Did You Know Affordable Housing Bonds Are in Your Portfolio?

Real estate is an asset class that generally appreciates in value and offers owners the ability to leverage equity for additional capital. Even with the risk of tying up money in an immovable asset and the maintenance costs associated with it, home ownership is still one of the primary wealth-building tools for Americans. There is security in having control over your living space.

However, over the last several decades affordability in residential housing has become problematic.
Apart from the housing bubble crisis of 2007 that led to the Great Recession of 2008, real estate’s rate of appreciation has outpaced wage growth, and Americans have been struggling with high inflation in key areas such as education, healthcare, and childcare.

Many economists worry that America is veering toward rentier capitalism, a concept where most of the property will be rented out by a concentrated number of landlords. Rentier capitalism is often criticized for breeding economic inequality and instability.

A healthy society requires an affordable housing market—yet affordability is worse than ever before. The average 30-year fixed mortgage rate in 2024 remains well over 6 percent amid rising home values. Monthly mortgage payments are back on the rise, with the median payment in January climbing to $2,671, up from $2,361 in December 2023, according to Redfin.


The concept has varied in history, but modern interpretation has settled on housing costs accounting for no more than 30 percent of income. In response, the U.S. government has home loan programs to subsidize lower income mortgage seekers. These federal agency housing loans, in turn, can be packaged into bonds and purchased by investors in the public markets.

“Institutional investors can target their dollars to support low-income renters looking to purchase their first home.”

Natural Investments has identified several mutual funds and ETFs in the market with federal housing agency bonds as the fund’s main investment strategy. This has been attractive as it allows our clients to support affordable housing with the credit worthiness of a government-backed security that is not tied up in U.S. Treasury Bills.

As a note, many clients have ethical qualms about purchasing U.S. Treasuries because more than half the federal budget goes straight to the Pentagon, which means giving a blank check to fund the military industrial complex through an institution that failed six consecutive audits.

For these reasons, virtually all Natural Investments clients have some exposure to affordable housing bonds in their portfolio. One of these fund companies, Community Capital Management (CCM) has operated in the affordable housing investment space for more than 25 years.

The company manages the Community Impact Bond Fund (CRAIX/CRANX) as well as Affordable Housing MBS ETF (OWNS). Recently, CCM announced a new First-Time Home Buyers Initiative program available in the CRANX fund. Institutional investors can target their dollars to support low-income renters looking to purchase their first home. The program will track:

  • Number of first-time homebuyers assisted
  • Total investment dollars deployed
  • Geographic reach (areas or communities served)
  • Amount of down payment assistance provided
  • Number of individuals and families who purchased their first homes through the program
  • Economic benefits, such as increased home equity, for program participants
  • Community-level outcomes, such as revitalization or improved economic conditions in targeted areas

In the press release, CEO and President Alyssa Greenspan, CFA®, stated, “Our clients are acutely aware of the challenges faced by first-time homebuyers, and CCM is excited to launch this new effort. In addition to wealth creation, homeownership offers savings, stability, and tax benefits.”

This refers to the new challenges in the housing market after the Federal Reserve’s steep rate hikes between 2022-2023. Demand for new mortgages has fallen because so few can afford the higher rates. Yet, paradoxically, this has caused housing prices to climb even faster. Why? The supply of homes available for sale has shrunk as current owners are reluctant to sell when they have low interest loans on their current properties. Upgrading to a new home would mean also taking on a more expensive mortgage; thus, a short supply in a high demand environment causes housing prices to rise.

The First-Time Home Buyers Initiative is a way to provide subsidized capital to first-time homeowners facing financial barriers to entry, while waiting for economic conditions to cool down enough for the Federal Reserve to drop rates again. Ultimately, funding government subsidized loans will not be enough to overcome the current problems faced in the housing industry. The policies that created the crisis won’t be the ones to solve it.

The good news: there are some creative solutions emerging in affordable housing strategies with a focus on building a true ownership economy. Check out the Green Money and Forbes articles featured in this issue’s In the News.

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