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Multifamily Challenges and Opportunities in Middle 

Appalachia

Multifamily Economics and Market Research 

Appalachia has long been known as coal country, but recently the region has diversified a bit -- these days, you are likely to 

see tourists visiting the Great Smoky Mountains, attending a bluegrass music festival, kayaking, or even hang-gliding. But

the same remote, difficult mountain terrain that attracts tourists today has historically hindered the area’s economic growth. 

Consequently, rural areas of Middle Appalachia struggle with low incomes and inadequate rental housing. However, the 

region is not simply defined by its challenges. There are also areas where the population is growing and the economy is 

improving.

Defining Rural Middle Appalachia

In its broadest sense, Appalachia consists of 

rural areas near the Appalachian Mountains. 

The Federal Housing Finance Agency 

(FHFA) defines rural Middle Appalachia to

include certain census tracts in West 

Virginia, Ohio, Kentucky, Tennessee, North 

Carolina, and Virginia.

Most Residents Live in Rural Areas

Middle Appalachia has an estimated 

population of 8.8 million, or about 2.8 

percent of the nation’s population. Fiftynine percent of residents – about 5.2 million

– live in rural areas, compared to 23 percent 

for the nation as a whole. The average age of 

residents in the rural census tracts of Middle 

Appalachia tends to be older -- 42.5 years 

old, which is about 5 years older than for the 

average for the U.S. as a whole.

Middle Appalachia Suffers from 

Inadequate Housing

As shown in the adjacent table, 

residents tend to own their own homes 

in Middle Appalachia, with 73 percent 

of households owning homes compared 

to 64 percent for the U.S.

However, many of these homes are 

inadequate. In fact, almost 56,000 units

lack adequate plumbing or a complete 

kitchen. The majority of these 

inadequate units, just over 36,000, are 

in rural areas, representing about 1.4% 

of total housing stock.

Rural MA MA U.S.

Population 5.2 M 8.8 M 314.0 M

Population Growth -0.2% 1.5% 4.8%

Population in Rural 100% 59% 23%

Poverty Rate 21% 19% 15%

Average Age 42.5 41.6 37.7

Homeownership Share 73% 70% 64%

Renter Share 27% 30% 36%

Seasonal/Recreational (%) 7.3% 5.2% 4.0%

Middle Appalachian Region – Counties with Rural Census Tracts

Source: Federal Housing Finance Agency (FHFA)

Note: Knox County which contains Knoxville does not appear to have any rural designated 

census tracts currently.

Source: Fannie Mae tabulations of 2016 American Community Survey (ACS) 5 year 

estimates 

Middle Appalachia Quick Facts
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A Homogeneous, Slow-Growing Population

As seen in the pie charts below, the overwhelming majority of residents in the rural areas of Middle Appalachia are identified 

as being non-Hispanic White. Non-Hispanic White households represent 93 percent of all households in Middle Appalachia, 

compared to 62 percent for the U.S. as a whole. By contrast, African-American and Hispanic White households represent 

just 3 percent and 2 percent of the population in rural areas of Middle Appalachia, respectively.

Population growth in Middle Appalachia trails that of the U.S. overall. Since 2010, the population in the region has only 

grown by 1.5 percent, compared to 4.8 percent for the nation. Rural tracts in Middle Appalachia face even more severe 

demographic challenges as the population has declined by 0.2 percent since 2010, most likely due to households seeking 

better economic opportunities elsewhere.

Occupational Challenges Persist

The unemployment rate in Middle Appalachia overall is over one-half percent higher – and in rural areas, over one percent 

higher – than the national average. In addition, the share of households in jobs outside of the better-paying professional 

services category is higher than the national average, as illustrated in the pie charts below. For example, the share of 

households in rural areas of Middle Appalachia working in manufacturing, transportation, and logistics is estimated to be 

18 percent, about 6 percent higher than the U.S. as a whole. The share working in the natural resources, construction, and 

maintenance category is about 12 percent, which is about 3 percent higher than the national average. This category includes 

farmers and those working in forestry services – not necessarily high-paying occupations. 

