6 Ways to Increase Affordable Housing ROI Through Design

With rising construction costs, land constraints and escalating demand for affordable units, the challenge of balancing cost-efficiency with livability in affordable housing design has never been more complex. While affordable housing may not initially seem as lucrative as other real estate segments due to inherent limitations on rental-rate increases, there is a pathway to increase returns on investment by integrating thoughtful design, planning and architecture.

As a Los Angeles-based design firm with more than 50 years of experience in designing real estate that is both cost-efficient and highly functional, we have identified several impactful ways that investors and developers can achieve a higher ROI in affordable housing through design and planning.

1. Plan for a successful and realistic entitlements process.

Obtaining entitlements can be challenging for any real estate development venture, but particularly for affordable housing given its high level of oversight, rules and regulations. In some states such as California, where our firm is based, despite significant government pressure to build affordable units there are cities that are conservative in adopting affordable housing ordinances. Meanwhile, other California cities mandate affordable housing without properly examining state density, raising feasibility issues.

The best approach to entitling an affordable housing project is to be prepared for a long and meticulous process—prepared being the operative word. Starting early allows for inevitable delays, so making entitlement a top priority is imperative.

Entering the process with a thorough understanding of how the project will benefit the community—and the ability to articulate this—is another smart strategy. For example, at The Rise Koreatown, a mixed-use residential and retail project with affordable housing units in Los Angeles’ Koreatown neighborhood, we designed an extensive ground-floor retail space component aimed at bringing both everyday conveniences and enticing social experiences to residents and neighboring communities. The project features a design language that seamlessly integrates and complements the surrounding area.

Developments like this that have a clear upside for the area in which they are located are better positioned for a more streamlined entitlements process.

In addition, a complete understanding of local requirements regarding sustainability, climate resilience and preservation and how the development aligns with those requirements is critical during entitlement. Hiring design professionals who are well versed in these issues is a must.

Finally, working with architecture, planning and legal teams that are equipped to navigate any changes needed for entitlement, and work with the approving bodies, will greatly improve a developer’s chances for success in moving forward with the project.

2. Streamline construction and leverage modern architectural techniques.

Efficient construction techniques that have emerged in recent years can reduce build times and labor costs, ultimately increasing ROI—a smart choice for affordable housing development. While some techniques require upfront planning and precise execution, they can shorten project timelines by up to 50 percent, allowing units to become income-generating sooner.

Modular and prefabricated construction is an efficient construction technique that allows parts of the building to be constructed offsite and then assembled on location. It reduces weather delays, waste and labor costs, making it an effective choice for large-scale affordable housing projects.

Utilizing cross-laminated timber is another strategy that makes sense for affordable housing builds. CLT, a sustainable and increasingly popular alternative to traditional materials, is strong and durable, and its environmental benefits can attract green-conscious tenants and investors.

Lastly, employing standard designs for units, particularly in kitchens and bathrooms, reduces the need for custom solutions and allows developers to capitalize on economies of scale, which reduces per-unit construction costs.

By adopting these modern construction techniques, affordable housing projects can benefit from reduced construction times, cost saving, and sustainable benefits, contributing to enhanced returns.

3. Build for adaptability to meet future needs.

Designing affordable housing that can adapt to shifting demands provides a strategic advantage, particularly in a volatile market. Buildings that can be repurposed for various uses or adapted to meet new housing needs are better positioned to maintain high occupancy and desirability over the years, making them better vehicles for investment.

With this concept in mind, incorporating flexible layouts and multi-functional spaces allows affordable housing units to be easily adapted for future needs, whether it’s accommodating remote work setups, family growt, or changes in demographic trends. Rooms and areas within apartment units that can be updated quickly and cost-effectively as resident uses evolve add value to these developments.

Constructing buildings with resilient infrastructure also allows them to be more adaptable. Features such as backup power systems, flood protection and high-speed internet wiring prepare affordable housing projects for potential challenges and make these properties more attractive to long-term tenants. In addition, investing in digital infrastructure, such as Wi-Fi-enabled workstations, secure entry systems and tech-driven property management tools, appeals to tech-savvy tenants and adds a layer of convenience and security.

