© 2017 Fannie Mae. Trademarks of Fannie Mae. 3.17.2017 1 of 5

Multifamily Market Commentary – February 2017

Affordable Multifamily Outlook – Incremental Improvement Expected in 2017 

We expect momentum in the overall multifamily sector to slow in 2017 due to elevated levels of new supply and moderating 

job growth. As a result, the national vacancy rate is expected to increase while rent growth remains positive but grows at a 

lower – and more normalized – pace. While in theory this should lead to incremental improvement in the affordability of the 

multifamily rental market, in actuality it is likely to end up doing little to reverse the significant erosion in affordability of 

multifamily rentals seen since the end of the recession.

Naturally-Occurring Affordable Rentals Tightened After Recession

As shown in the chart below, vacancies tightened considerably from 2009 to 2015 for affordable multifamily rentals (i.e., 

those affordable to working households, labeled “Workforce”, and even lower cost rentals comparable in rent to subsidized 

multifamily rentals, labeled “Comparable to Subsidized”). According to third-party data provider CoStar, vacancies for both 

categories of multifamily rentals fell to just 4.2 percent in 2015 from 7.4 percent in 2009 for Workforce and 6.9 percent for 

the Comparable to Subsidized category.

However, vacancy rates for affordable multifamily rentals may be even tighter. Third-party data vendor Reis, Inc. estimated 

vacancies for all non-subsidized Class B/C multifamily rentals at just 2.8 percent as of Q4 2016. However, that vacancy rate 

is not far from Reis’ estimated 1.0 percent vacancy rate for subsidized rentals, which consists of multifamily rental properties 

subsidized with federal Low Income Housing Tax Credits (LIHTC) and Section 8 project-based vouchers, reflecting ongoing 

demand for all types of affordable multifamily rentals.

Note: CosStar High-Rent Segment is approximated by five and four star category properties. CoStar Workforce Segment is approximated by three star 

category. CoStar Comparable to Subsidized category approximated by two star and one star category data. CoStar does not provide projections of two 

and one star category, so no forecast is available.

Vacancy Levels for Affordable Multifamily Rentals Likely to Remain Stable

According to the Dodge Data & Analytics Construction Pipeline, which distinguishes between multifamily properties 

consisting of either apartment or condo units, based on data through January 2017, another 404,000 units are expected to 

come online in 2017. Most of this new supply is believed to consist of Class A units, which command the highest rent levels 

in their location. 

According to CoStar, its estimated vacancy rate for the High-Rent Class A multifamily segment has been rising over the 

past few years and is expected to remain elevated at over 8.0 percent in 2017 and 2018 due to these new completions. 

CoStar’s Workforce vacancy forecast is expected to remain approximately 3.0 percent below its High-Rent forecast of about 

5.25 percent over the next 12 to 24 months, as shown in the chart above. 

In comparison, Reis projects that vacancies at subsidized properties will likely remain well below 2.0 percent over the next 

12 to 24 months.

1%

2%

3%

4%

5%

6%

7%

8%

9%

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

CoStar High-Rent CoStar Workforce CoStar Comparable to Subsidized

REIS Class B/C REIS Subsidized

Forecast

Vacancies by Affordable Market Segment 2009 - 2021
© 2017 Fannie Mae. Trademarks of Fannie Mae. 3.17.2017 2 of 5

Little New Naturally-Occurring Affordable Supply

As most of the past few years’ new affordable supply has been clustered in the High-Rent Class A segment, it appears that 

there has been little growth in the stock of the more affordable Class B/C segment, as shown in the chart below. Strong 

demand for multifamily rentals has even prompted developers to renovate more affordable Class B/C properties into Class 

A. The net impact of the two trends has been that while the number of Class A units grew by an estimated 800,000 since 

the end of the recession to an estimated 4.7 million units, the number of Class B/C units remained virtually unchanged at 

an estimated 5.7 million units, according to the sample data tracked by Reis. This trend is unlikely to change in the next 12

to 24 months as most of the new supply underway is estimated to consist of Class A units.

Source: Reis, Inc.

Subsidized Supply is Also Struggling

Most new affordable multifamily supply falls into the subsidized category, which is funded by LIHTC. Since its creation in 

1986, the LIHTC program has created over 2.5 million affordable units that remain in the program. Many of these units are 

older and require an infusion of credits for renovation, which leaves fewer credits for new units.

The number of new LIHTC units placed in service appears to have been steadily declining, as shown in the chart below. 

