Affordable Housing Posts Pre-Pandemic Level Rent Growth

The affordable housing sector posted the largest quarterly rent growth since the third quarter of 2019, in a sign Moody’s Analytics analyst David Caputo says suggests the sector “might have fully recovered” from the pandemic’s effects.

Asking rents hit an average of $986, while the national vacancy rate declined by 0.1% in the second quarter to reach 2.5%. This number is well within the average range Moody’s has observed since it began tracking the sector, and Caputo says the firm predicts the rate will stay within that range for the foreseeable future.

Affordable housing inventory grew by an average of 0.4%, with 4,506 new completions hitting the market nationally. Moody’s estimates 2021 will finish strong with 40,000 completions, “right in line with years past.”  Meanwhile, Caputo predicts average rents will increase to $996.

Pittsburgh led the sector for rent growth, driven in part by recently proposed federal legislation that would provide nearly $12.3 million in federal funding.

“Beyond federal government help, the city of Pittsburgh is also stepping in to help the dire situation,” Caputo writes. “Mayor Bill Peduto announced Thursday that he had secured $115 million in contributions from Pittsburgh’s four largest nonprofits to fund measures, one of which includes affordable housing. This is a part of the mayor’s long-awaited OnePGH initiative.”

Dallas and Oakland led net absorption this quarter, while occupancy rose the most in Oklahoma City, Memphis, and Fort Worth. And notably, “the best performing affordable markets, such as Pittsburgh, Santa Barbara, Omaha and Nashville continue to outgrow their comparable market rate properties in the second quarter,” Caputo observes.

The impact of the White House’s plan to increase affordable housing supply in the US, driven by the Biden Administration’s Build Back Better Agenda, remains to be seen.

“The big topic of discussion taking place in Congress these days is whether to allocate federal money by building more affordable housing or to increase the amount of vouchers currently available to make housing more affordable,” Caputo writes.

“Both President Biden and Congress agree that there is a major shortage for affordable housing, but they fall on different sides of this debate. Biden is more concerned with increasing the number of affordable units through infrastructure efforts while Congress insists on increasing the number of vouchers so lower income families can find housing that is more affordable. Congress thinks any new infrastructure package that gets passed must include rental subsidies to bring down rent, as increasing the affordable housing supply while not making it affordable to the lowest income families would not solve anything. Either way, whichever proposal is accepted, billions of dollars will be added to federal spending on housing.”

Moody’s predicts rents will hit 2.2% growth by the end of the year, while vacancy will decrease to 2.3%.