© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 1 of 8

Multifamily Market Commentary – February 2019

2019 Multifamily Affordable Outlook – An Overwhelming Need for 

Workforce Housing

Multifamily housing affordability is likely to face significant headwinds in 2019. Due to the corporate tax rate declining to 

21 percent from 35 percent under the Tax Cut and Jobs Act of 2018 (TCJA), the value of tax credits has declined significantly. 

This decline, coupled with the absence of an offsetting permanent increase in the total national allocation of Low Income 

Housing Tax Credits (LIHTC), has resulted in less capital available to build and preserve affordable multifamily housing. 

More market-rate multifamily rentals are expected to deliver this year, but these will primarily be more expensive, Class A

units. In addition, the market-rate multifamily sector is expected to see continuing rent growth. As a result, rents are not 

expected to decline in the coming year and make housing more affordable. 

However, the TCJA did introduce a few incentives that may have some positive impact in supporting affordable rentals. One 

of these is Opportunity Zones, which allow investors to defer gains for investment in primarily disadvantaged 

neighborhoods. Another incentive is income averaging for LIHTC properties, allowing some flexibility in meeting regulatory 

income restrictions. In addition, the fiscal year 2018 omnibus spending bill provided a four-year, 12.5 percent annual

increase to the 9 percent LIHTC allocation. However, this temporary increase is unlikely to offset the overall reduction in 

affordable unit production.

While some of these incentives are certainly welcome, they are unlikely to reverse the significant erosion in multifamily 

affordability seen since the end of the Great Recession. There continues to be an overwhelming need for all types of 

affordable multifamily units. 

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 marketrate apartments. At one end is rent-restricted housing subsidized by LIHTC, the Section 8 program, and a growing number 

of state and local inclusionary housing incentive initiatives. 

Market-rate properties that do not receive support from government housing programs, but generally have more affordable 

rents than Class A properties, are at another point on the spectrum. These units may be more affordable to low- and 

moderate-income households due to their age, condition, or location, and are usually referred to as Class B and C units.

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 supply and demand. 

Vacancy Rates for Workforce Housing Remain Low...

Ongoing demand for affordable rental units has kept the estimated vacancy rate very low for the types of apartments 

affordable to many working renters. As shown in the chart above, vacancy rates for Class B and C properties bottomed out 

in 2015 at 5.1 percent and have barely budged since. The estimated vacancy rate for Class C apartments, which tend to be 

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

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

Class A

Class B

Class C

Rent-Restricted

Source: CoStar, Reis, Inc.

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

approximated by two-star and one-star category data. Rent-Restricted data from Reis.

Vacancies by Class 2009 - 2020
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 2 of 8

some of the most affordable, was only 4.9 percent as of the end of 2018, according to CoStar. Vacancies at rent-restricted 

properties were even tighter – only 2.3 percent, according to Reis. 

These include properties with rent-restricted units that benefit from LIHTC and Project-Based Section 8 programs. Even 

vacancies at middle-market Class B apartments remained low at 5.5 percent. Only vacancies at Class A units remained 

elevated at 8.5 percent as of the end of 2018. 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 3.0 or more percentage points below 

that of Class A rentals.

...and Are Unlikely to Rise

The vacancy rates at apartments affordable to workforce households are unlikely to rise anytime soon. According to Reis, 

vacancies at rent restricted apartments should remain below 2.1 percent through 2020. According to CoStar, vacancies at 

more affordable Class B and C properties should rise to just 5.7 percent and fall to 4.8 percent, respectively, through 2020, 

which would still leave them below the historical average of 6.0 percent. By contrast, the vacancy rate at Class A properties 

could rise to as high as 10.3 percent by the end of 2020, as continuing deliveries meet slowing job growth.

