V I E W P O I N T S

Spring 2025 | Article 02/04

Weatherproof investments: The case for climate-resilient affordable housing

Spring 2025 | Article 02/04

Weatherproof investments: The case for climate-resilient affordable housing

As extreme weather events increase in frequency and severity, the role of affordable housing is shifting.

Historically, affordable housing developments were frequently not resilient. They were often built in vulnerable areas, such as on floodplains. Affordability and sustainability used to be presented as a zero-sum game.

Now, climate adaptation becomes a ‘today’ and not a ‘tomorrow’ concern for more and more communities and smart investors across North America are building climate resilience into their affordable housing strategies to mitigate risk and secure long-term returns. Their aim? To future-proof their investments and prevent them from becoming obsolete.

How? Let’s start with a quick reintroduction.

How to think about affordable housing today

The definition of affordable housing is more wide-ranging and nuanced than many think. The term applies to rental spaces available to low-to-moderate-income individuals who may not be eligible for subsidized housing.

Affordable housing provides rents that are equal to, or lower than, average rates in the private market. (The ideal is no more than 30% of a household’s income before taxes.)

A home’s age, condition, and location can significantly influence its affordability. However, because every household's budget is unique, whether a unit is affordable for a specific household depends on who lives there.

The case for building more resiliency into affordable housing

So, what does designing for the future look like? It starts by ensuring that affordable housing is designed and built for the changing climate we already live in. Whether that’s a heat wave in Arizona or flooding in Toronto, properties need to be equipped to handle extreme weather events.

Passive survivability – ensuring that housing remains habitable during extreme weather events, even if there is an extended power outage – has become an essential consideration.

“We don’t want to create a scenario where people living in affordable housing have to be displaced if a climate event does happen,” Burdeniuk explains. “The properties need to be designed and built to be climate-ready for whatever stress comes.”

The silver lining? Buildings incorporating resilient and sustainable design features, such as flood-resistant materials and renewable energy systems, are proving to be lower-risk assets that attract long-term tenants and reduce insurance costs. “There are lots of new technologies out there,” says Burdeniuk.

“The opportunity now is for people to see how they’ve been deployed successfully and start adopting them at scale.”

Further driving a need for resilient design right now? The economy.

Since 2019, U.S. multi-housing rents have increased by 16%, outpacing low-wage workers' 13% wage growth. At the same time, rising home prices keep many would-be sellers in place, limiting the supply of for-sale housing and pushing more demand into the rental market.

The lack of supply has propelled multifamily rental absorption to near-peak levels, creating both challenges and opportunities for investors.

And the ever-rising cost of climate risk.

The financial risks associated with climate events are growing. In the U.S., the frequency of billion-dollar weather disasters has increased from one every four months in the 1980s to one every 13 days in recent years. This alarming trend places immense pressure on housing markets, particularly in regions prone to extreme heat, flooding, and wildfires. Insurance companies have responded by raising premiums or pulling out of high-risk markets altogether, leaving property owners and investors vulnerable with significant financial exposure.

“In California, a lot of people who lost everything in the recent wildfires had insurance policies that weren’t renewed – not because they were delinquent, but because insurers deemed the entire state too risky,” says Burdeniuk.

What’s promising is that after the past 16 months of record extreme climate events, climate risk assessment and management has become much more standardized and granular.

“The impetus to do climate risk assessments has been catalyzed because of all the climate events,” Burdeniuk says. “Many owners don’t want to make site selection decisions without knowing if they’re putting themselves in harm’s way.”

