Meeting the growing demand for affordable rental housing

As the shortage of affordable rental housing persists, new policy initiatives, financing programs and private-sector investment are helping create opportunities to expand and preserve housing supply.

Key takeaways

• The need for affordable rental housing continues to outpace supply. Many renters face significant affordability challenges as rents have risen faster than wages while millions of affordable units are needed to meet existing demand.
• Expanding and preserving affordable housing will require collaboration. Federal and state programs, housing agencies, developers, investors and well-capitalized owner-operators all have a role to play in increasing and maintaining the nation’s affordable rental housing supply.
• Policy and financing developments are creating new opportunities. Enhancements to programs including the Low-Income Housing Tax Credit, HUD financing and Fannie Mae and Freddie Mac lending are providing additional tools to support affordable and workforce apartment communities.
• Combining financing with available incentives can make a greater impact. Owners and developers may be able to pair federal or state incentives with financing programs to help support the development, acquisition, rehabilitation or preservation of affordable rental properties.

Today, finding a rental home within budget is a major challenge for a growing number of Americans. According to the National Low Income Housing Coalition’s 2025 Out of Reach report, half of all renter households are cost-burdened, spending more than 30% of their income on rent and utilities. Even worse, more than a quarter of all renter households are severely cost-burdened and allocates more than half their income to housing.

“One of the key culprits is the continued disparity between wages and rents. Wages simply haven’t grown at the same pace as rents, impacting many consumers, especially Americans who earn lower incomes,” said Regions Real Estate Capital Markets Managing Director and Head of Affordable Origination Graham Dozier. “Nowadays, workers in 17 of the 25 most common occupations in the United States are paid a median wage lower than what is necessary to afford a one- or two-bedroom apartment, even if that worker is employed full-time at 40 hours per week 52 weeks of the year.”

The supply of available units is another key problem area. As the Joint Center for Housing Studies of Harvard University reports, the country lacks 7.1 million affordable and available apartments to meet current demand among Americans with extremely low incomes at or below the federal poverty guideline (i.e., 30% of the area median income or whichever is greater).

Affordable rentals have become less financially feasible to build while at the same time the supply of existing units is being eroded. On the development side land is expensive, hard to acquire and often comes with zoning, entitlement and permitting hurdles. Additionally labor and materials are increasingly expensive. On the preservation side the number of existing apartments renting for $600 or less per month decreased by 2.5 million units between 2013 and 2023. Additionally five million apartments renting for $600-999 were lost over the past decade, according to Harvard’s report.

Areas of promise in the affordable housing landscape

Despite the vast challenges in solving the country’s affordable housing crisis hope is emerging in some areas. First, the issue is now being spotlighted and addressed as a nationwide problem. This encourages new solutions to be brought forth at both the federal and state levels as well as within the private sector. The issue requires collaboration with all these stakeholder groups to ensure more rental housing supply is delivered to meet the needs of Americans of lower income.

Additional positives for affordable housing include:

• Increasingly, well capitalized institutional-grade owner operators are entering the sector to participate in a variety of solutions whether through development, ownership or various investment strategies.
• In 2024, the U.S. Department of Housing and Urban Development (HUD) expanded its 221(d)(4) loan program which facilitates construction or rehabilitation of multifamily properties including affordable units. The expansion now includes middle-income housing serving households earning up to 120% of the area median income (AMI); the debt service coverage ratio is down to a 1.11x if 50% or more of the units are restricted to the AMI parameter via a regulatory agreement with a government entity.
• 2026 loan purchase caps for Fannie Mae and Freddie Mac announced by the FHFA increased 20.5% from $73 billion each to $88 billion each and 50% or more of their activity must support affordable housing. The Federal Housing Finance Agency (FHFA) allows workforce apartment loans to be excluded from these caps as an added solution for preserving existing affordable housing.
• Legislation passed in 2025 supports the Low-Income Housing Tax Credit (LIHTC) program which provides a 10-year annual tax credit calculated on either 9% or 4% of eligible costs and is administered by both the IRS and state housing finance agencies. The legislation includes a permanent 12% increase to the per-capita supply of the 9% tax credit. An enhancement was also made to the 4% tax credit. Transactions historically were required to finance 50% of eligible basis using tax exempt bonds. Now the eligible basis requirement has been reduced to 25%. Various state agencies allocate the tax-exempt bond volume cap to public-purpose projects while housing finance agencies administer the housing tax credits. A reduced requirement for tax-exempt financing allows more projects to be financed with bond volume cap, increasing the number of transactions financed with a combination of tax-exempt bonds and the 4% low-income housing tax credit.
• Also in 2025, the U.S. Senate Banking Committee unanimously approved a legislation that would increase the amount banks can invest through the LIHTC program, require HUD to establish best practice frameworks for zoning and land-use policies and permit the HUD Secretary to award added weight to applicants for competitive HUD grants that are located in, or primarily serve, designated Opportunity Zones. The legislation was approved by the Senate but needs to be voted on in the House of Representatives. Bipartisan support increases its chances for enactment.
• State level incentives exist in support of affordable housing including state tax abatement or exemption programs. More than 30 states have created regulatory agreements for naturally occurring affordable rentals, providing incentives for keeping a percentage of the units affordable.

Financing affordable or workforce apartment communities

Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac remain committed to supporting the affordable apartments arena, providing loan solutions to owners looking to either finance or refinance properties. HUD supports the sector with loan programs for the construction and rehabilitation of communities. Marrying these available loan programs with some of the existing federal and state incentives can provide even greater impact in the fight to deliver and preserve supply of this critical housing type.

“If you are looking to finance or refinance your affordable or workforce apartment community, the Regions Real Estate Capital Markets team is here to help,” said Dozier. “Regions is an approved lender partner to Fannie Mae, Freddie Mac and HUD and assists borrowers and properties located across the country.”

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