New Supply Has Not Benefitted Lower Income Working Renters

It is expensive to build new units. Construction costs, including labor and materials, continue to rise. According to 

Multifamily Cost of Regulation, jointly released by the National Association of Home Builders and the National Multifamily 

Housing Council in June 2018, regulation imposed by all levels of government accounts for over 30 percent of the average 

cost of a new multifamily development. In addition, local zoning restrictions may limit density, thereby restricting the 

number of units built. As a result, not only is most new supply expensive, but delivery of new units is not evenly distributed 

across the country. Development is now concentrated in only about 10 metros, most of which command higher asking rents,

such as New York; Washington, DC; and Seattle.

The number of new Class A units has grown by just under 1.4 million units from the end of 2009 to the end of 2018 and now 

totals about 5.3 million units, according to Reis. A renter household would have to earn almost $89,000 a year to be able to 

afford the average Class A rent of $2,224 on a newly constructed apartment in 2018. 

Share of Affordable Class B and C has Declined

From 2009 to 2013, an estimated 165,000 Class B and C units were lost on average annually, primarily due to obsolescence 

or gentrification. More recently, an estimated 120,000 units per year are lost on average. The slowdown can be attributed 

to the strong demand for rentals since the end of the recession. According to the May 2018 Joint Center for Housing Studies 

(JCHS) of Harvard University’s report, Proactive Preservation of Unsubsidized Affordable Housing in Emerging Markets, 

gentrifying neighborhoods with strong demand for multifamily rentals ended up having many of their older – and therefore 

usually more affordable – market-rate properties renovated into more expensive Class A units since that is usually more 

cost-effective than new construction. As a result, the share of more affordable Class B and C units has declined to about 52 

percent of stock as of the end of 2018 compared to an estimated 59 percent as of the end of 2009, as shown above.

Class A Stock vs. Class B/C Stock

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Class A

Class B/C

Source: Reis, Inc.
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 3 of 8

Rent Growth Higher for Affordable Rentals...

According to CoStar, asking rent growth in the Class B and C 

segments outstripped the Class A segment over the past few 

years, as shown in the adjacent chart. Rent growth for the Class

C segment, where rents are likely comparable to those for rentrestricted units, grew by an estimated 2.9 percent in 2018 to 

about $1,034 per month. Rent growth for Class B units was 

even stronger at 3.4 percent, resulting in an estimated $1,190 

per month. Both segments grew well above the pace of 

inflation, which averaged 2.4 percent in 2018.

...and It Is Likely to Continue

Going forward, 2019 new supply deliveries are expected to 

start to spill over to the Class B and C segments thanks to

slowing or even negative rent growth on high rent Class A units 

in some submarkets. This should dampen the rent increases 

that owners can command on more affordable units. Even so, 

rent growth for all types of multifamily rentals should remain positive, doing little to improve affordability.

CoStar projects that in 2019 rent growth in the middle market Class B segment will moderate but remain positive at 2.7

percent, and rent growth in the Class C segment will moderate to an estimated 2.4 percent. In both cases, rent growth will 

still be higher than the 2.3 percent rate projected for the Class A segment.

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 will help with rental affordability, many renters rely solely on wages, making wage growth an important 

indicator of affordability. 

As shown in the chart below, as of December 2018, the year-over-year change in private sector nominal average hourly 

earnings for all non-farm employees strengthened considerably to 3.2 percent, which was the fastest pace of growth seen 

since the Great Recession ended in June of 2009. Even the wage growth of production and nonsupervisory employees grew 

by 3.3 percent.

... but Rent Growth Still Higher 

Rental affordability primarily improves when wage 

growth meaningfully outpaces rent growth. 

However, as shown in the adjacent chart, year-overyear rent growth in the middle market Class B 

segment has outpaced the wage growth of nonproduction/non-supervisory employees for 27 

consecutive quarters – almost seven years now. 

Indeed, year-over-year rent growth for middle 

market Class B units was 3.4 percent at the end of 

2018, according to CoStar. The ongoing mismatch 

between the pace of rent growth and wage growth 

has made many working renters cost-burdened 

since they must spend more and more to keep up 

with increasing rent levels.

