Affordable Housing Rent Growth Expected to Reach 2.5% This Year
Construction completions were sluggish, with just 4,861 new units coming online during the quarter.
The affordable housing sector was somewhat flat in Q4 2021 than in the previous two quarters, but the asset class is expected to see similarly strong results in 2022, according to a new analysis by David Caputo of Moody’s Analytics.
The national vacancy rate for the sector fell by 0.1% in Q4 to hit 2.3%. The vacancy rate has tended to stay in the 2 to 2.6% range since Moody’s Analytics REIS began tracking the sector, and Caputo says he expects it to stay within that range in the near future. Construction completions were also sluggish, with just 4,861 new units coming online during the quarter, far short of the fourth quarter completion average dating back to 2016, which is just over 11,000 units.
On a metro level, Atlanta and Houston posted the strongest net absorption figures, and occupancy rose most in Midland, Syracuse, and Tulsa. Wichita, Kansas City and Charlotte had the sharpest drops in occupancy.
Interestingly, “it can also be noted that even the best performing affordable markets, such as Columbia, Boston, Tampa, Westchester, and Dayton are being outgrown by their comparable market-rate properties in the fourth quarter,” Caputo says.
Caputo projects rent growth will hit 2.5% by the end of this year, with the vacancy rate expected to decrease to 2.1% from 2.3%. In the second quarter, the affordable housing sector posted the largest quarterly rent growth since the third quarter of 2019.
And “as for new construction, 2022 is expected to pick up some of the slack for the low completion total that was seen in 2021 as 2022 completions are projected to finish with over 49,000 units,” Caputo writes. “Moody’s Analytics CRE will continue to monitor the effects that ripple through the affordable housing industry.”
The sector may also stand to benefit from a renewed push by the US Department of Housing and Urban Development and the US Interagency Council on Homelessness to include mayors, city and county leaders, tribal nation leaders, and governors in a national partnership that aims to re-house 100,000 households and add an additional 20,000 units of affordable housing by the end of 2022.
“The hope is that asking leaders to publicly announce their commitments and unit targets will create enough urgency on the local levels to accomplish these goals,” Caputo says.