One of the pillars of our mission at Freddie Mac is to support liquidity in the debt market for properties that provide affordable, quality housing for low-income households. Recent data suggests that the supply of rental housing that qualifies as affordable has shrunk over time because income growth has not kept pace with rising rents. This squeeze in the supply of affordable housing is felt more severely across households that earn well below the area median income (AMI), which is where we focus our mission and affordability goals.

As we look ahead to our 2022 goals, we are examining forecasted affordability trends and how these could impact our ability to meet our new goals. While the forecasts indicate that these goals are attainable, they will certainly be a challenge given the ongoing affordability crisis.

Rising Rents Are Causing Diminishing Affordability

Over the past 10 years, the average rent cost has steadily grown and outpaced the average income growth. Nationwide, rents have increased by 40% from 2010 through 2020, whereas income has only increased by 22% during the same time period.

Increasing Focus on Affordable and Mission Goals

In 2021, Freddie Mac Multifamily's goal, set by FHFA, was that 20% of our funded business – or $14 billion of our $70 billion of allowable volume under the FHFA Multifamily Loan Purchase Cap – would support properties affordable to households making up to 60% AMI. In 2022, that goal will increase to 25% of our business and our overall volume cap will increase by 11.4% – for a total of $19.5 billion if we do business equal to our new cap of $78 billion.

With rents outpacing incomes, fewer rental units are affordable at 60% AMI. Given that the Government Sponsored Enterprises are tasked with supporting debt financing for an increasing number of units affordable up to 60% AMI, Freddie Mac is adjusting its strategy to meet the challenging benchmark set by the Multifamily Loan Purchase Cap.

Getting Clues from our Past Affordable Business

To better understand our affordability goals in the context of our business, we look at our funded business by unpaid principal balance (UPB), and the number of units financed in 2020 and year-to-date 2021 (through September). We trend this data forward using projected rent and income growth for 2021 and 2022 to determine if we would hit our goals based on the composition of the actual funded business. The results are mixed.

In 2020, 25% of our business – of an $82.5 billion total funded volume – was affordable to households earning 60% AMI or less. Trending our 2020 actuals by 2021 and 2022 projected rent and income growth, we would not hit the 20% target in 2021 or the 25% target in 2022. The impact to us is that it is difficult to reach the cap if we maintain the same mix of business that we did in 2020.

However, we see signs that our 2021 business may not follow that trend. So far this year, it appears our business is above the 25% target. When trended using projected growth for 2022, we would make the 25% goal. But, if we see a similar impact like in the second half of 2021 with substantial rent increases, that could make the 25% goal much more challenging.

So What Lies Ahead?

Rental affordability challenges will continue to plague the housing industry and economy. We've recently released a report that takes a closer look at these topics as well as how rent growth is squeezing affordability, the impacts of strong income growth, how new cost-burdened definitions may affect our goals and which markets tend to have higher affordability. Read the full report.