US Affordable Housing Vacancy Stabilizes in Q3

The US affordable housing vacancy rate remained unchanged in the third quarter, according to a report from Moody’s Analytics REIS. At the close of the third quarter, the rate was 2.4%, within the 1.9% to 2.5% historical average for the asset class. Moody’s expects affordable housing will close the year with a vacancy rate of 2.4%.

Despite the pandemic—which impacted low-wage industries most significantly—the affordable housing vacancy rate has remained stable throughout the year. After peaking above 2.5% in the fourth quarter of 2019, affordable housing vacancy sharply declined to 2.4%, and has stayed there this year.

New construction is one reason that occupancy rates are unchanged. US affordable housing inventory increased .5% this year, down from .8% in 2019. New construction deliveries totaled 5,780, below the historical quarterly average. While construction was considered essential during the pandemic, delays were inevitable given business closures.

Stabilized vacancy rate was good news for affordable rents. This year, US affordable housing rents are up 1%, and increased .1% in the third quarter. Moody’s forecasts the housing segment will close 2020 with housing rents up 1.2% to $957.

While affordable rent growth is slower than previous years, it is significantly outperforming the overall apartment market. Research from Moody’s released this month reported that national apartment rents are down 1.8% in the third quarter and effective rents fell 1.9%. These are the most declines in apartment rents since Moody’s started tracking data in 1999. By the end of the year, Moody’s expects national apartment rents will be down 2.6% and effective rents will decrease 2.8% for the year.

The stability of affordable housing has pushed capital to the sector. In the fall, Avanath Capital Management and MacFarlane Partners announced plans to form a new REIT that will “invest in, develop, redevelop and manage mostly affordable and workforce multifamily properties in Opportunity zones, in dynamic, US metropolitan areas,” according to the SEC filing. In the same month, Morgan Stanley issued a $1 billion social bond that will be used to finance affordable housing projects. The issuance is part of the firm’s commitment to sustainable investing and environmental and social impact investments.