Leveraging Private Capital for Affordable Housing


A recent report from the UBC Sauder Centre for Social Innovation & Impact Investing (Sauder S3i) looks at how impact investing can be used to tackle the issue. In this Q&A, Dr. James Tansey, the executive director of Sauder S3i and co-author of the report, explains the findings. 


What is impact investing? 

Impact investing is the act of making investments with the intention of creating societal impact while simultaneously earning a financial return. Impact investing is becoming an increasingly prominent tool in tackling global issues, and housing is not an exception.

How can impact investments be used to tackle housing affordability? 

Using evidence from other cities in Denmark, Austria, Scotland, and the US, we looked at how Real Estate Investment Trusts (REITs) can be used towards increasing the supply of affordable housing. REITs – which bundle real estate properties and subsequently offer shares to investors through rental or mortgage income – have been used in the USA and the UK to boost the supply of affordable housing properties instead. 

Additionally, new forms of investment vehicles like Vancouver’s New Market Funds are also a viable solution. By combining both private and charitable capital, New Market Funds (NMF) Rental Housing Fund provided approximately 9% of the $120 million combined value of four initial projects through post-construction equity. NMF’s equity is maintained for eight years to allow for co-op or non-profit owners to build their equity stake and buy out NMF.

What are some possible steps that cities tackling this issue can take? 

A barrier to implementing these recommendations is funding. Luckily, there have been a number of creative approaches to raising money for impact investment, like leveraging dormant bank accounts. The UK developed an innovative idea of using some of the unclaimed funds in inactive bank accounts to advance social goals. They were able to transfer £400 million to Big Society Capital, a separate financial institution which invested in affordable housing development in the UK. 

Additionally, financial innovation must also be supported with legislative support, such as the development of hybrid corporation structures that place equal weight on societal benefit and financial profit. For example, the UK developed the Community Interest Company and BC has implemented the Community Contribution Company. These organizations are mandated to provide benefits to the communities they serve, but do not have the same preferential tax treatment as charitable organizations. 

    

PIIN Insights

Read the full report

This report is part of the PIIN Insights Series: a series of reports focused on the role of private capital in various societal and environmental issues. The research is commissioned by members of the Pacific Impact Investor Network, a collaborative network of impact investors - individuals, family offices, foundations, and financial institutions in Canada.

This report is co-authored by Steven Petterson, McKenzie Rainey, Bruno Lam, and Dr. James Tansey.