Wellington Management
How impact investors can support the provision of affordable housing
Paul Skinner, Investment Director at Wellington Management
We see affordable housing as an ongoing essential need that can accrue health and wellness benefits to families and communities while creating and sustaining economic value. As a team, we believe impact investors can help meet this growing need by financing companies and issuers in the affordable housing space that perform well against both financial and impact criteria.
In our view, access to safe, affordable housing allows people to focus more on their overall well-being and less on basic survival. Put another way, access to safe, affordable housing may lead to better educational outcomes, higher earnings potential and lower health care costs. Demand for affordable housing intensified in 2022 as families grappled with economic uncertainty, inflated rental prices and higher mortgage rates.
Approximately 40% of the world’s population may be in need of affordable housing by 2030, driven by increased urban dwelling. This equates to 96,000 new housing units per day.1
Access to affordable housing is one of the most cost-effective strategies for reducing childhood poverty.2
Wellington’s impact investment teams invest globally across three broad impact categories — Life essentials, Human empowerment and Environment — which we then divide into 11 impact themes. Affordable housing is a theme within our Life essentials category.
To meet our thresholds for materiality, additionality and measurability, the companies or issuers whose innovative solutions we target must generate most of their revenue from products and services related to at least one of our impact themes; their impact must have a low prospect of being achieved by other means; and we must be able to track and measure the impact. In parallel, we use fundamental analysis to identify those investments that we believe have the most attractive long-term return potential.
In 2022, as part of our affordable housing theme, we invested in entities combating homelessness and addressing the need for safe, affordable shelter. The example below illustrates how we combine the Impact Management Project’s five dimensions of impact3 — which allow us to measure the what, who, how much, contribution and risks associated with our impact investments — with a qualitative assessment and explicit engagement focus.
The Government National Mortgage Association, or Ginnie Mae, is part of the US Department of Housing and Urban Development (HUD). The agency supports underserved markets, including low-income and first-time borrowers, by guaranteeing timely principal and interest payments on federally insured housing loans.
The five dimensions of impact4
What? — Supporting access to affordable housing improved lives and communities
Who? — In 2022, mortgage-backed securities (MBS) issued by Ginnie Mae supported over 2.3 million US households
How much? — 91% of Federal Housing Administration (FHA) single-family insured loans were pooled into Ginnie Mae MBS last year
Contribution? — First-time home buyers’ mortgages collateralized for 68% of issuance in 2022
Risk? — Execution: the ability to adapt to a changing mortgage market with flexible products and processes.
Qualitative assessment: Today, just 38% of US single-family homes are considered affordable for families earning the median US household income.5 By supporting the secondary market through the creation of MBS, Ginnie Mae helps attract liquidity to the mortgage market, giving lenders greater confidence in extending mortgages to underserved groups. Although this key performance indicator (KPI) cannot fully capture the wider social benefits of affordable housing, it does illustrate the increased access to home financing enabled through Ginnie Mae. Although the KPI fell last year, likely due to a weaker mortgage market in 2022, we still believe the longer-term trend demonstrates that the issuer is executing on its mission.
We have held supportive discussions with Ginnie Mae on its plans to enhance disclosures on green and social aspects of mortgage pools and, where appropriate, share information on borrowers’ location and demographics within pools of collateral.
Learn more about impact investing: Impact investing | Wellington UK Intermediary
1. The United Nations Human Settlements Programme; UN stats for the Sustainable Development Goals.
2. Multiple studies cited in “A Place to Call Home: The Case for Increased Federal Investments in Affordable Housing,” Campaign for Housing and Community Development Funding.
3. “Impact Management Norms,” Impact Frontiers.
4. All data in this section is taken from the 2022 Ginnie Mae Annual Report.
5. “Boosting Housing Production is Best Way to Ease the Affordability Crisis,” National Association of Home Builders, 9 February 2023.
This material and its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase, shares or other securities. Investing involves risk and an investment may lose value. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed are those of the author(s), are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. The case study is presented for illustrative purposes only, it should not be assumed that any client is invested in the (or similar) example, nor should it be assumed that an investment in the example has been or will be profitable. The case study should not be interpreted as a recommendation or advice.
