Market Trends

November 23, 2021

Affordable housing: A large & undersupplied market

Affordable housing: A large & undersupplied market

Of the 44 million rental households in the U.S., 56.4% earn less than $50,000 a year. However, assuming that tenants pay at most 30% of gross household income on rent, only 43% of the U.S. rental stock serves this population segment. Furthermore, there are millions of people making less than $20K per year. The National Low Income Housing Coalition estimates that a shortage of 3.4 million affordable rental units exists in the U.S. today(1). Making matters worse, new construction does not generally focus on this housing segment. Thus, as rents rise, the affordable sector becomes a smaller percentage of the market. While the number of units charging $1,500 or more has increased by 64% during the past five years, the number of units charging less than $500 per month shrunk from 12% of the market in 2014 to 9% in 2019, and the number of units charging $500 to $999 per month shrunk from 44% of the market in 2014 to 34% in 2019. Overall, there are 4.8 million fewer rental units charging less than $1,000 per month than five years ago(2).

affordable housing graph

States with the biggest shortages of affordable housing include Nevada, California, Oregon, Arizona, Florida, and Texas(3). As shown in the graph, some of these states have received large allocations during recent years from the U.S. Department of Housing and Urban Development (HUD) Low Income Housing Tax Credits (LIHTC)(4). Created by the Tax Reform Act of 1986, the LIHTC program gives state and local LIHTC-allocating agencies the equivalent of approximately $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. Of the 2.8 million existing LIHTC units, 35% are located in California, Texas, New York, and Florida(5).

Tenants are diverse

  • The LIHTC programs supports a diverse group of tenants, including:
  • Retirees (34% older than 62)
  • Children (31% of households)
  • Different cultural backgrounds (28% white, 31% black, 15.5% Hispanic of any race)
  • Disabled (12%)

Low vacancy and steady rent growth

Given the shortage of affordable housing, vacancy rates generally remain low in this housing segment. Costar tracks 3.5 million rental units that are rent restricted or rent subsidized(7). This market increased in size by only 0.5% in the first three quarters of 2021 and by an average of only 0.9% per year over the past four years. Vacancy rates, at 2.8% in 3Q 2021, are down by 30 basis points for the quarter and 80 basis points year over year. Effective rents are up by 2.9% year over year and have averaged 2.1% growth over the past ten years.

Rising values in robust transaction market

The transaction market for subsidized housing is robust and growing. Transactions in the first three quarters of 2021 totaled $5.9 billion, volume that is up by 18% from a year ago and 9% from 2019. Similar to the broader apartment market, 18% of buyers are institutional or REIT buyers, 61% are private buyers, 14% are housing agencies, and 7% are private equity investors. Cap rates which are typically about 100 basis points higher than market rate apartments, are declining, driving the average price per unit up over the past year. In fact, a survey recently conducted by Apprise found that for the first time ever, there is no required spread between market-rate and affordable cap rates.

Reason to be hopeful

Construction starts have fallen rapidly in the last two years. With third quarter starts year-to-date down by 60% from 2019 levels amid an already inventory constrained system, further upward pressure is likely on occupancy rates in the near term.

Additionally, in mid-October, the FHFA released the 2022 GSE scorecard, which increased the multifamily lending caps for Fannie Mae and Freddie Mac to a combined $156 billion from $140 billion in 2021, an 11% increase in total lending capacity. Like 2021, 50% of the GSEs’ volume must be mission-driven financing on affordable properties, with a slight increase in the portion that must be done at 60% of area median income to 25%, up from 20% in 2021. The scorecard, issued by FHFA Acting Director Sandra Thompson, is incredibly positive for the multifamily market in its continued emphasis on addressing the affordable housing crisis through the expansion of the very low-income housing lending requirements. The changes to the scorecard demonstrate Sandra Thompson’s deep understanding of the multifamily space and Fannie Mae and Freddie Mac’s vital role in the health of the overall market and in the affordable housing sector. As Apprise’s survey showcases, the market is maturing. Walker & Dunlop is well aligned with the FHFA in our own commitment to affordable housing finance through our impending acquisition of Alliant Capital and its affiliates and our internal reorganization to create an affordable-focused business area.

Learn more about how Walker & Dunlop supports the development and preservation of affordable housing.


(1) U.S. Census Bureau, Tables B25118 and DP04, 2019 data.
(2) “The Gap, A Shortage of Affordable Homes,” National Low Income Housing Coalition, March 2021
(3) “The Gap, A Shortage of Affordable Homes,” National Low Income Housing Coalition, March 2021
(6), 2019 data
(7) Rent Restricted (Multi-Family): Properties classified as Rent Restricted most commonly have rental rates based on Area Median Income (AMI). These properties typically receive tax-advantaged equity and/or debt financing, including Low-Income Housing Tax Credits (LIHTC). Low-income renters at these communities typically have an annual household income that is less than 80% of AMI but greater than 30% of AMI. This is the most common type of Affordable Subtype classification.

Rent Subsidized (Multi-Family): Rents are subsidized by the Department of Housing and Urban Development (HUD) Section 8 or other federal programs. Low-income renters at these properties typically earn less than what is needed to qualify for Rent Restricted housing and pay rent and other housing costs at a rate equal to a specific percentage of their annual household income.

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