Affordable Unit Rent Growth Question
Hi everyone,

Looking for ballpark estimates of what you might expect annual rent growth to be for affordable units.  For example, if market rents at a property grow at an average rate of 3%/year, would you expect affordable units to grow at, say, 1%/year?  

If you have owned/appraised/underwritten/managed affordable housing units, what has rent growth been on an annual basis for those units in your experience?

I recognize this is extremely market- and site-specific, but I’m trying to keep things very hypothetical and only intend to use any advice as a “check” again my own research.

Thanks!
[{"id": "fvvwemv", "text": "Use AMI growth to project affordable rent growth since that is what affordable rent is based off of.", "replies": [], "depth": 1}, {"id": "fvvwt8g", "text": "Typically affordable units have set rents pegged to a level of area median income (AMI). We underwrite based off of our projection for median income growth in an area. Looking at historical AMI growth is a good starting point, but you could also pull cpi and peg to that if looking for something even quicker/easier to track down.\n\nIf current rents are inside of maximum allowable affordable rents, we would begin looking to move those units to the cap as quickly as possible. This can result in outsized rent growth obviously but may require retenanting and some bad press. There also can be a lot of rules surrounding this depending on where you are located.", "replies": [{"id": "fvwfrp6", "text": "We used a 2%/3% rent/expense to project annual increases as a base and then would adjust rent growth downward and expense growth upward based on the market or investor preference. However, with the rents pegged to AMI you could get a big increase one year and then no increase for a few after that. Be sure to use the Hold Harmless clause if AMI dips YoY\n\nGoing to piggyback on u/BraveSock and say first and foremost it was about getting rents to be either at or just under the allowable limit. We would do this after a rehab so we didn\u2019t get the bad press about it since it was \u2018justified\u2019 based on the capital improvements", "replies": [], "depth": 2}], "depth": 1}, {"id": "fvvyywu", "text": "u/rugby52black u/BraveSock Thank you both very much for your insight - your responses pointed me in the right direction. Take care and have a great rest of your week!", "replies": [], "depth": 1}]