Moody’s Projects Affordable Housing Rent Growth

Affordable housing should close the year on a high note. According to research from Moody’s Analytics REIS, affordable housing should close the year with 1.2% of rent growth as the pandemic has had minimal impact on the sector. Moody increased its initial forecast for affordable housing rent growth from 1% to 1.2% because the housing segment already hit 1% rent growth in the third quarter.

While overall the affordable housing market has outperformed multifamily, Moody’s report highlights markets that have struggled through the pandemic. Of the 100 markets tracked, 31 had negative affordable housing absorption. Odessa-Midland recorded the most significant decrease in affordable housing absorption this year, followed by Suburban Virginia and Phoenix. Negative absorption is likely due to limited supply and little availability through the pandemic.

Tulsa, Little Rock and Raleigh-Durham had the most significant increase in occupancy, rising by .8%, 0.5% and 0.4%, respectively. Some markets also saw significant rent increases that outpaced the national average or 1.2%. Daytona Beach and Omaha topped the list with rent growth of 1.4% and 1.3%. National affordable housing rents gained ground in the third quarter as vacancy rates stabilized.

Rents, however, fell in 25 of the 100 markets reviewed. Once again, Odessa-Midland led the decrease in rents, down 1.2% for the quarter. Last quarter, rents in the same market declined 3.2%, illustrating the downward trend. San Francisco affordable housing rents also declined steeply, down .8% for the year.

Limited supply appears to be the biggest challenge for the affordable housing market. Last quarter, new construction activity fell below expectations with only 42,000 units delivered in the third quarter, 2,000 units below deliveries in the second quarter.

Despite issues in some markets and weakening new construction activity, Moody’s research says that the affordable housing sector is the strongest in the CRE market and demand continues to outpace supply this spells good news for the future performance of the sector.