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The U.S. has an affordable housing shortfall numbering in the millions. Here’s how to solve that

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Discover: The U.S. faces a shortfall of around 7 million housing units, those classified as both market-rate and affordable. The situation is likely to deteriorate because of demographic changes and lifestyle trends.

Inspire: Investors participating in multifamily development add to the net stock of transit-accessible, affordable housing. This can, therefore, be considered a “socially responsible” form of investing.

Invest: The multifamily-development pipeline will slow considerably in the next few years in response to higher interest rates. That will prompt quality multifamily developers to seek alternative sources to round out financing for critical projects.

Equities’ view: Public-private partnerships may entail some bureaucracy, but they are underrated and, in some cases, the linchpin for projects. Collaborating with government agencies and nonprofits help leverage subsidies and incentives for developing affordable housing.

This is the second and final part in a series on sustainability and multifamily investing written by Soren Godbersen. Read part one.


Entering 2024, the U.S. faces a significant challenge in its housing sector: a growing shortfall of affordable and market-rate housing.

This issue, exacerbated by demographic shifts and evolving lifestyle trends, presents a unique opportunity for multifamily investors to contribute positively while achieving financial success. Sustainable development and “upzoning” can potentially address the affordable housing crisis and benefit investors.

The housing-shortfall crisis

A report by Up for Growth highlights that in 2021, 193 U.S. metro areas experienced underproduction of housing, with the situation worsening in 83% of the 256 markets studied​​. The multifamily sector, in particular, faces challenges like rising mortgage rates and economic downturns, yet remains resilient due to strong long-term demand drivers​​. However, most new housing units built from 2020 to 2022 were affordable to less than half of America’s renter population, underscoring the critical shortage of truly affordable housing​​.

All told, the U.S. faces a shortfall of around 7 million units, an issue that got more acute during the pandemic. The burden of this supply shortfall hits lower income households hardest: a market-rate rental unit is definitionally a higher percentage of overall income for a lower-income tenant; and those who cannot afford to rent in job-rich urban areas must often rent far away, adding the burden of transit cost and a long commute.

The solutions to this crisis vary by market, and generally must involve a policy component. However, real estate developers and investors invariably play a role. The U.S. must simply build more market-rate and affordable housing. Participating in multifamily development, if it adds to the net stock of transit-accessible, affordable housing, can therefore be considered a “socially responsible” form of investing.

The role of multifamily investors

Multifamily investors are uniquely positioned to address this crisis. The demand for multifamily housing is strong, but the current supply is inadequate to meet the needs of lower-income renters. This gap presents a compelling opportunity for investors to “do well by doing good” by focusing on sustainable, affordable multifamily developments.

The main qualifier to look out for: the net addition of rental units to the housing supply. Generally, developers focused too heavily on luxury apartments and condos in the past decade. The following strategies may interesting for real estate investors who want to be part of the affordable housing solution while seeking attractive returns:

  • Rehabbing older, less occupied buildings to Class B or Class A housing. Creating more safe, quality housing for market-rate renters.
  • Leveraging local tax incentives and zoning changes to realize economies of scale and densifying older stock or building transit-accessible new developments. Seattle is an example of a city that has combined zoning changes with tax incentives to create favorable conditions for developers of density housing. 
  • Take part in “alternative real estate lending” — the multifamily development pipeline will slow considerably within the next few years in response to the rapid rise in interest rates. (A rising cost of capital discourages new development.) With higher prevailing interest rates and a credit crunch among midsize banks, many quality multifamily developers seek alternative sources to round out financing for critical multifamily projects. For example, EquityMultiple’s Ascent Income Fund acts as a lender to developers while pursuing attractive, stable income for individual investors (as of the end of 2023, the Ascent income Fund had delivered 13.1% historical distributed yield). 

‘Upzoning’: A policy tool for increased affordability

Upzoning, the process of relaxing land-use regulations to allow for more housing construction, has been identified as a viable policy instrument to increase housing supply and affordability​​. By advocating for and participating in upzoning initiatives, multifamily investors can play a critical role in increasing the availability of affordable housing.

Strategies for multifamily investors

Focus on affordability: Develop projects that offer affordable units to a broader segment of the population, especially targeting those earning below the median income.

Advocate for upzoning: Work with local governments to relax zoning regulations, which can lead to stronger housing supply responses and more affordable housing options​​.

Implement sustainable practices: Invest in green building technologies and sustainable practices to reduce long-term costs and attract environmentally conscious tenants.

Diverse housing options: Provide a mix of housing options, including low-income subsidized housing, market-rate units, “build-to-rent” communities, or modular accessory dwelling units (ADUs) to create diverse and inclusive communities.

Public-private partnerships: Collaborate with government agencies and nonprofits to leverage subsidies and incentives for developing affordable housing.

Soren Godbersen is responsible for the growth of EquityMultiple‘s real estate investing platform. He and his team maintain the company’s resource center, a resource for self-directed investors.