By focusing on adaptability, developers can ensure that their properties remain functional and competitive as market conditions and resident expectations evolve, further safeguarding the investment and improving ROI.

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4. Prioritize functional design for long-term resilience.

Functional design is at the heart of long-lasting, appealing and high-performing affordable housing. Efficient use of space, durable materials and intelligent unit layouts not only improve the experience for residents but also reduce ongoing maintenance and turnover costs.

Functional design can be incorporated into affordable housing units in many ways, including floor plans that make the most of limited square footage such as open kitchens and combined living-dining areas. These help to create more spacious, adaptable interiors while maximizing functionality for tenants, allowing small units to feel larger and more comfortable.

Adding flexible spaces by incorporating multi-use common areas enables affordable housing to accommodate a variety of activities including community events, homework zones and work-from-home spaces. These features contribute to tenant satisfaction, which is directly linked to reduced vacancy and turnover.

In addition, using resilient and durable materials can significantly lower repair and replacement costs over time. For example, choosing high-grade, scratch-resistant flooring and durable countertops helps units withstand wear and tear, reducing the need for costly replacements or repairs between resident cycles.

By designing for resilience and flexibility, developers can foster retention and lower long-term maintenance costs, enhancing ROI while maintaining quality.

5. Incorporate energy-efficient and sustainable elements.

Sustainable design elements are not only more attainable than ever due to advancements in green technologies but also contribute to operational savings and tenant appeal. As utility costs are a major concern in affordable housing, implementing energy-efficient technologies can lead to significant savings over time, benefiting both tenants and investors.

Incorporating energy-efficient HVAC systems, LED lighting and high-efficiency water heaters can reduce energy consumption significantly. Additionally, improved insulation, double-glazed windows and energy-efficient appliances contribute to lower utility costs, which can be shared between the developer and residents, depending on the lease structure.

Also, utilizing solar panels or other renewable energy sources, such as geothermal systems, can lower overall building utility costs. Some investors even establish energy-sharing agreements where buildings sell surplus energy back to the grid, adding a revenue stream.

Further, installing low-flow fixtures and water-efficient landscaping helps reduce utility costs. In regions where water conservation is mandated or incentivized, this can also lead to savings on regulatory fees or yield rebates that go back to investors.

Green building certifications like LEED or WELL can also help improve the perceived value of a development, attracting residents and creating a more marketable asset.

6. Design for community integration and resident satisfaction.

When affordable housing developments feel disconnected from the surrounding community, residents are more likely to feel isolated, which can lead to higher turnover. Creating a sense of place and connection within the community enhances tenant satisfaction and increases occupancy.

Designing common spaces like community gardens, fitness centers and multipurpose rooms encourages resident interaction. When residents can access areas to meet and socialize, they develop stronger connections, which directly influences retention rates.

Additionally, integrating retail, commercial and community spaces within affordable housing developments supports neighborhood vitality and accessibility to essential services. This reduces residents’ need to travel long distances for groceries, childcare or health services.

Creating thoughtfully designed, community-oriented spaces improve resident satisfaction, which decreases vacancy rates, increases lease renewals and contributes to a steady income stream for investors.

Increasing ROI in affordable housing requires a blend of thoughtful design, sustainable planning and modern construction techniques. By focusing on durable materials, energy-efficient systems, community integration and adaptable layouts, investors can enhance the value of affordable housing assets while meeting the needs of residents.

Today’s affordable housing investors have an opportunity to elevate the sector beyond basic shelter. Through mindful architectural decisions, stakeholders can create a lasting impact that not only provides a strong financial return but also meets the evolving needs of the communities they serve. Thoughtful design and strategic planning in affordable housing development are not merely aesthetic choices—they are investments in the stability, sustainability and future profitability of these essential assets.

Ancelmo Perez is a principal & multifamily studio director at Nadel Architecture + Planning, a Los Angeles-based architecture and design firms.