Source: Fannie Mae tabulations of 2016 American Community Survey (ACS) 5 year estimates 

Population Characteristics of Middle Appalachia

Occupational Characteristics of Middle Appalachia and the U.S.

Compared to U.S.

Source: Fannie Mae tabulations of 2016 American Community Survey (ACS) 5 year estimates 
© 2018 Fannie Mae. Trademarks of Fannie Mae. 3 of 9

Poverty Rate Elevated

Since a larger share of households in Middle Appalachia tend to work in lower-paying occupations such as logistics and 

manufacturing, the region suffers from lower household incomes. The median household income of $42,800 is about 

$12,500 lower than the $55,300 recorded for the U.S. As a result, the poverty rate overall in Middle Appalachia is 19 percent 

compared to 15 percent for the nation. 

The poverty rate rises even higher, to 21 percent, in the rural census tracts of Middle Appalachia. This means over one-fifth 

of the region’s households are living in poverty. 

While a large portion of Middle Appalachia’s households face economic challenges, renters fare slightly worse than 

homeowners. Overall, renters in Middle Appalachia earn $31,500 in median household income annually compared to 

$35,200 for the U.S. as a whole. But renters in the region’s rural census tracts earn even less, with a median household 

income of about $24,400 annually. This is just under $11,000 less annually than income for renters nationwide and less 

than half of the national median household income for all households. 

Renters Are Cost-Burdened

Although one might expect housing to be affordable in 

rural areas, low incomes lead to higher cost burdens for 

renters. Almost 49 percent of renter households in rural 

areas of Middle Appalachia spend over 30 percent of 

their income on rent and utilities, compared to about 29 

percent of owner households. Just over one quarter of 

renter households in rural Middle Appalachia, about 

25.2 percent, are severely cost-burdened, spending over 

half of their income on rent and utilities. Even though 

this is slightly better than the 26.0 percent rate for the 

U.S. as a whole, it is slightly worse than the 24.9 percent 

rate for the overall region.

Manufactured Housing Is an Important Housing 

Source

Single-family rentals are the predominant rental housing 

source in rural Middle Appalachia. About 60 percent of 

renter households occupy single-family homes compared 

to 53 percent in the U.S. as a whole. However, what is 

interesting is the relatively high share of households 

living in manufactured homes. Twenty-three percent of 

renter households, almost a quarter, occupy 

manufactured homes. This is almost six times the 4 

percent rate of households occupying this type of housing 

across the U.S. By comparison, only 17 percent of renters 

occupy apartments. As a result, renters in the rural 

census tracts of Middle Appalachia are more likely to rent 

manufactured housing than to rent typical multifamily 

units.

Vacation Homes Abound

Rural Middle Appalachia has a high percentage of seasonal/recreational units thanks to the lure of the mountains as a tourist 

destination. Slightly more than 7 percent of housing units are vacation homes and rentals. This is 2.1 percent higher than in 

Middle Appalachia as a whole and 3.3 percent higher than the national average. These homes overstate the amount of 

housing stock since even though they exist, they are not available for rent to year-round residents.

Rural MA MA U.S.

Poverty Rate 21% 19% 15%

Median Household 

Income

$38.8 $42.8 $55.3

Median Renter 

Household Income

$24.4 $27.0 $35.2

Rural MA MA U.S.

Single Family 60% 58% 53%

Manufactured Housing 23% 17% 4%

Multifamily 17% 25% 42%

Cost Burden 48.8% 49.0% 51.1%

Severe Cost Burden 25.2% 24.9% 26.0%

Middle Appalachia Incomes

Middle Appalachia Renter Households

Source: Fannie Mae Tabulations of 2016 ACS 5 year estimates 

Source: Fannie Mae Tabulations of 2016 ACS 5 year estimates 
© 2018 Fannie Mae. Trademarks of Fannie Mae. 4 of 9

Retirees Spur Growth

While rural tracts in Middle Appalachia face many 

challenges, there is variation among counties. In fact, there 

are some rural counties that are actually adding to their 

total population. 