CoStar Asking Rent Growth Forecast 2016-2020

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2016 2017 2018 2019 2020

Class A

Class B

Class C

Source: CoStar

Year-over-year Change in Private Sector Nominal 

Average Hourly Earnings and Asking Rent, 2007–2018

Source: CoStar, Economic Policy Institute; 

https://www.epi.org/nominal-wage-tracker/#chart-unemployment-rate 

-9.0%

-4.0%

1.0%

6.0%

All nonfarm employees wage growth

Production/nonsupervisory workers wage

growth

Class B Rent Growth
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 4 of 8

A Crisis of Cost-Burdened Renters

Including single-family renters, almost half 

of renter households – 20.2 million – are 

cost-burdened, meaning they spend more 

than 30 percent of their income on rent and 

utilities. Of even greater concern, the 

number of severely cost-burdened renter 

households – those paying more than half of 

their household income for housing –

totaled nearly 11.0 million, or just over a 

quarter of all renter households. This 

represents a 21 percent increase since just 

2005. As shown below, 27 percent of renter 

households living in apartments are severely 

cost-burdened compared to just 10 percent 

of owner households.

Severe Cost Burdens Exist Across the U.S.

While nationwide about one quarter of renter households are severely cost-burdened, there are metro areas where the share 

of severely cost-burdened renters is significantly higher. According to The State of the Nation’s Housing 2018, almost 32 

percent of renter households in the Los Angeles metro and 29 percent in the New York metro spend over half of their income 

on rent and utilities. 

However, it’s not just the coasts that are affected. About 31 percent of renter households in the New Orleans metro and 

around 27 percent of renter households in the Cleveland, Detroit, Chicago, and Little Rock metro areas are also severely 

cost-burdened. 

Smaller metro areas also have above average shares of renters that are cost-burdened. For instance, an estimated 35 percent 

of renter households in Fresno and 28 percent in Syracuse are severely cost-burdened.

KEY AFFORDABLE HOUSING TERMS

Affordable Rent: When a household spends less than 30% of gross income 

on housing costs (rent + utilities).

Cost Burdened: When a household spends more than 30% of their gross 

income on housing costs.

Area Median Income (AMI): The income for a city where half of 

households earn more and half of households earn less.

Extremely Low Income (ELI): Households with income at or below 30% of 

AMI.

Very Low Income (VLI): Households with income from 30.1% to 50% of 

AMI.

Low Income (LI): Households with income from 50.1% to 80% of AMI.

Moderate Income (MI): Workforce households with income from 81% to 

120% of AMI.

High-Income: Households with income above 120% of AMI.

Source: Fannie Mae, American Community Survey (ACS) PUMS data, 2005-2017

Definitions: Households are housing cost burdened if they spend more than 30% of their income on monthly housing costs; severely cost 

burdened if they spend more than 50% of their income. For homeowners, monthly housing costs include mortgage payments + insurance + 

utilities; for renters monthly housing costs are rent + utilities.

Cost-Burdened and Severely Cost-Burdened 

46%

51%

46%

25%

28%

24%

49%

53% 51%

26%

29%

27%

2005 2007 2009 2011 2013 2015

Single Family Burdened (30%)

Single Family Severely Burdened (50%)

Multifamily Burdened (30%)

Multifamily Severely Burdened (50%)

Share of Single-Family Owner Households Share of Renter Households

28% 30%

22%

11% 13% 9%

2005 2007 2009 2011 2013 2015 2017

Single Family Burdened (30%)

Single Family Severely Burdened (50%)
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 5 of 8

Cost Burdens Worse for Lowest Income Working Households

Over 80 percent of renter households earning less than 50 percent of area median income (AMI) are cost-burdened and 

almost 60 percent are severely cost-burdened. This includes both extremely low income (ELI) renter households that earn 

just up to 30 percent of AMI and very low income (VLI) renter households that earn between 30.1 and 50 percent of AMI. 

