Housing affordability in Canada has deteriorated over the past two decades. Home prices and rent increases outpaced income growth, with renter households spending the largest proportions of their income on housing.
Declining housing affordability is a driver of inequality, impacting levels of disposable income, aggregate productivity growth and savings, and overall well-being – all indicators that are of interest to long-term investors.
There are other reasons why housing affordability matters to investors. Some are related to risk management: Public debates surround the participation of institutional investors in the housing market — particularly where investment strategies are perceived to conflict with the goal of ensuring affordable housing. In this context, investors may face challenges such as strained tenant or community relationships, public criticism or calls for policy and regulatory changes.
Other reasons are related to commitments that investors have made to advance the Sustainable Development Goals (SDGs) or uphold commitments to human rights, including the right to adequate housing.
Filling a gap: Social factors often overlooked in real-estate portfolio risk analysis
Institutional investors incorporate environmental, social and governance (ESG) considerations into their investment decision-making across asset classes to better manage risk and generate sustainable long-term returns.
There is a body of frameworks, tools and resources to support institutional investors in incorporating climate considerations into their residential real estate investments, but fewer tools that offer guidance on social factors. Understanding and assessing housing affordability is a starting point for investors seeking to contribute positively to Sustainable Development Goals (SDGs), support stable returns and manage risks.
Practical metrics to measure potential risk
SHARE is pleased to offer “Investors for Affordable Cities: Responsible Investment in Housing Disclosure Framework.” This framework supports investors that are seeking to better understand and address housing affordability in their portfolios.
Using a series of core disclosures, the framework breaks down considerations that investors can monitor in their residential real-estate portfolios, such as rent affordability compared to median income categories, annual rent increases, maintenance considerations and evictions.
It can be used by asset owners to encourage disclosure on affordability by asset managers, portfolio companies such as Real Estate Investment Trusts (REITs), and/or building operators in public and private markets.
As housing affordability continues to remain top-of-mind for the Canadian public and policymakers, investors can take steps to ensure they are ahead of the curve when it comes to managing social risks in their portfolios.
