Opportunity Abundant in the Multifamily Affordable Housing Market

The habitational market has seen more than its fair share of challenges, with many insurers cutting capacity or leaving the market in recent years. While the multifamily affordable housing market — a niche habitational category — shares many of the same property/casualty coverage challenges, it’s ripe for opportunity for agents and brokers looking to spur growth via specialization.

In this piece, I’ll break down how multifamily affordable housing differs from public housing (often a point of confusion) and share some of the opportunities and challenges in the multifamily affordable housing market.

How Affordable Housing and Public Housing Differ

Before diving into how to position yourself for success in the multifamily affordable housing market, let’s break down how it differs from the public housing industry.

Public housing programs are administered and funded through the Annual Contributions Contract with the U.S. Department of Housing and Urban Development (HUD), meaning public housing providers are subject to HUD rules and requirements. Low-income families and individuals are eligible for the public housing program based on annual gross income. Public housing authorities, which own and manage public housing properties, set income limits based on guidance from HUD.

Like public housing, multifamily affordable housing can be owned by nonprofits, but it is also a private sector, for-profit industry. Affordable housing eligibility varies by locality, the type of funding a property owner receives, and the funding source, but generally, a family’s income may not exceed 60% of the median income for the county or metropolitan area where the family chooses to live. Eligible individuals or families may be issued a voucher through the Housing Choice Voucher program, and it is up to them to find a private property that accepts the voucher.

Multifamily property owners and developers have the ability to reserve affordable housing units for voucher holders through participation in the Low-Income Housing Tax Credit Program (LIHTC), which offers federal income tax credits as an incentive for private investors and developers to acquire, rehabilitate, and build rental housing targeted at lower-income households.

‘The Market Can Only Harden So Much’

Opportunity is abundant in the multifamily affordable housing market, mainly because there’s such a need for affordable housing — and that need is unlikely to dwindle anytime soon.

“There’s a constant growing need for affordable housing, and with that, a need for someone to specialize in this type of risk and have the ability to place coverage,” said Camron Rafiee, assistant director of underwriting at HAI Group, an insurance carrier serving public and affordable housing providers across the country. “Everyone needs a place to live, and the market can only harden so much.”

A National Multifamily Housing Council report released last summer states that the U.S. needs 4.3 million more apartment units by 2035 to meet the overall demand for rental housing — with Texas, Florida, and California making up the bulk of the demand. A 2023 report from the National Low-Income Housing Coalition reported a current shortage of 7.3 million affordable rental units in the country.

The need for affordable housing is so widespread that there are opportunities to market yourself nearly anywhere you see fit. Migration plays a huge factor, pushing housing prices up in high-growth regions.

In the 2015 — 2019 time period, the nation’s most populous states saw the largest growth of new LIHTC-assisted affordable units, said Kelly McElwain, lead research analyst with the Public and Affordable Housing Research Corporation (due to LIHTC data lags, more recent information isn’t yet available). “Washington built the most new LIHTC-assisted affordable units between 2015 and 2019 relative to the number of families in need, adding 42 new LIHTC-assisted units for every 1,000 renter households below 50% of the area median income,” she said.

McElwain noted that most affordable housing investments tend to be concentrated in cities with large populations of families in need. Affordable housing growth is largely funded by the federal government in the form of grants and tax credit allocations to state and local affordable housing agencies.

“There are some new programs rolling out that could expand the toolbox to build and preserve affordable housing, including the Inflation Reduction Act, which created numerous energy efficiency and climate resiliency programs, providing $25 billion that is directly targeted or can be used by affordable housing providers to advance these goals,” McElwain said.

Opportunities and Challenges

So, the multifamily affordable housing market is primed to grow, but how do you grow with it?

Research your marketing efforts using the National Housing Preservation Database (NHPD). Agents and brokers can use the database to:

• Locate and quantify the amount of affordable housing in target markets.
• Identify the funding characteristics of affordable properties.
• Identify which regulations apply to a property by studying the subsidies awarded to housing providers.

Agents interested in growing with the market should learn as much as possible before things get more competitive. Look into the LIHTC Certification and other training opportunities specifically designed for affordable housing. Learn the ins and outs of the affordable housing business. When you’re in front of a client, your chances of success increase when you show you know what you’re talking about.

Various factors limit the rate at which the multifamily affordable housing market can grow, including catastrophic events and the impact of climate change.

“Catastrophic events are increasing insurance costs in multifamily, making it harder for developers to close affordable housing deals,” McElwain said.

There’s also a perception problem when it comes to affordable housing. Local zoning restrictions can increase the cost of developing affordable housing, hindering development in these areas.

Housing development has also slowed across the board due to the cost and scarcity of materials, labor and land. Multifamily buildings now take just over two months to start and 15 months to complete, on average, which is tied for a record high, according to a report from the Joint Center for Housing Studies of Harvard.

A recent report from Enterprise Community Partners does show cause for optimism on this front, with the expectation that rising interest rates will cool single- and market-rate multifamily construction, easing demand on materials and labor for affordable multifamily developers.

Despite the opportunities and challenges related to multifamily affordable housing, your success in the market hinges on your ability to build relationships.

“You need to build relationships with clients and carriers,” HAI Group’s Rafiee said. “The price tag isn’t the only factor when finding the right carrier for your clients. You should strive to work with reliable carriers who won’t leave the market at a moment’s notice, despite the challenges. And you want carriers with a risk management mindset that focuses on predicting and preventing instead of waiting for things to happen. Work with carriers who can act on your client’s best behalf.”