With rising construction costs and reductions to other state and federal subsidy programs, the number of LIHTC units placed 

in service appears to have fallen by an estimated 25 percent on average annually from pre-2005 levels, based on the most 

recent data available. (It is important to note that this data is based on projecting allocations of LIHTC subsidies published 

by allocating Housing Finance Agencies to estimated completion dates and may be subject to revisions)

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2009 2010 2011 2012 2013 2014 2015 2016

Millions

Class A Class B/C

40,000

60,000

80,000

100,000

120,000

140,000

Number of Units

Growth in Class A vs. Class B/C 

Low Income Housing Tax Credit Units (LIHTC) Projects Placed in Service since 2000 

Source: HUD Low Income Tax Credit Database as of October 2000-2012; Integratec Tax Credit Central estimates 2013-2015 based on HFA 

allocations.

* Estimates only, based on HFA allocations. Integratec assumed 15% of the current year allocations, 60% of the prior year allocations and 25% of 

two years prior allocations would be placed in service. For example, 2014 reflects 15% of the 2014 allocations, 60% of the 2013 allocations, and 

25% of the 2012 allocations.
© 2017 Fannie Mae. Trademarks of Fannie Mae. 3.17.2017 3 of 5

It looks as if this trend is likely to continue. According to data from the Dodge Data & Analytics Construction Pipeline, there 

are only about 50,000 units of subsidized or mixed income projects underway as January 2017. However, this estimate may 

be low as subsidized multifamily is not a major property type tracked by Dodge. 

Asking Rents Have Also Risen for Affordable Multifamily 

While asking rents for all classes of rentals reached a trough in 2009, it appears that rents fell less sharply for more 

affordable rentals. As shown in the chart below, rents for the Class A segment of rentals, labeled “High-Rent,” fell by just 

over 5.0 percent from 2007 to 2009 to an estimated $1,387. By contrast, rents for the Class B/C segment, labeled 

“Comparable to Subsidized,” fell by only 3.1 percent to an estimated $815. This phenomenon allowed for a “move up effect” 

where still-employed renters of all classes were able to move to a higher class of rental. Since 2010, rents have rebounded 

strongly for all types of rentals, including affordable multifamily.

Rent Growth Expected to Ease Slightly

According to CoStar, rent growth was positive for 

all classes of rentals in 2016, as shown in the 

adjacent chart. However, rent growth for existing 

naturally-occurring affordable rentals outpaced 

growth for existing Class A rental units by over 

two percent - a significant premium. Rent growth 

for units labeled as workforce grew by an 

estimated 3.2 percent in 2016 to end the year at 

$1,287. Rent growth for naturally-occurring 

affordable units, where rents are likely 

comparable to those for subsidized units, grew 

by 3.5 percent in 2016 to an estimated $965. 

Both segments grew well above the pace of 

inflation, which rose 2.1 percent in 2016.

The expectation for 2017 is that rent growth in 

the workforce rental category will moderate but 

remain quite healthy at 2.5 percent. This would

be more than 1.0 percent above the growth 

experienced by CoStar’s High-Rent segment. 

As a result, the onslaught of new supply 

expected in 2017 is expected to only depress rent growth in the High-Rent Class A segment, keeping rent growth just below 

1.5 percent and doing little to improve affordability. In fact, renters will not even benefit from the “move up” effect seen 

during the recession when rents for the Class A segment fell.

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

High-Rent Workforce Comparable to Subsidized

Forecast

Source: CoStar Group

Estimated Asking Rents by Multifamily Property Type – 2007 - 2020

CoStar Rent Growth Forecast 2016 - 2020

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2016 2017 2018 2019 2020

High-Rent Workforce Comparable to Subsidized

Source: CoStar Group

Note: CoStar does not provide projections of two and one star category and therefore

no forecast is available here for the Comparable to Subsidized Category.
© 2017 Fannie Mae. Trademarks of Fannie Mae. 3.17.2017 4 of 5

Household Incomes Most Likely Rising Somewhat

Housing affordability is affected by many factors, including the supply of rentals, the demand for rentals, and growth in 

income and rent. All else being equal, when growth in income outpaces rent growth, rentals become more affordable. 

Over the next two years, national household incomes are likely to outpace rents by about 2.1 percent cumulatively, based 

on Moody’s Analytics estimate that median household income will grow by a robust 6.9 percent, which would outpace more 

normalized rent growth of 4.8 percent, as estimated by CoStar. This would lead to only modest improvement in affordability 

nationally. However, there are a number of metros where income growth will outpace rent growth by a somewhat wider 

margin. 

