Housing Affordability, ESG, and Municipal Borrowing Costs

This study first reviews the history of green municipal bonds; environmental, social, and governance (ESG) investing’s rise in municipal finance; and the political backlash against ESG. Next, the study focuses on the issue of housing affordability to examine whether municipalities with more affordable housing are rewarded for this factor by financial markets with regard to the pricing of their general obligation debt. The findings of this study suggest that housing affordability is one of the ESG factors that is considered by investors. Cities with more affordable housing pay, on average, lower interest costs on their debt issuances than do cities having less affordable housing. This study also finds that during the COVID-19 pandemic, the impact of more affordable housing on lowering municipal debt interest costs was greatly magnified.