For instance, the fastest-growing county by population 

since 2010 for rural census tracts in Middle Appalachia is 

Henderson County, NC, which has grown by 16 percent 

over the past six years. Henderson County is about 30 

minutes outside of Asheville but is not a bedroom 

community for Asheville. Agriculture is a key economic 

driver with apples as the primary crop. With two hospitals, 

Henderson has also been attracting retirees. Retirees take 

advantage of low housing costs, access to healthcare, and a 

short drive to the cultural amenities of Asheville. 

Some Rural Areas in Larger Growing Metros 

Some of the fastest-growing counties by population in 

rural areas are close to faster growing large metro areas,

and rural counties in Middle Appalachia are no different. 

Bledsoe, Hamilton, and Bradley Counties have experienced cumulative population growth of 8 to 15 percent over the past 

six years and all are located in or near Chattanooga. Chattanooga has experienced steady economic growth over the past few 

years due to its location in a tri-state area and its pro-business policies. As a result, logistics are a key economic driver here,

as Chattanooga is a distribution point for several large Southern markets, including Atlanta and Charlotte. It also has robust 

manufacturing, including a sizable auto industry with Volkswagen recently expanding its facilities. 

Going forward, Moody’s Analytics projects that Chattanooga should continue steady, if not average, growth. An increase in 

housing starts will spur a pickup in new orders at regional factories specializing in housing-related machinery and 

appliances. For instance, Roper Corporation specialized in stoves and ovens. In addition, Volkswagen’s expansion is 

expected to drive up demand and hiring at auto suppliers.

Smoky Mountains Tourism Helps

Several of the fastest growing counties are located in or near the Smoky Mountains. Here, as in some other rural areas, 

tourism spurs economic growth and attracts new residents. For instance, Sevier County in Tennessee is located in the Great 

Smoky Mountains National Park, and tourism supports the county's growing economy. In fact, one of the fastest growing 

counties by job growth is Sequatchie County in Tennessee, which grew over 20 percent in just six years and is a major center 

for hang-gliding.

A Boost from Broadband...

Rural areas with solid internet access also grow economically. For instance, Gilmer County in West Virginia, which grew by 

about 14 percent over the past six years, has been working to expand broadband to support small business initiatives,

including tourism. 

... but not from Mining

The Appalachian Mountains have traditionally been home to coal mining. However, despite recent regulatory roll-backs,

this industry has been declining for decades. Going forward, local economies that diversify away from this economic driver 

will likely show stronger growth.

Continuing Household Formation

As shown on the map on the next page, most of the Middle Appalachia counties with high population growth over the past 

few years are expected to continue having solid household formations over the next five years. All of these households will 

need a place to call home, including living in multifamily rentals.

Faster Growing Counties by Population in Middle 

Appalachia Rural Census Tracts

Source: 2010 and 2016 ACS 5 year estimates 
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Projected Household Growth by Middle Appalachia County

2018-2023

Source: U.S. Census Bureau 

Household Projections per Tableau
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Middle Appalachia Has Some Apartments

According to CoStar, there are just under 1,500 properties consisting of 5-50 units in the rural areas of Middle Appalachia. 

These properties contain nearly 31,000 units for an average of about 21 multifamily units per property, as shown in the table

below.

Most counties have just a handful of multifamily properties in rural census tracts. In fact, 124 counties have fewer than five 

properties each in rural areas. Only a handful of counties have a significant number of multifamily properties, with only 16 

counties having twenty or more properties in rural areas.

These properties appear to have higher vacancy rates than properties with 5-50 units nationally. As of June 2018 the vacancy 

rate for these properties was 6.2 percent compared to a national vacancy rate of about 4.4 percent for properties with 5-50 

units. At just $560 per month, rents for apartments in rural Middle Appalachia are less expensive than the $630 rent for 

apartments in Middle Appalachia overall, and about half of the national average rent of nearly $1,100 per month for 

properties with 5-50 units. 

Cap Rates Elevated

As shown in the table above, cap rates for small multifamily properties are significantly higher in rural Middle Appalachia 

than nationwide. Cap rates in rural Middle Appalachia are estimated at 8.0 percent compared to just 5.4 percent nationwide. 

