Affordable housing: building market resilience
With homeownership increasingly out of reach due to high prices, rising interest rates, and a persistent housing shortage, more Americans are renting for longer—yet affordable rental options remain in critically short supply. This enduring imbalance between supply and demand positions affordable housing as both an essential solution for millions of renters and a resilient, attractive opportunity for investors seeking stable returns in a changing market.

More households are opting to rent rather than buy single-family homes, driven by generational preferences for flexibility, elevated mortgage rates, persistently high single-family home prices, and a limited supply of homes for sale. U.S. housing stock is severely undersupplied, especially at affordable rental rates, with estimates of a national shortage ranging from two to five million units—driving affordability challenges for nearly 23 million renters.1,2 This group includes 52% of renter households considered cost-burdened, paying more than 30% of their income on housing, and 12.1 million who pay over 50%. Amid high construction and capital costs, developers have focused on high-end apartments that often exceed renter budgets, creating a misalignment between new supply and demand. Of the 6.8 million units delivered since 2010, 73% were 4- and 5-star units (as classified by CoStar), which now rent for about $2,124 per month—far above the $1,340 considered affordable for the typical renter household.3 This supply-demand gap highlights the urgent need for more affordable housing to meet renter demand.
As homeownership becomes less attainable and renting for longer grows more common, apartments remain positioned as a safe investment with inelastic demand, while affordable units offer both a crucial housing option and resilient income for investors.
Multifamily inventory by class (2000 vs. 2024)
Affordable housing is positioned for resilience
The persistent undersupply and affordability challenges in the housing market make affordable multifamily properties well positioned for strong long-term performance, while recent economic and policy uncertainties have further strengthened the investment case.
Ongoing tariff policy uncertainty has weakened the economic outlook, with effective tariff rates reaching nearly 17% in July—well above earlier levels and the highest since the 1930s.4 Tariffs on building materials raise housing costs, pushing developers to focus on higher-end projects to meet capital requirements, which can further slow construction and worsen the supply-demand mismatch, especially in oversupplied markets like the Sun Belt. These higher costs and supply chain disruptions make affordable housing development even more challenging.
Higher inflation, partly driven by tariffs, could further increase the need for affordable rental housing, putting more pressure on household finances—especially as student loan payments resume. HUD’s Rental Affordability Index shows only modest improvement, but affordability remains tight and vulnerable to added pressures such as proposed cuts to federal rental assistance, which are delaying new affordable projects.5,6 Rental affordability has generally declined since 2000, with rents rising faster than incomes, and an estimated 350,000 affordable units built with Low-Income Housing Tax Credit (LIHTC) could disappear by 2030 as program requirements expire—potentially reaching one million by 2040—underscoring the urgent need to expand and preserve affordable housing.7
Rising barriers to housing affordability
As rental affordability has deteriorated, the cost of homeownership continues to rise. Home prices have increased at an average annual rate of nearly 7% over the last decade ending in April 2025.8 Combined with 30-year fixed mortgage rates remaining above 6% since September 2022, the monthly payment on a median-priced home has jumped 124% over the last five years.9 At current interest rates, home prices would need to fall by 117% to match January 2020 affordability. Rising insurance and property taxes have pushed monthly ownership costs even higher. Overall, elevated barriers to homeownership mean rental housing serves a critical need for those unable to buy.
Home price index vs. mortgage rates
Despite policy changes that may reduce immigration and cause some outward migration, the United States will still face a deficit of affordable housing options. Demand for affordable rentals, especially in immigrant-heavy and working-class communities, will remain strong: Immigration created over 600,000 renter households from 2022 to 2024, and even with increased deportations, the persistent imbalance remains. California, with the largest immigrant population, has lost 18,056 affordable homes since 2000 due to conversions or expiring restrictions, with another 48,000 at risk over the next decade.10 The inelastic demand for affordable housing makes it a resilient, countercyclical investment, highlighting the need for continued focus and investment in affordable multifamily assets.
A complex landscape of policy and codes requires targeted market and asset strategies
While the broad need for affordable housing is clear and growing, policies and incentives at national, state, and local levels are constantly evolving. Market factors also play a role, with several key developments shaping the sector:
- A proposed 43% ($27 billion) cut in federal rental assistance is causing lenders to pull back, threatening support for over five million Section 8 voucher users—many in New York and California.6
- New tax law provisions simplifying access to LIHTC are expected to create one million new affordable units over the next decade and make Opportunity Zones and the New Markets Tax Credit permanent, encouraging development in low-income areas.11
These competing forces highlight the complex and shifting landscape in which affordable housing assets operate, shaped by a mix of federal, state, and local incentives.
Multifamily resilience and evolving housing affordability trends
Despite near-term market volatility, structural demographic and societal shifts brighten the outlook for affordable housing. Housing remains a favored asset class among institutional investors, as it’s a necessity-based asset that consistently outperforms other sectors. The persistent shortage of housing nationwide, combined with rising rent pressures, has created long-term strains where demand for affordable options will continue to outpace supply.
Tenant retention is expected to remain high for rental apartments, with turnover at a 10-year low, reflecting strong demand.11 The single-family market faces near-term challenges, including an 18% decline in housing starts and a shortage of starter homes, worsened by elevated construction costs.11, 12 Delayed life milestones—such as moving out, getting married, having children, and homebuying—mean Americans are renting longer and becoming homebuyers later, with the median age of first-time buyers now at a record 38.11 The typical renter age is also rising, with 72% of U.S. renters now 30 or older, an all-time high.12
A record 23% of young adults in the United States live in someone else’s home, highlighting strong demand for affordable housing. Each 1% decline in this share means 450,000 more young adults forming households, increasing housing demand.12 Meanwhile, 40% of Gen Z renters have received financial help from family, reflecting affordability challenges, while rising student debt and limited credit education contribute to higher mortgage rejection rates among young adults. These generational shifts reinforce strong investor interest in housing, especially multifamily assets. Despite some caution due to localized oversupply, investors remain active, and growing financial pressures suggest rental demand will rise, making diversified residential portfolios increasingly important.
Strategic affordable housing investment: building resilient portfolios for long-term returns
When considering today’s market, durable cash flow—especially in a high interest rate environment—can offer attractive risk-adjusted returns, making affordable housing a potentially valuable addition to a diversified portfolio. While affordable housing’s complexity can deter some investors, the right strategy, investment structure, and research-driven asset selection can successfully overcome these challenges. Structuring tailored solutions for counterparties can also provide a competitive advantage for outperformance.
Sustained long-term demand, chronic undersupply, and favorable investment metrics can make affordable housing a strategic focus for investors seeking competitive returns and greater portfolio stability in a challenging environment. As institutional investors enter the affordable sector, increased insight and sophistication will likely further advance strategy, helping enable differentiated approaches and tailored solutions essential for a more balanced housing market and strong risk-adjusted returns.
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