Freddie Mac Finds ‘Widening’ Affordable Rental Shortfall

The already-acute shortfall of affordable rental apartments has widened “considerably” over the past six years, said Freddie Mac, McLean, Va.

Freddie Mac Multifamily said increasing rents and stagnant household incomes are behind the problem, which it said could become worse unless the affordable apartment supply grows to match increasing demand from lower-income renters.

Previous Freddie Mac research found rising costs of land and construction have also widened the supply gap.

Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos led the study on how affordable the same rental unit was at two different points in time. “In a matter of just a few years, we found that a large number of units previously affordable to very-low income families could no longer be considered affordable,” he said. “This is a trend that is worsening.”

The report looked at loans Freddie Mac Multifamily financed multiple times between 2010 and 2016. It found 11.2 percent were affordable to very low-income households–those with incomes no greater than 50 percent of area median income–at the first financing. At the second financing, rents had increased so significantly that just 4.3 percent of the same units were affordable to very low-income households. This represented a 60-plus percent reduction in the number of units deemed affordable to very low-income households.

The analysis also looked at the nine states where Freddie Mac financed the most rental units more than once during the six-year period. A “significantly smaller” percentage of rental units qualified as very low-income affordable during the second financing in seven of the nine states. While Florida and California saw minimal increases in the number of units considered very low-income affordable, Texas, Georgia, Colorado, North Carolina, Arizona, Nevada and Washington all saw decreases.

In a separate report, Freddie Mac said changing attitudes toward renting play a “significant” role in the growing demand for rental housing. The study found increasing numbers of America’s renters are satisfied with their living situation and consider it the most affordable option for the foreseeable future. More renters believe this despite their view that housing prices–both to purchase and rent–continue to rise and supply continues to tighten.

The Freddie Mac renter survey said many renters view renting as an option that fits their lifestyle and a strategic choice at many life stages. While sentiments differed among urban, suburban and rural households surveyed, nationally those who said renting is more affordable than buying a home has increased to 76 percent from 68 percent since March.

“A growing number of individuals across demographic groups view renting as more affordable and better suited to their current economic situation,” Freddie Mac Multifamily Executive Vice President David Brickman said. “These changing perceptions, combined with rising rents and tightening supply of affordable housing, are likely to fuel continued multifamily market growth in the years ahead.”