questions answered.
What is Considered Affordable Housing?
There are generally three categories when it comes to affordable housing.
The first is social rented housing. These properties can be owned by local authorities, private providers, or other individuals. It must meet the requirements under the appropriate rental arrangements.
Next is affordable rented housing. Instead of owning these properties, they are let by authorities and providers of social housing. There are rent controls in place that require the amount to be no higher than 80% of the current local market.
Finally, there is intermediate housing. This includes accommodation for sale and rent at a cost that can be above social rent amounts but below market levels. It can consist of shared equity, low-cost houses for sale or rent as long as it doesn’t fall under the category of affordable rented housing.
What are the Benefits of Affordable Housing for Developers?
There is relatively low risk from a developer’s perspective when it comes to investing in affordable housing. One of the key reasons is that these properties are often in the metropolitan area. That means you and your tenants will have access to a thriving infrastructure that gets upgraded at a speedy rate.
You can also expect a fixed monthly rental income relatively quickly. As these properties are in high demand, it won’t take long for someone to take up residence. If they happen to move out at any point, it won’t be long before someone else moves in. You also don’t need to search for tenants. They often come to you.
You’re not competing with any luxury premium projects either. The costs for these types of projects can quickly get out of control and also limit your potential market segment. Due to the demand, you’re more likely to get a higher resale value on an affordable housing property than a premium home.
Perhaps the most crucial benefit is that many affordable housing projects are choosing to investigate greener solutions for the properties that get built. This is not only great for the environment but also an opportunity to develop low-cost innovative solutions that make a difference in more ways than one.
What are the Disadvantages of Affordable Housing for Developers?
There can be some disadvantages for developers to be aware of. However, some of these can be easily avoided.
For example, the location of affordable housing properties can sometimes be located in high-crime areas. It’s essential to investigate the spot you’re looking to build to ensure it’s a safe place and not at risk of damage or vandalism.
There can sometimes be some significant costs involved during the building stage. Some of these can get subsidised through government initiatives, but it’s not always guaranteed. For example, if you’re developing affordable housing for the disabled, then there are specific requirements that must be met. It may come at a significant cost too.
While government subsidies might sound like an incentive to get involved with affordable housing, they can be known to be challenging to obtain. In some countries, there is significant paperwork required to be eligible for funding that can end up delaying work commencing. Fortunately, government departments are trying to resolve this issue. For example, a Growth and Infrastructure Act was introduced in the UK in 2013 to reduce the bureaucracy surrounding the development of affordable housing. Even though this is a good step in the right direction, there is still more that can be done to encourage more developers to consider building accommodation for vulnerable individuals.
How Can Developers Contribute to the Discussion on Affordable Housing?
While there are pros and cons for developers when it comes to affordable housing, you still have a voice and can make a contribution to the conversation. One of the results of the pandemic is that more people are now in need of social accommodation due to job losses or reduction in paid hours. The younger generation has been impacted the most, especially those who are part of the hospitality industry.
It’s just one of the topics that will be discussed at the Europe Housing Forum. Key decision-makers and stakeholders will join together to collaborate on how to build a sustainable future for all. Also on the agenda is how proper housing solutions can get prioritised on the agenda for Europe.
Do you want your voice to be heard on this subject? Register for the Europe Housing Forum to share your ideas and connect with your peers.