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Over the past few years, deliveries of new multifamily supply have consisted primarily of more expensive Class A

units, leading to a growing mismatch between the needs of many working renter households and the stock of

apartments available to rent. The mismatch has been exacerbated by increased demand for apartments even as

the number of single-family homes rented has declined.

Fewer Single-Family Renter Households

According to the 2018 American Community Survey, there are 22.3 million single-family units and just 19.5 million

multifamily units occupied by renter households. However, since 2013, the number of single-family units occupied

by renters has declined by slightly more than 250,000 households, while the number of multifamily units occupied

by renter households has grown by an estimated 1.6 million households.

Multifamily Renters Earn Less than Single-Family Renters

Apartment renter households tend to be less well off than renter households occupying single-family units. The

median household income for apartment renter households is $38,000 compared with $48,000 for renters of

single-family detached homes and townhomes. As shown in the chart below, only 36% of renter households

occupying single-family detached homes and townhomes earn less than $35,000 per year. In contrast, almost half

of all apartment renter households, 47%, earn less than $35,000 per year. This represents just over 9 million

renters. Another 2.8 million renter households occupying apartments earn between $35,000 and $49,999 per year.

However, while multifamily renter households tend to be lower income, incomes needed to afford the new market

rate apartments are high.

Multifamily Economic and Market Commentary

FEBRUARY 2020

2020 Affordability Outlook – Growing Mismatch Between Multifamily Supply and Renter Needs

10%

15%

20%

25%

30%

Less than

$20,000

$20,000-

$34,999

$35,000-

$49,999

$50,000 -

$74,999

$75,000+

Apartment Renter Households Single Family Renter Households

Distribution of Household Income for Apartment Renters vs. Single-Family Renters

Source: National Multifamily Housing Council

©2020 Fannie Mae
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Multifamily Economic and Market Commentary

Workforce Housing Includes both Subsidized and Unsubsidized Rental Properties

The nation’s workforce includes families across the income spectrum, living in both subsidized and unsubsidized

market-rate apartments. At one end is rent-restricted housing subsidized by various government programs,

including Low-Income Housing Tax Credits (LIHTC), the U.S. Department of Housing and Urban Development’s

Section 8 program, and a growing number of state and local inclusionary housing incentive initiatives.

At the other end of the spectrum there are market-rate units that do not receive support from government housing

programs, but nevertheless still offer affordable rents in their local market. These units, which are usually referred

to as class B and C units, may be more affordable to low- and middle-income households due to various factors,

including the age of the property, as well as its condition or location. Unlike rent-restricted units, these class B and

C units are not required to maintain housing costs at affordable levels; therefore, asking rents are fluid and based

on local supply and demand factors.

Share of Apartments Affordable at Select Household Incomes as of Q4 2019

Higher Incomes Needed to Afford Most New Market-Rate Apartments

An apartment is considered affordable when a renter household occupying the unit spends no more than 30 percent of

household income on rent and utilities. According to data from CoStar, as of fourth quarter 2019, only a third of

market-rate apartments were affordable to renter households earning $40,000 per year. This indicates that less than

half of the stock of market-rate apartments are affordable to the average apartment renter household, which earns a

median income of $38,000 per year.

The share of market-rate apartments affordable to the average renter household falls significantly for newer

apartments. Only 4% of market-rate apartments built within the past five years are affordable to a renter household

earning $40,000 annually. In fact, only 58% – or about three-in-five – newer market-rate apartments were affordable at

an annual income of $70,000. In addition, while rents are not certain until a unit is occupied, less than half of the units

currently under construction appear to be affordable to an occupying renter household earning $70,000 based on

stated rent targets, according to CoStar.

32%

4% 2%

80%

58%

45%

All Apartments Built since 2013 Under Construction

Income = $40,000 Income = $70,000

Source: CoStar Portfolio Strategy

Assumes 30% of income needed to afford apartment, data excludes federally subsidized units.

Note: Rents for units under construction will not be known until unit is leased. 

©2020 Fannie Mae
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Multifamily Economic and Market Commentary

Multifamily Vacancies by Class 2009 - 2021

Source: CoStar, Reis, Inc.

Note: Class A is approximated by CoStar five- and four-star category properties. Class B is approximated by three-star category. Class C is 

approximated by CoStar’s two-star and one-star category data. Rent-Restricted data from Reis based on LIHTC units.

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Class A Class A forecast Class B

Class B Forecast Class C Class C Forecast

Rent-Restricted Rent-Restricted Forecast

Vacancy Rates for Workforce Housing Remain Low...