As a result, as shown on the chart below, almost 2 out of every 3 VLI renters are living in units that are only affordable to 

households at higher income levels, thereby creating a housing cost burden for those renters who can least afford it. 

Middle Income Working Renters are 

also Cost Burdened

As shown in the adjacent chart, half of all 

renter households earning between 60.1

and 80 percent of AMI remain costburdened, while 9.0 percent of these 

households are severely cost-burdened. 

Almost one in four moderate income (MI) 

households, those earning between 80.1 

and 120 percent of AMI, are costburdened, and another 3.0 percent are 

severely cost-burdened.

Large Portion of Rentals Affordable Only to Highest Income Households in Some Metros

In some large metros a large portion of apartments are only affordable to the highest-income working renter households, as 

shown in the chart below. It’s likely no surprise that in San Francisco, Los Angeles, and New York, 64 percent, 52 percent, 

and 47 percent of multifamily stock, respectively, is only affordable to those renters earning more than 120 percent of AMI. 

However, other metros are less obvious. A quarter of apartments in Miami and Riverside metros are only affordable to the 

highest-income renter households who earn more than 120 percent of AMI.

Share of Cost Burdened Renters by Income

Source: Fannie Mae, 2017 ACS PUMS data

84%

50%

24%

59%

9% 3%

Le ss Than Half 6 0.1% t o 8 0% 8 0.1% t o 120% 

Area Median Income (AMI) Range

Cost-Burdened

Severely Cost-Burdened

Share of Apartment Stock Affordable by Income Band 

Source: CoStar

Note: Calculations based on CoStar database of apartments/rents and FHFA AMI files. 6%2%3%2%2%

4%

4%

12%

14%

19%

32%

29%

22%

25%

5%

15%

19%

18%

23%

25%

21%

13%

17%

12%

17%

16%

23%

25%

64%

52% 47% 31% 30% 27% 25%

San 

Francisco

Los Angeles New York Miami Boston San Diego Riverside

Up to 50% 50.1% to 80% 80.1% to 100% 100.1% to 120% Above 120%
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 6 of 8

Some Metros Have More Affordable Rental Stock

There are a number of metros with a higher concentration of affordable rentals. These metros tend to be in the Midwest or 

less populous, as shown in the chart below. For instance, in Memphis, Columbus, St. Louis, and Cincinnati, a quarter r more 

of the housing stock is affordable to households earning half of AMI. Some metros, mostly located in the South and in Texas, 

also have additional affordable stock. Tampa, Las Vegas, San Antonio, Charlotte, and even Chicago, have more than 48 

percent of their multifamily rental stock affordable to LI renter households.

Some Affordable Metros Lack Affordable Apartments

However, there is still a shortage of affordable housing in many of these metros. That’s because the share of renter 

households earning less than half of median income for their local area is higher than the share of stock affordable to these

renter households. That lack of affordable supply forces many of these renters into units that are more expensive and that 

are affordable to households earning more than 50 percent of AMI. As seen in the chart below, even though Dallas is 

considered a fairly affordable metro, 18 percent of renter households earn only up to half of the median income, far greater 

than the 4.0 percent of stock potentially available. Similarly, while 13 percent of renter households in Tampa earn no more 

than 50 percent of the metro’s AMI, only 2.0 percent of its multifamily rental stock is affordable to this income group. 41% 34% 23% 23% 2%4%6%10% 4% 47%53%63% 55% 34%49%60% 49%57% 8%7%10%14% 36% 33% 20% 17%23%

Cincinnati St. Louis Columbus Memphis T ampa Las Vegas Charlotte Chicago Dallas

Up to 50% 50.1% to 80% 80.1% to 100% 100.1% to 120% Above 120%

Share of Apartment Stock Affordable by Income Band

Source: CoStar

Note: Calculations based on CoStar database of apartments/rents and FHFA AMI files. 