Improvement in Affordability Will Vary by Metro through 2018

As shown in the chart above, affordability will likely improve most substantially in Houston where income growth is projected 

to outpace rent growth by an estimated 10 percent. Houston is expected to have more than 9,500 units deliver this year 

but is only likely to see demand for about 4,000 multifamily units, leading to a decline in rents. 

However, large amounts of new supply do not always guarantee substantial improvement in affordability. For instance, even 

though Denver is in the midst of a massive supply wave with more than 27,000 units delivered since 2012, strong job and 

population growth coupled with solid household formations have limited the rise in the vacancy rate to just 5.25 percent 

through the end of 2016, which is on the low side of the historic average. Even with 16,000 additional units underway, 

Denver’s anticipated job growth will likely be strong enough to support the need for 12,000 additional units. As a result, 

wage growth is likely to outpace rent growth by an estimated 3.6 percent, leading to only a modest improvement in 

affordability in Denver.

Florida Metros Will Likely See Improvement

Rents in some of the Florida metros are considered to be quite affordable by national standards. While rental affordability 

declined somewhat over the past couple of years, this trend will likely reverse as stronger job growth in many Florida metros

coincides with a pickup in new supply. As shown in the chart above, Jacksonville, Tampa, Orlando and Miami are likely 

to see incomes outpace rents on a cumulative basis by at least 3.0 percent over the next two years. 

Tampa will likely support some of the strongest improvement in affordability. The metro’s economy has received a boost in 

increased port traffic from the recently expanded Panama Canal. According to Moody’s Analytics, the economy is likely to 

add approximately 65,000 jobs in 2017-2018, with over half of the job growth in mid-wage fields, including construction and 

healthcare, as well as in some high-wage fields, including finance and technology. As a result, incomes are likely to exceed 

rents by an estimated 5.5 percent over the next two years.

Select Metros with Improving Affordability 2017 - 2018

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Two Year Cumulative Income Growth Two Year Cumulative Rent Growth

10.1%

3.6%

Source: Moody’s Analytics, CoStar Group
© 2017 Fannie Mae. Trademarks of Fannie Mae. 3.17.2017 5 of 5

Not All Metros Likely to See Affordability Improvement

There are some metros where affordability will likely stagnate or 

continue declining. As shown in the chart to the right, the Anaheim

metro area is expected to continue having rents outpace incomes, 

albeit only by about 0.7 percent over the next two years. Similarly, there 

are a number of metros in Texas where affordability is not expected to 

improve due to the rapid influx of people seeking jobs. San Antonio, 

Dallas, and Austin are not likely to see any improvement in multifamily 

affordability over the next two years, despite large amounts of new 

supply coming online.

Household Income Growth Differs from Wage Growth

Generally, household income growth is forecasted at a metro level, but 

wage growth is not. While these forecasts can provide useful insight 

into affordability, it is important to note that income is different than

wages. Wages measure earnings from work, while income can include 

non-work earnings such as interest and dividends. While growth in 

income will help with rental affordability, many renters rely solely on 

wages, limiting the predictive power of income forecasts for rental 

affordability. 

2017 Outlook: Wage Growth Should Benefit Affordable Multifamily Housing

Despite the anticipated slowdown in the nation’s average rent growth, it is not expected to be much of a benefit to the 

affordable multifamily segment. Although there has been a substantial amount of new supply delivered, it has been 

concentrated mostly in 12 metros and consists primarily of Class A units. As a result, Class B/C rent growth may slow, but,

because of the current supply/demand imbalance, it is not expected to decline. Instead, strengthening wages are likely to 

outpace rent growth in many metros, which should contribute to modest improvements in the affordability of multifamily 

rental housing.

The supply/demand imbalance for all types of affordable housing remains an ongoing issue. According to the recently 

released Preview of 2015 Worst Case Housing Needs report from the U.S. Department of Housing and Urban Development, 

there were still 2.2 million more renters with worst case housing needs in 2015 than there were just a decade ago. It will 

take more than one year of modest improvement in affordability to reverse this long-term trend.

Tanya Zahalak

Senior Multifamily Economist

Multifamily Economics and Market Research

February 2017

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market 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.

Select Metros with Worsening Affordability 

2017 - 2018

0%

1%

2%

3%

4%

5%

6%

7%

8%

Two Year Cumulative Income Growth

Two Year Cumulative Rent Growth

Source: Moody’s Analytics, CoStar Group