Housing affordability conversations tend to focus on the front end: land costs, construction costs, financing. Those are real constraints and significant ones. But they capture only part of the picture.

Operations and maintenance account for 20 to 30% of the annual cost of housing. That's a meaningful share, and unlike land or construction, it's a cost that recurs every year over the life of an asset. Reducing it doesn't just improve margins. It directly affects what rents need to be charged to keep a property financially viable.

Operational efficiency as an affordability lever

McKinsey's blueprint for tackling the global affordable housing challenge identifies four levers that together could reduce the cost of delivering affordable housing by 20 to 50%. The four are: unlocking land at the right location, reducing construction costs, improving operations and maintenance, and lowering financing costs.

Three of those levers require policy change, permitting reform, or capital market interventions that are largely outside the control of any single operator. The third one, O&M, is different. Property managers, public housing authorities, and affordable housing providers have direct influence over it. 

Where efficiency gains come from

Energy is one of the largest ongoing cost categories for housing providers, particularly in older or poorly insulated stock. Retrofits targeting insulation, windows, HVAC systems, and appliances can reduce utility costs substantially. For residents in affordable housing, where utility burden falls directly on households, the impact is felt in disposable income, not just asset performance.

Consolidated procurement is another area with documented results. Buying consortia in the UK have saved 15 to 30% on maintenance items for social housing through coordinated purchasing and standardized vendor contracts. The mechanics aren't complicated. The barrier is usually the organizational discipline to standardize across a portfolio.

Technology adoption is the third major driver. Property management platforms that automate leasing, maintenance requests, compliance, and communications reduce administrative overhead and error rates. For operators managing large portfolios, this is increasingly a competitive necessity rather than an optional upgrade. Regulatory complexity, including frameworks like the Housing Opportunity Through Modernization Act, adds to the compliance burden that technology can help absorb.

Measurement as a foundation

High-performing housing operators share a common practice: they document workflows, assign clear ownership, and track operational metrics like inspection turnaround time and lease-up speed. That measurement discipline is what makes it possible to identify where costs accumulate and where process changes will have the most impact.

The principle applies across asset classes. An operator running a 500-unit workforce housing portfolio and a large-scale affordable developer face different regulatory environments, but both benefit from knowing which processes are creating friction and what that friction costs.

‍What this means for investors

Operational efficiency is often treated as a property management concern, something to optimize after an asset is acquired and stabilized. The better framing is to underwrite it from the start.

An asset with above-market operating costs carries embedded risk. Maintenance deferred to protect near-term cash flow degrades quality and drives resident turnover. Energy costs that aren't managed pass through to residents or compress NOI. In a market where more than 42 million households are already cost-burdened, an operator that can sustainably lower break-even rents through O&M discipline has a meaningful advantage in occupancy, resident stability, and long-term asset performance.

Solving affordability at scale requires getting the cost structure of housing right across all four levers. The operational lever is the one where capital allocation decisions today can create measurable impact without waiting for zoning reform or interest rate cycles to turn.

Sources

• McKinsey Global Institute, A Blueprint for Addressing the Global Affordable Housing Challenge
• RMI, Superefficient Affordable Housing
• U.S. Environmental Protection Agency, Energy Efficiency in Affordable Housing
• UK Social Housing Procurement Consortia data on bulk purchasing savings