A Closer Look at Affordable Housing Supply Challenges

The need for more affordable housing has never been greater in the United States as an increasing number of households across earning brackets are paying more than 30 percent of their income on rent. But there are numerous challenges to boosting the stock and a slowdown in new inventory starting in 2026 will only make matters worse for renters, particularly those deemed “cost burdened,” according to a new Yardi Matrix Research report.

Fully affordable housing starts dropped this year for various reasons including the cost of capital, land and construction materials. About 69,600 affordable housing units are expected to come online throughout 2024 and 70,500 units in 2025. But deliveries are projected to beginning dropping in 2026 with about 46,757 units expected and a low of 34,832 in 2027. Yardi Matrix anticipates an uptick by 2028 with about 42,557 affordable housing units projected for delivery and another decrease to 38,572 by 2029.

The supply growth limitations are just part of the challenges faced by policymakers, developers and renters. Yardi Matrix is taking a closer look at challenges and market conditions as it launches new coverage of the affordable housing sector. Its latest study is based on a dataset containing more than 3.3 million units in 20,000 fully affordable housing properties.

A new look into affordable

The properties in the Yardi Matrix study are owned and operated by both private sector entities and non-profit organizations, including non-governmental authorities and public housing authorities. Specifically, it examines 11,000 properties owned by private entities and 9,000 by NGOs and PHAs.

According to the report, every market is unique and has its own challenges. However, Paul Fiorilla, Yardi Matrix director of research, said in prepared remarks that they view this study as a valuable first step to compare the differences between market-rate and affordable rents and to understand why some markets are more successful at producing affordable housing.

The availability and competitiveness of fully affordable housing—defined as properties in which at least 90 percent of units have income restrictions—varies by market, according to Yardi Matrix’s affordable housing database. Fully affordable maximum allowable rent averages are determined by a calculation of factors including HUD income limits which can differ by location, family size adjustments, utility allowances and specific property income restriction splits such as how many units’ rents are restricted to certain percentages of Area Median Income.

Yardi Matrix compared the average maximum allowable rent of fully affordable units owned by private entities with the average advertised rent of market-rate units broken into four levels of apartment quality. They are: discretionary (equivalent to A+, A apartments); upper mid-range (A-, B+); low mid-range (B, B-) and workforce-upper (C+, C).

Housing quality categories were determined as competitive with fully affordable when the percentage of households that could afford the average market-rate rents fell within 10 percent of the same calculation for fully affordable apartments.

The main challenge: remaining competitive

Study results found that the primary challenge is that market-rate housing is not competitive with affordable housing in many of the country’s major metros including Chicago, San Francisco, Los Angeles, Boston, Miami and Northern New Jersey. In San Francisco, for example, the market-rate average is $3,028 while the fully affordable average is $1,982. Boston also has a big gap with a market-rate average of $2,801 and fully affordable average of $1,819. There were also some tertiary markets such as Hickory, N.C., and Port St. Lucie, which were deemed non-competitive.

Yardi Matrix determined there were seven small markets—South Dakota; Wichita, Kan.; Huntsville, Ala.; Amarillo, Texas; Des Moines, Iowa; Fayetteville, Ark.; and Omaha, Neb.—where 90 percent of market-rate stock was competitive with affordable properties.

Some markets, like Columbus, Ohio, have smaller gaps. Yardi Matrix found the Columbus market-rate average was $1,327 and fully affordable average was $1,147. In Oklahoma City, the market-rate average was $1,039 compared to $984 for the fully affordable average.

Factors impacting competitiveness

The average cost of all rents in a market is one reason why some market-rate properties are more or less competitive with affordable units. In major metros with extremely high average rents, the market-rate properties are significantly more expensive than the fully affordable properties.

Other factors include supply growth and composition of stock. Areas with rapid supply growth have more market-rate properties that are competitive with the affordable units. Yardi Matrix cited Austin, Texas, which added 30.1 percent to its apartment stock since January 2020, compared to Orange County, Calif., which only added 7.0 percent during the same time period due to high barriers to development in the state. Not surprisingly, the study found that market-rate properties were not competitive with affordable units in Orange County.

The composition of the stock in a market and when it was built can also lead to competitive disparity. Yardi Matrix noted St. Louis has 68 percent of its stock in the low mid-range and workforce categories that are competitive units. In a market like Orlando, however, Yardi Matrix found 60 percent of the stock was in the discretionary and upper mid-range categories and was not competitive with affordable apartments.