Every affordable housing transaction offers a read on the market: how investors are pricing risk, where capital is flowing, and the sector’s confidence in the road ahead. And right now, the story is one of cautious optimism, said Mike Canori, senior managing director with Berkadia Affordable Housing.
Deals are getting done — with sale volume increasing year over year since 2024 — but buyers are approaching each opportunity with greater scrutiny Canori said. “Buyers have been in price discovery mode given the volatility of the capital markets.”
Capital is flowing back in these days, but buyers and sellers are still figuring out what a fair price looks like. It’s only been a couple of years since deal activity slowed sharply in 2023 and 2024. Rising interest rates, slower rent growth and other challenges have made owners more deliberate.
Here’s what those signals look like up close:
Price, property type, and who’s buying
At a time when buyers are cautious around future rent growth expectations and putting more focus on how much cashflow a property generates day one, newer, well-located properties with strong property operations are still well desired by the market, Canori said. By contrast, older vintage assets requiring significant capital improvements are experiencing more substantial price adjustments.
Buyer behavior is shifting in other ways too. Institutional buyers have remained very active in the affordable space, he said. Meanwhile, single asset acquisitions attract different investors, Canori said, including preservation focused tax credit developers, family offices and local owner-operators.
“The activity from an individual asset sale is as strong as the institutional sale, however it attracts a different profile of buyers”
Supply is changing, and so is geography
Deal patterns are shifting too, not just who’s buying, but who is selling and where. The demand for scale is being met, in part, by a particular type of seller — longtime owners and developers, who perhaps entered the market decades ago, around the time the Low-Income Housing Tax Credit (LIHTC) program launched in 1986.
“For various reasons, long-time owners and developers who have owned an affordable property for 15+ years and are due for a capital event are eager to redeploy the capital in future projects.”
Regional investor preferences are evolving. Fast-growing Sun Belt cities like Nashville and Austin remain popular due to the long-term market fundamentals regarding population and job growth, but secondary Midwest markets are drawing more interest due to the stability of rent growth and the predictability of the properties operating costs, Canori said.
Meanwhile, coastal markets like New York and California are seeing what Canori calls a “coastal pivot.” Local developers and operators have been most active in these markets due to the understanding of the local legislation and regulatory environment while national investors not already in the market have focused in other regions.
Tax credits are pricier — but confidence hasn’t wavered
While the LIHTC program has become more costly for developers to utilize, it remains a critical tool for advancing affordable housing development.
An oversupply of credits gives buyers, especially Community Reinvestment Act-motivated banks that are required to invest in their local communities room to be selective, said Andrew Anania, managing director and head of investor relations at Berkadia.
There is encouraging momentum ahead. Recent federal legislation increased the cap on public welfare investments from 15% to 20% of bank’s capital and surplus, which has the potential to unlock much needed equity capital for affordable housing.
“The ROAD to Housing Act will help free up capacity for investors and will provide them with proper cushion as they look to allocate capital over the next 12 to 18 months. Looking forward, we expect pricing to remain mostly flat through the end of 2026. While there are outliers where competitive markets and sponsors are receiving stronger pricing, we continue to see reductions where the supply-demand imbalance exists”, he added.
Still, both Canori and Anania point to the same bottom line. America doesn’t have nearly enough affordable housing, and that shortage isn’t going anywhere. On top of that, relative to conventional multifamily, default rates for affordable housing assets are low and demand tends to hold up or even grow when the broader economy struggles.
Looking ahead to 2027
In the next few years, Canori expects the absorption of the oversupply of units to work itself out and rent growth to pick back up in the next few years. “It’s going back to the fundamentals,” he said.
In the meantime, owners should expect deals to require more strategic capital structuring. That could mean state and local government stepping in to fill funding gaps alongside traditional loans and investor equity.
“You do have unprecedented policy support for the affordable housing program, and I think there’s going to be other forms and sources of capital and new policy that really try to drive affordable housing,” Canori said, “because the last thing we want to do is lose units in the affordable housing space.”