NEW YORK, NY – Rents are soaring across the country and low-income families are feeling the squeeze, often spending half their income to keep a roof over their heads. One avenue to addressing this challenge is to build more affordable housing, but that is both time-consuming and expensive. New research from Columbia Business School reveals that private landlords could be key to driving down rents, finding that those who invest in low‑rent properties actually earn some of the highest returns in real estate. Broadening participation among these investors could spur competition and, ultimately, help bring rents down.
In the paper, An Alpha in Affordable Housing?, Columbia Business School Professor Stijn Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore Professor of Real Estate, Sven Damen of the University of Antwerp, and Matthijs Korevaar of Erasmus School of Economics analyze detailed rental and property data from the U.S. (2001–2024), Belgium (2007–2022), and the Netherlands (2018–2022). They find that low-rent properties consistently deliver higher net returns than high-rent properties — by 3.86 percentage points annually in the U.S., 3.60 in the Netherlands, and 1.74 in Belgium. The authors then examine whether this high return was simply compensating for higher risk of renting these units or rather a return in excess of risk compensation, i.e., an “alpha.” They ruled out systematic risk by showing that affordable rentals actually hold up better during recessions. They also ruled out regulatory risk by comparing markets with and without strict tenant protection regulations — and seeing the same “alpha” in both. And while there is some idiosyncratic risk, like higher turnover and maintenance costs, these were too modest — and too easily diversified across multi-unit portfolios — to explain the consistently higher profits. The research team then looked into why more investors aren’t chasing these returns. They find that low-income tenants can’t afford to buy the properties they rent, mid-sized landlords dominate the market but face financing constraints, and large institutional investors tend to stay out — citing reputational risks and limited scalability. All of this means that the alpha stays in the market.
Looking ahead, the research suggests that unlocking more capital for the affordable rental market could help ease rent burdens by increasing competition amongst landlords. Policymakers could consider reducing barriers that keep institutional investors out of the low-rent segment, such as reputational concerns and inefficiencies related to scaling up. Targeted subsidies, tax incentives, and credit enhancements could help mid-sized landlords scale up, while down payment assistance or shared-equity programs could support tenants in becoming owners. Future research might explore how these policy tools interact with local housing dynamics, or assess the impact of bringing new capital into this overlooked segment of the market.
To learn more about the cutting-edge research being conducted, please visit the Columbia Business School.
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