Ongoing demand for affordable rental units has kept the estimated vacancy rate very low for many class B and C units.

As shown in the chart below, vacancy rates for these more affordable units bottomed out in 2015 at 5.1% and have

barely budged since. The estimated vacancy rate for class C apartments, which tend to be some of the most affordable

available, was only 4.8% as of the end of 2019, according to CoStar. Vacancies at rent-restricted properties, meaning

those with public subsidies, were even tighter at only 2.4%, according to Reis.

Even vacancies at middle-market class B apartments remained low at 5.4 percent. Only vacancies at class A units,

which are the most expensive, remained elevated at 8.1 percent as of the end of 2019, according to CoStar. The

discrepancy in vacancies shows the demand for units affordable to workforce renters remains strong. The vacancy rate

for the class B and C segments are about 3.0 percentage points below that of class A rental units.

...and Are Unlikely to Rise in the Near Term

We do not expect the vacancy rates at apartment units affordable to workforce households to rise anytime soon.

According to Reis, vacancies at rent-restricted apartments are expected to remain below 2.1 percent through 2020.

According to CoStar, vacancies at class B and C properties are expected to rise to just 5.9 percent and 5.1 percent,

respectively, through 2020, which would leave them below the historical average of 6.0 percent. In contrast, the

vacancy rate at class A properties could rise to as high as 9.3 percent by the end of 2020, as continuing deliveries meet

potentially slowing job growth.

©2020 Fannie Mae
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Multifamily Economic and Market Commentary

Wage Growth Slowly Strengthening... 

Wages measure earnings from working, while income can include non-work earnings such as interest and dividends.

While growth in income helps rental affordability, there are renters that rely solely on wages, making wage growth an

important indicator of rental affordability.

According to the National Conference of State Legislatures, 14 states increased their minimum wages in 2019. Also,

with the unemployment rate at 3.5% as of December 2019, more employers are feeling the pressure to increase wages

to attract and retain qualified employees. As a result, as of December 2019, the year-over-year change in private sector

nominal average hourly earnings of production and nonsupervisory employees strengthened considerably to 3.5%,

which was the fastest pace of growth since the Great Recession ended in June of 2009.

-4.5%

-2.5%

-0.5%

1.5%

3.5%

5.5%

Production/nonsupervisory workers wage growth Class C Rent Growth Class B Rent Growth

Year-over-Year Change in Private Sector Nominal Average Hourly Earnings and Asking Rent, 2007–2019

... Finally Inching Above Rent Growth

Rental affordability generally improves when wage growth meaningfully outpaces rent growth. As shown in the chart

above, the wage growth of non-production/nonsupervisory employees finally outpaced year-over-year rent growth in

class B and C units last year. According to data from CoStar, year-over-year rent growth for class B units was 3.0% at

the end of 2019 and 2.5% for class C apartments, compared to annual wage growth of 3.5% for production and nonsupervisory employees. However, this recent reversal does little to offset the effect of the preceding seven years, when

rent growth for Class B and C apartments still outpaced wage growth.

According to CoStar, the average monthly asking rent for a class C apartment as of Q4 2019 was approximately $1,075,

class B was approximately $1,245, and class A averaged $1,770. As a result, the rent for the average class A apartment is

currently about 65% higher than the average class C apartment and about 43% higher than the average class B

apartment.

©2020 Fannie Mae

Source: Moody’s Analytics – Current Employment Survey for earnings, CoStar for rent growth. Note: Class B is approximated by 

CoStar’s three-star category. Class C is approximated by CoStar’s two-star and one-star category data .
5

Multifamily Economic and Market Commentary

Some States Enact Rent Control...

Some expensive cities, such as New York and San Francisco, have long had some form of mandated rent control or rent

stabilization. However, prior to 2019, there was no state with statewide rent control. Due to concern about rapidly

rising rents for many renter households, a number of states have adopted rent control measures. In 2019, three states

-- California, Oregon, and New York -- passed some form of rent control.

All three state laws passed in 2019 also strengthened tenant protections. In addition, California and Oregon passed

what were widely considered “anti-gouging” rent control laws, with a cap on rent linked to an inflation factor plus 5%

and 7%, respectively. New York’s rent cap is set by the New York Rent Board and has averaged 2% or less annually over

the past five years.

Federal, State, and Local Programs Help Support New Affordable Supply

Federal, state, and local programs work to increase the supply of new affordable rentals. For instance, the LIHTC

program is the primary way the federal government works to increase the supply of affordable housing. It is the

largest source of affordable housing in the United States currently, having created approximately 3 million housing

units since it began in 1987, with approximately 100,000 units completed annually, according to the National

Council of State Housing Agencies.

