Naturally occurring affordable housing is a designation applied to residential properties that are able to maintain low, affordable rents without the aid of federal subsidy. Affordable housing is a necessary housing market throughout the US, and an essential ingredient in the economy’s health. Affordable housing is shown to attract and retain employees in a community, to the point where it is actually used as a selling point and a competitive advantage for local employers. Affordable homes allow the local workforce to live closer to their jobs which leads to shorter commutes. This then allows workers to spend more time with their families in addition to benefiting the community by reducing traffic congestion, air pollution, and expenditures on road maintenance.

Because Naturally occurring affordable housing by nature doesn’t have the benefit of federal subsidy behind it, many organizations (a good number of them operating as non-profit) have been established with the goal of preserving these affordable units so that they remain maintained and available. Some of these organizations focus on opportunity areas, where affordable housing is needed in close proximity to education, services, employment, and public transportation. In revitalizing communities, the availability of affordable homes is a contributing factor in helping to stimulate economic growth.

Naturally occurring affordable housing (NOAH) is an important part of the housing market in the US. It provides a number of benefits to communities, including attracting and retaining employees, reducing traffic congestion, air pollution, and expenditures on road maintenance, and stimulating economic growth. Additionally, organizations have been established to preserve these affordable units so that they remain maintained and available. These organizations often focus on opportunity areas, where affordable housing is needed in close proximity to education, services, employment, and public transportation.

The social impact of quality affordable housing on a neighborhood or city is also significant. Increased availability of affordable housing can lead to increased consumer spending, improved job growth, and reduced evictions. All of these benefits make affordable housing a good investment option.

The main challenge of naturally occurring affordable housing is that it is not subsidized by the government, so it is not protected from market forces. This means that rents can increase quickly, and the units can be lost to gentrification or redevelopment. Additionally, these units may not be up to code, and may require significant investment to bring them up to standard. This can be a challenge for owners and investors, as the cost of renovations may be too high to make the investment worthwhile.

Source: apartment.loans/posts/naturally-occurring-affordable-housing

Apartment owners can take advantage of naturally occurring affordable housing by utilizing lower-cost financing options insured by HUD, such as the HUD 223(f) loan. This loan offers borrowers significantly higher leverage and lower-interest loans. Additionally, investors and developers can often utilize an array of tax credit options, including the Low-Income Housing Tax Credit program (LIHTC). This program provides incentives for developers to create and maintain affordable housing.

For owners of Section 8 housing, the Department of Housing and Urban Development agrees to cover any difference between a contracted, subsidized rental rate and what a resident can pay through the use of HAP contracts. This essentially means that, even should a resident become unemployed, the government will pick up the tab in ensuring rent is paid.

Sources:

• Top 5 Reasons to Invest in Affordable Housing
• The Investment Upside to Affordable Housing

The best practices for financing naturally occurring affordable housing depend on the type of loan you are looking for. For example, the Freddie Mac NOAH Preservation program offers LTV allowances of up to 80% and DSCRs as low as 1.20x, and these loans have flexible terms of up to 15 years with flexible amortizations up to 30 years. This gives eligible nonprofits a variety of options to work with. Additionally, conventional loans from banks, credit unions, and other private lenders are another loan option to consider when financing senior housing properties. However, it is important to keep in mind that because they are not insured by government-backed entities, conventional loans generally have higher interest rates, shorter amortization periods, and more rigid credit score requirements. Source, Source.