Share of Renter Households Earning Up to Half of AMI vs. Apartments Affordable to 

These Households

2% 4% 4% 6%

10%

4%

13% 14% 15% 16%

20%

18%

T ampa Las Vegas San Antonio Charlotte Chicago Dallas

Share of Apartments Share of Households

Source: CoStar

Note: Calculations based on CoStar database of apartments/rents and FHFA AMI files. 
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 7 of 8

And Not Enough Rent-Restricted Housing...

Even though households at the lower end of the income spectrum need rent-restricted housing, there is a limited supply of 

this type of rental housing due to funding limitations. While LIHTC, Section 8, and public housing help working families 

significantly reduce their housing cost burdens, current availability is overwhelmed by the sheer number of VLI and ELI 

households. According to the Center on Budget and Policy Priorities, only one in four eligible households receive any rental 

assistance.

...and Production has Fallen Off

The LIHTC program has been the highest producer of new affordable 

workforce housing, creating an estimated 3.0 million units since the 

program began in 1986. However, with the corporate tax rate declining

to 21 percent, the value of tax credits has declined significantly. 

Coupled with the absence of an offsetting permanent increase in the 

total national allocation of LIHTC, this has resulted in less capital 

available to build and preserve new affordable housing.

Even though the fiscal year 2018 omnibus spending bill provided a 

temporary four-year 12.5 percent annual increase to the 9 percent

LIHTC allocation, it has not been enough to offset the overall reduction 

in the production of new rent-restricted apartments. According to data 

from CoStar, as shown in the table to the right, annual construction of 

new rent-restricted affordable units has fallen about 15 percent, from 

an estimated 56,200 new units in 2016 to only about 47,500 units in 

2018 and 2019. In fact, according to estimates by Novogradac &

Company LLP, the future supply of affordable rental housing could be 

reduced by nearly 235,000 homes over 10 years. 

Inclusionary Zoning Programs Support Growth of Affordable Rentals

To address the increasing need for additional supply of affordable workforce housing, many local jurisdictions have begun 

creating or strengthening their existing inclusionary housing programs to create or preserve additional units for those lower 

income households that may not otherwise qualify for a subsidized unit. Inclusionary zoning programs vary and are offered 

by local or state government agencies to provide developers of new Class A multifamily rental housing certain benefits for 

including affordable units in these properties. Benefits may include density bonuses, an expedited permitting process, fee 

waivers, or even relaxed development standards. However, many of these inclusionary programs are new and voluntary, 

and the set-asides for affordable units can be as low as just 5.0 percent of the new units developed. As a result, it is unclear 

whether these programs will be able to increase the supply of rent-restricted units.

Property Preservation is an Efficient Aid in Combating Supply Shortfalls

Rent growth has been outpacing both inflation and wage growth since the end of the Great Recession. In addition, the 

national vacancy rate remains well below its longer-term average of 6.0 percent. Both factors are the result of the nation’s 

ongoing supply/demand imbalance in many metros and are placing stress on the supply of affordable housing available to 

many renters.

Creating more affordable housing for workforce renters relies on the multifamily sector’s ability to add more units each year

than are lost from the existing housing stock. While building new affordable single-family and multifamily housing is critical 

to solving the affordable housing crisis, protecting and preserving the existing stock is equally important. Therefore, it is 

critical to ensure that an ample flow of debt and equity capital is available to support property owners who preserve the 

long-term affordability of their properties and seek to extend the useful life of their properties by rehabilitating them and 

making capital investments that reduce ongoing operating costs. 

Rent-Restricted Units Under 

Construction by Year

42,000

44,000

46,000

48,000

50,000

52,000

54,000

56,000

58,000

2016 2017 2018 2019

Source: CoStar, based affordable stock. Excludes 

renovations.
© 2019 Fannie Mae. Trademarks of Fannie Mae. 2.20.2019 8 of 8

Tanya Zahalak

Senior Multifamily Economist

Multifamily Economics and Market Research

February 2019

The author would like to thank Fannie Mae economist Nuno Mota for contributing data to this commentary.

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.