This most likely reflects buyers’ concerns that properties in rural areas are riskier due to factors such as a small renter pool 

and the less diversified job base in many rural regions.

County with Most Properties in Tennessee

According to data from CoStar, Sevier County in Tennessee has the greatest number of multifamily properties, with about 

100 properties in rural areas and 1,800 units, as shown in the table below. Watauga County in Tennessee follows a distant 

second with about 60 properties containing about 1,250 units. Madison County in Kentucky follows at an even more distant 

third with an estimated 50 properties and about 625 units. Sevier and Watauga counties were also top counties for lending 

activity in 2017 and/or 2016.

Performance Steady

As shown in the table below, performance has generally been steady in the counties with more than 20 multifamily 

properties, with vacancy rates in most counties below 6.0 percent. In fact, vacancy rates of 5.5 percent in Sevier County, 4.3 

percent in Watauga County, and 4.6 percent in Madison County are below the 6.2 percent rate for rural Middle Appalachia.

Rent growth has shown more variation, however. Annual rent growth as of second quarter 2018 was 2.8 percent in Madison 

County, which exceeded both the 1.6 percent average for rural Middle Appalachia and the 2.6 percent national average. 

However, rent growth in Watauga County was just 0.8 percent. Rent growth was generally positive in counties with over 20 

multifamily properties. With the exception of Washington County in Ohio, where rents declined by 1.1 percent, most 

counties with at least 20 properties have had positive annual rent growth.

 Region Properties Units Average 

Vacancy

Average 

Rent

Rent Growth 

(Annual) Cap Rate

Middle Appalachia 4,200 78,000 6.1% $630 1.6% 8.8% 

Rural Middle Appalachia 1,500 31,000 6.2% $560 1.6% 8.0%

National (5-50 units) 325,000 4.9million 4.4% $1,100 2.6% 5.4%

County Properties Units Average 

Units

Average 

Vacancy

Average 

Rent 

Rent Growth

(Annual)

Sevier County, TN 100 1,800 17 5.5% $660 2.0%

Watauga County, NC 60 1,250 21 4.3% $670 0.8%

Madison County, KY 50 625 12 4.6% $540 2.8%

Select Statistics for Small Multifamily Properties (5-50 Units)

Source: CoStar, as of June 2018

Select Middle Appalachia Counties with a High Number of Small Multifamily Properties

Source: CoStar, as of June 2018
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Rural Middle Appalachia

Lending Characteristics

The availability of multifamily 

lending data is limited in the rural 

areas of Middle Appalachia, since 

many small lenders and community 

banks are not required to report data 

under the Home Mortgage 

Disclosure Act (HMDA). Even so, 

based on HMDA data, lending in 

rural tracts of Middle Appalachia 

appears to be growing. As shown in 

the adjacent chart, 2017 multifamily 

lending volume totaled $253 million 

on 213 loans, with an average loan 

size of about $1.2 million. This 

represents an increase of 18 percent 

in the number of loans and a nearly 

58 percent increase in multifamily lending volume since 2014. As a result, it is probable that property values are growing in

faster growing areas of Middle Appalachia.

Correspondingly, it appears that there has been an increase in sales transactions with the volume of multifamily originations

nearly tripling since 2014 to almost $150 million in 2017. While refinances of multifamily properties continue to play an 

important role in originations, they grew more modestly to just over $89 million. In addition, refinances fell to just 37 

percent as a share of origination volume in 2017 from over half in 2014.

A Limited Number of 

Multifamily Lenders in Rural 

Tracts

As shown on the adjacent left table, 

Kentucky Bank was a top lender in 

both 2017 and 2016, originating an 

estimated $17 million in volume on 

13 multifamily loans. In addition, a 

couple of larger regional lenders, 

U.S. Bank and Branch Banking and 

Trust, were active multifamily 

lenders in the rural areas of Middle 

Appalachia over the past couple of 

years. While the Bank of Tennessee 

originated six loans in 2017 with a 

larger average balance of about $4 

million, for the most part the 

lenders appear to be smaller banks 

originating loans under $2 million.