Beyond future-proofing: how building climate resiliency adds near-term property value

Resilient affordable housing has two benefits: it reduces risks for tenants and enhances asset value for developers. Key climate-adaptive features translate directly into financial benefits for investors:

Climate Feature
Heat

Risk Mitigation Features

Enhanced insulation

Reflective roofing

Energy-efficient HVAC systems [Green roofs]

Shading devices

Financial Benefits

For Owners: Reduced energy costs and increased property value

For Investors: Higher tenant retention and lower vacancy rates

For Occupiers: Safer during heat waves, improved comfort, lower utility bills

Climate Feature
Flood

Risk Mitigation Features

Elevated structures
Flood barriers
Permeable pavement
Improved drainage systems

Financial Benefits

For Owners: Reduced repair and maintenance costs

For Investors: Lower insurance premiums and increased asset protection

For Occupiers: Minimized disruption and damage to personal property

Climate Feature
Precipitation

Risk Mitigation Features

Enhanced waterproofing
Robust roofing
Rainwater harvesting systems

Financial Benefits

For Owners: Reduced water damage and maintenance costs

For Investors: Increased property resilience and attractiveness

For Occupiers: Reduced disruption and lowered risk of leaks and damage

Climate Feature
Wind

Risk Mitigation Features

Reinforced structures
Secure roofing
Wind-resistant facades and windows
Landscaping

Financial Benefits

For Owners: Lower repair costs and increased building lifespan

For Investors: Enhanced property value and reduced insurance costs

For Occupiers: Increased safety and comfort during storms

Climate Feature
Wildfire

Risk Mitigation Features

Fire-resistant materials
Defensible space landscaping Advanced fire detection systems

Financial Benefits

For Owners: Lower risk of property loss and reduced insurance premiums

For Investors: Increased asset protection and marketability

For Occupiers: Enhanced safety and peace of mind

Climate Feature
Drought

Risk Mitigation Features

Drought-tolerant landscaping
Efficient irrigation systems
Water-saving fixtures

Financial Benefits

For Owners: lower maintenance systems and landscaping, more attractive to potential tenants, buyers and investors

For Investors: enhanced value of assets, reduced risk of significant damage to properties such as foundation cracks and structural issues

For Occupiers: Reliable water supply and reduced water utility costs

For those ready to capitalize, financing opportunities abound.

Government incentives and favorable financing

Innovative financing mechanisms are required to get climate-conscious affordable housing projects off the ground. In Canada, several government-led initiatives are directly aimed at incentivizing affordable, climate-resilient housing. Recently, Canada Mortgage and Housing Corporation (CMHC) updated its lending criteria, making energy efficiency a key factor in securing more favorable financing.

There’s also the National Housing Strategy, which includes low-interest loans, forgivable loans, and direct contributions for new construction and renovation projects. Meanwhile, the Affordable Housing Innovation Fund provides incentives to accelerate development.

In the U.S., incentives such as Low-Income Housing Tax Credits (LIHTC) and Opportunity Zone funding are also helping to offset development costs. Green bonds are emerging as one of many powerful tools for aligning financial returns with environmental goals.

Partner with private equity

Private equity funding is helping housing projects be built faster without the red tape involved in government programs. This sector increasingly recognizes that well-designed, climate-resilient affordable housing can provide stable returns while reducing exposure to long-term risk.

There’s a common misconception that affordable housing cannot also generate revenue or provide a solid return. However, private equity models are proving that wrong. By leveraging a combination of public incentives and private capital, developers can accelerate the pace of construction and expand the supply of resilient, affordable housing options.

Shaping the future of affordable housing investment together

As climate change accelerates, investors must shift their perspective on affordable housing. Resilient affordable housing is no longer just a matter of social policy but a crucial investment category. Investors can mitigate risk and capture long-term value by prioritizing resilience, leveraging government incentives, and capitalizing on innovative financing models.

As climate-related disruptions become the norm, the smartest investment strategies will be those that align profitability with sustainability and ensure that affordable housing is as livable – for the long-term – as it is available.

Take the next step toward climate resilience

Unlock the full potential of real estate investments with Avison Young’s Climate Value at Risk (CVaR) Assessments. By identifying and quantifying climate-related risks, we empower owners and investors to make informed decisions that protect and enhance property value. Our CVaR assessments provide critical insights for property management, capital planning, and the development of Resiliency and Adaptation Plans. Whether you're focused on affordable housing or other asset types in Canada and the United States, our expertise ensures your properties remain resilient and attractive to tenants and investors.