Affordable Housing in Transition: 2025 Insights from Yardi Matrix
A recent presentation by Jeff Adler, Vice President of Yardi Matrix, and Paul Fiorella, Director of Research, provided a very detailed look at how the U.S. economy, policy environment, and operating realities are reshaping affordable housing and multifamily finance. Their analysis offered actionable data-driven intelligence for investors, developers, and healthcare operators seeking to navigate the tightening capital landscape while addressing persistent housing shortages nationwide.
Economic Crosscurrents and the Slowdown Ahead
According to Adler and Fiorella, the U.S. economy is projected to grow at a modest ~1-2% pace. While inflation has cooled from pandemic highs, it remains sticky between 2.5 and 3 percent. This plateau in inflation means the Federal Reserve may deliver limited short-term rate cuts through early 2026, but a sharp reversal in borrowing costs is unlikely. Mortgage rates near 5 to 5.5 percent remain the norm.
They project stronger growth returning in mid-2026, supported by productivity gains (potentially accelerated by AI) and new fiscal and energy policies. Yet large federal deficits, restrictive immigration policy, and slow wage growth among lower-income households continue to suppress momentum. The result is a bifurcated economy: upper-income households sustain spending through the wealth effect of strong equity markets, while lower-income families face acute financial stress.
For real estate borrowers, this translates into a lending environment that prizes discipline and resiliency. Rising operating costs, limited rent growth, and uncertain debt pricing all reinforce the need for conservative underwriting and granular market knowledge.
A Persistent and Structural Housing Shortage
Adler and Fiorella underscored that the U.S. is still dramatically under-building. The affordable housing shortage which is rooted in decades of restrictive zoning, slow permitting, and escalating construction costs will not be resolved within this decade. While new completions surged in 2024, both market-rate and affordable deliveries are projected to decline steadily through 2027 before leveling off near 400,000 units annually, far below what is needed to meet demand.
In high-cost metros such as Los Angeles, Miami, Boston, San Diego, and New York, affordable properties remain full and often operate with waitlists, reflecting supply scarcity and high rent-to-income ratios. In contrast, markets like Austin and Raleigh, which experienced rapid pandemic-era expansion, are now seeing competition between market-rate and LIHTC units as new supply pressures rents.
Yardi Matrix data shows that affordability is eroding most sharply among lower-income renters. Rent-to-income ratios in many submarkets exceed 30 percent, signaling elevated delinquency risk. The “rent-by-necessity” segment which is defined as older, class B and C assets, faces growing overlap with affordable properties, especially where market rents have fallen near LIHTC maximums. This overlap makes submarket and even unit-level analysis critical to project success.
Operating Costs Outpacing Income
Since 2019, multifamily revenues have increased about 32 percent, but operating expenses have risen closer to 38 percent. Payroll, maintenance, and utilities are the largest sources of cost pressure, while insurance, though stabilizing, remains substantially above pre-COVID levels.
Affordable housing operators face unique exposure because AMI-based rent limits constrain revenue growth even as costs escalate. Nationally, expenses in affordable assets are growing at roughly twice the rate of CPI, compressing NOI margins and making technology adoption an operational necessity.
Turnover has also risen. In several metros, affordable housing turnover rates now approach those of market-rate properties. This trend increases marketing and make-ready costs, underlining the need for realistic OPEX assumptions and renewed focus on resident retention.
Yardi’s aggregated data from its Voyager platform shows that markets such as Charlotte and Miami display wide variances in expense loads, demonstrating how regional cost structures, and even local utility and tax regimes, affect feasibility. For borrowers and investors, accurately modeling these inputs is now as vital as forecasting rent growth.
Policy Developments: Progress and Complexity
Policy changes at both the federal and state level are expanding the toolkit for affordable housing but not necessarily simplifying it. The LIHTC program continues to be the backbone of production and preservation. Recent federal actions, such as reducing the Private Activity Bond (PAB) financing threshold from 50 to 25 percent and increasing per-capita credit allocations by 12 percent are expected to unlock more deals. A 30 percent basis targeted boost for rural and Native American expansions which further widen the reach of tax-credit financing.