Top Counties for Multifamily Lending in Rural Tracts

Four of the top five counties in which multifamily lending took place in rural census tracts were surprisingly consistent over 

the past couple of years, as shown on the right table above. Madison County in Kentucky saw the highest amount of 

multifamily activity with an estimated $44 million of origination volume on 36 loans. Two counties in West Virginia, Marion 

and Harrison Counties, also saw a lot of multifamily lending with an estimated $30 million in volume.

Origination Volume in Middle Appalachia

Middle Appalachia Multifamily Lending in Rural Areas

Note: Multifamily Rural Loans identified via file provided by FHFA, based on all first lien loans. 

Source for tables: HMDA 
© 2018 Fannie Mae. Trademarks of Fannie Mae. 8 of 9

The remaining county with a high number of multifamily originations was Sevier County in Tennessee, which saw 

originations total almost 18 million on 20 loans. However, the average loan size in Sevier was quite small in averaging $1 

million in 2017 and just $700,000 in 2016.

Many Reasons to Finance Small Multifamily

Small multifamily buildings can be an important source of affordable housing. For that reason, in its Duty to Serve 

regulations, FHFA provides credit to Fannie Mae and Freddie Mac for financing small multifamily housing in the affordable 

housing preservation market, as well as the rural housing market, if the housing serves families of moderate-, low-, or verylow incomes. In addition, FHFA’s housing goals regulation also recognizes the importance of the GSEs financing small 

multifamily housing serving low-income families. 

Manufactured Housing Communities

Due to the steep mountain terrain, there is generally limited suitable land to build homes. In addition, low incomes put 

homeownership out of reach for many residents. These factors have greatly contributed to the growth of manufactured 

housing communities (MHCs), which tend to have smaller housing units that are more affordable. As shown on the map 

below, there are several counties with a high concentration of MHCs in the rural areas of Middle Appalachia. For instance, 

Pulaski, and Rowan Counties in 

Kentucky each have over 20 

MHC properties. Ohio has four 

counties with just under 20 MHC 

properties each in rural areas: 

Washington, Ross, Adams, and 

Gallia counties. Only West 

Virginia and Virginia lack any 

counties with high 

concentrations of MHCs in rural 

areas. 

Many Reasons to Finance 

MHC

Manufactured housing is an 

important source of affordable 

housing in rural areas. This 

includes rental homes located in 

MHCs, including government, 

non-profit, and resident-owned 

MHCs. For that reason, in its 

Duty to Serve regulation, FHFA 

provides credit to Fannie Mae 

and Freddie Mac for financing 

certain types of manufactured 

housing units, as well as MHC 

properties. Also, MHC loan 

acquisitions are exempt from 

FHFA’s imposed lending cap on 

the GSEs. 

There Are Multifamily Lending Opportunities in Middle Appalachia

Although there are a limited number of multifamily properties located throughout Middle Appalachia, opportunities for 

lending and providing liquidity do exist. These opportunities are primarily closer to larger population centers that have an 

adequate population to support apartment rentals. Additionally, MHCs are also prevalent in the region. These provide 

another important financing opportunity to support affordable multifamily housing in rural areas of the Middle Appalachian 

region.

Source: Datacomp/JLT

Number of MHC by County in Rural Middle Appalachia Tracts
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Tatyana Zahalak

Senior Multifamily Economist

Multifamily Economics and Market Research

October 2018

Opinions, analyses, estimates, forecasts and other views (collectively, “Opinions”) expressed by Fannie Mae’s 

Multifamily Mortgage Business Market Research Group (MRG) in these materials should not be construed as an 

indication of Fannie Mae’s business prospects or expected results. Such Opinions may be based on a number 

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it does not guarantee that information provided in these materials is accurate, current or suitable for any 

particular purpose, since changes in the underlying information could produce materially different results. 

Opinions published here by MRG represent the views of that group as of the date indicated and do not 

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Where Opinions have been based, directly or indirectly, on publicly available third-party data/information 

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recipient is entitled to rely on the Opinions or on the underlying data and/or information provided by such thirdparty source and included as a part of these materials.