There are a also number of state and local governments adopting inclusionary housing programs that provide

developers with incentives to include affordable units in new, primarily market-rate apartment developments.

5.0

5.3

5.5

5.8

6.0

6.3

6.5

6.8

7.0

2012 2013 2014 2015 2016 2017 2018 2019

Class C Class B

Source: CoStar

Class B and C Inventory (2012-2019) (Millions)

... as Affordable Supply 

Stagnates 

As shown in the adjacent chart, the

inventory of class C units, which are

considered the most affordable units

available in a market, have been on the

decline since 2012. Indeed, the supply of

class C units has fallen by an estimated

100,000 units, according to data from

CoStar. Further, the supply of class B

middle-market units has only grown by

200,000 units since 2012. By contrast, the

number of apartments occupied by renters

has grown by over 1.6 million, amplifying

the need for more affordable rentals.

©2020 Fannie Mae
6

Multifamily Economic and Market Commentary

Density Bonuses Encourage Affordable Supply

As shown in the chart below, about 350 jurisdictions provide a density bonus to developers to increase affordable

supply. This is, by far, the incentive most frequently used to create new affordable supply by state and local

governments. Density bonuses permit developers to build more units on the same amount of land, which helps

developers offset the cost of providing a share of new apartments with a rent restriction to keep them affordable.

0 50 100 150 200 250 300 350 400

No Incentives

Other

Concessions

Direct Public Subsidy/TIF

Tax Relief/Abatement

Expedited Permitting

Fee Reduction/Waiver

Other Zoning Variance

Density Bonus

Incentives Offered to Developers to Include Affordable Units by Number of Programs

Source: Grounded Solutions Network

Survey data as of March 2019

Tax Abatement Programs Also Help Increase Affordable Supply

Tax abatements are a financial incentive that state and local governments also use to encourage developers to

include affordable rentals in new market-rate developments. One example is Seattle’s Multifamily Tax Exemption

(MFTE) program, which provides a 100% tax exemption lasting 10 to 12 years for buildings that set aside 20% of

units as income-restricted for a range of low- and moderate-income households. According to the city of Seattle,

between 1998 and May 2018, the MFTE program created approximately 4,000 rent-restricted units in more than

190 apartment buildings.

Another example is New York City’s 421-a program, also known as Affordable New York. Property owners receive a

long-term real estate tax abatement in exchange for setting aside a portion of units for low-to-moderate income

residents and subjecting the remaining market-rate units to rent stabilization for the duration of the abatement

period. The 2019 Housing Supply Report issued by the New York City Rent Guidelines Board estimates that there

are currently 116,000 rent stabilized apartments that were created by the 421-a tax abatement program.

©2020 Fannie Mae
7

Multifamily Economic and Market Commentary

Preservation of Existing Stock is Critical

Creating more affordable multifamily rental housing relies on the multifamily sector’s ability to add more units

each year than are lost from the existing housing stock. Building new affordable single-family and multifamily

rental housing is critical to solving the nation’s affordable housing crisis. However, it is equally important to

protect and preserve the existing stock of older, more affordable apartments. As a result, we believe it is critical to

ensure that an ample flow of debt and equity capital is available to support property owners interested in

preserving the long-term affordability of their properties. Capital investments reduce ongoing operating costs and

extend the property’s useful life.

2020 Outlook: Continued Pressure on Affordability

We do not expect our outlook for the affordability of the multifamily sector to improve in 2020. Although the wage

growth of nonsupervisory employees finally inched past rent growth for affordable class B and C apartments in

2019, we do not believe this reversal does enough to offset the effect of the preceding seven years when rent

growth for affordable segments still outpaced wage growth. In addition, slowing rent growth in these affordable

segments of apartments is likely more a reflection of inadequate supply than slowing demand, as the vacancy

rates in these segments remain low. According to the Dodge Data & Analytics Supply Track, more than 476,000

apartments are expected to be delivered in 2020. However, much of the new supply consists of more expensive,

class A units and is primarily concentrated in about 10 to 12 metro areas. As a result, we believe that renter

households are unlikely to see any meaningful improvement in affordability in 2020.

Tanya Zahalak

Senior Multifamily Economist

Multifamily Economics and Research

February 2020

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Multifamily Economics and Research Group (MRG) included in these

materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and

are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions,

analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these

materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could

produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the MRG represent the views of that

group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

©2020 Fannie Mae