However, the panel cautioned that policy fragmentation remains a significant drag on efficiency. Developers often must layer four or more subsidy programs to make a project viable, and each additional layer adds roughly $20,000 per unit and up to seven months of delay. The result is that, paradoxically, it can cost more to build an affordable unit than a market-rate one in cities like San Francisco.
Some states are addressing this. California, for example, has passed more than 100 bills to streamline housing approvals, limit local obstructionism, and modernize the California Environmental Quality Act. Municipalities that resist new housing risk losing zoning control altogether. Yet implementation will take time, and the gap between state mandates and local action remains wide.
Rent control is another headwind. New local ordinances, such as those passed in Los Angeles, cap rent growth at rates below expense inflation, discouraging new supply and reducing property value growth. Adler and Fiorella stressed that while rent stabilization can protect current tenants, over time it discourages investment and worsens shortages. This is a pattern seen historically in New York and Toronto.
Investment Strategies: Preservation, Conversion, and Partnership
Given high construction costs and limited subsidy capacity, preservation has emerged as the most cost-effective path to expanding affordability. Many LIHTC properties are now reaching their 15- or 30-year compliance milestones, creating opportunities to recapitalize and extend affordability before assets exit the program. Yardi Matrix tracks these expiration dates to help owners and investors target the highest-risk properties which are those with the largest gap between market and restricted rents for recapitalization.
At the same time, conversion strategies are accelerating. Private owners are working with housing authorities and nonprofits to purchase older market-rate properties and convert them into affordable units through tax abatements, 501(c)(3) bond financing, or Public Facility Corporation (PFC) structures. These deals are particularly active in Texas, Florida, and California, and often deliver affordability faster and at lower cost than new construction.
Another important trend is the rise of employer-driven housing. Hospitals, universities, and large employers such as Disney are directly funding or co-developing affordable workforce housing near campuses to address recruitment and retention challenges. These quasi-public partnerships tap bond financing and long-term ground leases to achieve affordability without relying entirely on federal tax credits. This is a model that holds promise for healthcare and senior housing operators.
Despite the positive momentum, both speakers emphasized that many projects are still hampered by local inefficiencies. Two-year zoning and permitting timelines can be reduced to 30 days through coordinated “war room” approaches that prioritize reviews and inspections. Aligning Qualified Census Tracts and zoning bonuses, or consolidating subsidy programs into a single application process, could unlock significant supply at minimal fiscal cost.
Looking Ahead: Data-Driven Clarity in a Fragmented Market
The overarching message from Yardi Matrix is clear: affordable housing success depends on precision and a collaboration of business and governance policies. With affordability pressures varying dramatically by metro, submarket, and even bedroom type, investors and lenders must “see the whole board.” Yardi’s expanded data platform now integrates LIHTC restrictions, AMI breakdowns, compliance timelines, and real operating performance to map where affordable and market-rate units intersect or diverge. This granularity allows stakeholders to evaluate whether a project will achieve maximum allowable rents, where it faces competition, and how it will perform under changing economic conditions.
For multifamily and healthcare borrowers, the implications are both cautionary and optimistic. The slowdown in construction will eventually tighten supply, supporting rent growth for stabilized affordable assets. However, rising expenses, complex subsidy structures, and regulatory uncertainty require careful underwriting and creative financing. Preservation, conversion, and employer partnership models are emerging as pragmatic responses that leverage both private capital and public policy.
As Adler and Fiorella summarized, the sector’s challenge is not just to add units, but to align data, policy, and capital so that affordable and workforce housing can scale efficiently. In a world of persistent shortages and uneven growth, those who can operate with granular market intelligence, and a clear understanding of where affordability truly meets demand, will define the next phase of multifamily and healthcare housing finance.
The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.