The growing number of households that are rent burdened has put a spotlight on housing costs and led policymakers to implement programs intended to produce more affordable housing.
The federal tax bill signed into law this spring, for example, permanently increases funding for the Low-Income Housing Tax Credit (LIHTC) program by 12%, which will provide $14 billion tax credits to be allocated among the states annually. The Opportunity Zone program, which provides tax incentives to build housing in low-income areas, also was extended and revamped.
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Because the need for housing that is affordable to low- and middle-income families is so great, it is important that the money be spent wisely. One way to increase efficiency is to use data to ensure that projects are delivered to locations with strong demand with an eye on competition from market rate properties. That may sound simple, but the competitiveness between market rate and fully affordable housing (defined by Yardi Matrix as properties where at least 90% of units have income restrictions tied to subsidies) varies not only across regions but within each metro.
A comparison of rents between market rate and fully affordable housing units in Yardi Matrix’s national database—which encompasses 120,000 multifamily properties (26,000 fully affordable) with 23 million units (3.5 million fully affordable)—resulted in a few main conclusions:
- In some metros, the advertised rents of a large percentage of fully affordable properties face strong competition from rents of market rate properties, while in others there is very little competition between the two.
- Within each metro, the level of competitiveness varies greatly, depending on factors that include the cost of market rate rents, the amount of supply, the age of the multifamily stock, the number of bedrooms in units and the income of residents within each submarket.
- The level of competitiveness is a key component in affordable housing performance. Market rate properties that are competitive with affordable properties serve overlapping income groups and may compete for the same tenants. Therefore, occupancy rates of fully affordable properties are generally higher in metros in which market rate rents are less competitive with affordable rents.
We define competitiveness using an affordability index developed by Matrix and based on the federal calculation of area median income (AMI). We determine the AMI level at which rents are considered “affordable” based on the government’s standard that housing costs should not exceed 30% of gross household income. When rents for market rate and fully affordable properties are “affordable” to households earning similar incomes (less than 10% difference in AMI), we deem that to be competitive. The full methodology is in the appendix at the end of the report.
COST, SUPPLY, AND AGE INFLUENCE COMPETITIVENESS
The Matrix methodology for assessing competitiveness between market rate and affordable properties finds a wide range of outcomes at the metro level. Among the top 30 US metros, more than one-fourth are highly competitive, with at least 50% of conventional units competing with fully affordable housing. Another 40% of top metros are moderately competitive, with 25% to 50% of market-rate units in competition, while the remaining third have less than 25% in competition (including six metros with zero competitiveness). While each metro has its own unique drivers, there are a few factors that correlate to the competitiveness between market rate and affordable multifamily.
One key factor influencing competitiveness is the absolute level of market rents. In metros where average advertised rents exceed $2,500 – including San Francisco, Boston, San Diego, Los Angeles, Miami and New Jersey – market rate properties rarely compete with affordable housing. In contrast, metros with average rents below $1,500 – including Las Vegas, Columbus, Kansas City, Indianapolis, Detroit and Houston – result in moderate-to-high levels of competitiveness.
Nationally, the average market rate advertised rent is $1,758, which is 24.3% higher than the $1,414 average maximum net rent for fully affordable properties. However, the difference varies greatly by market. For example, Miami’s average market rate rent at $2,601 is 66.4% higher than the $1,563 fully affordable average, Los Angeles’ average market rate rent at $2,631 is 58.5% higher than the $1,660 affordable average, and in Boston the $2,886 market rate average is 56.4% higher than the $1,845 affordable average.
On the other end of the spectrum, in some metros the difference in rents between advertised market rates and affordable units is slight. For example, the average market rate rent in Austin is $1,595, or 1.7% less than the $1,622 average maximum net rent for affordable units. In Kansas City, the $1,398 average market rate rent is only 4.6% higher than the $1,337 average affordable rent.
Another correlation is the amount of supply growth. Markets such as Austin and Dallas that are among the leaders in annual apartment deliveries have fostered a competitive environment for owners. Austin has added roughly 25% to multifamily stock over the past three years, leading the average advertised market rate rent to drop by about 20% since peaking in 2023. Consequently, in Austin, multifamily properties in all but the highest end of the luxury scale are competitive in price with fully affordable properties.
Meanwhile, in markets such as Los Angeles, San Diego, and Philadelphia, which trail the national average in deliveries as a percentage of stock, most market rate apartments are not competitive with fully affordable properties. To be sure, some of the factors overlap, as the lack of supply growth contributes to the overall expense of market rate rents.
A third correlating factor is the age of multifamily stock within a metro. Our competitiveness methodology groups market rate properties into four quality categories. From high to low, these include discretionary, upper mid-range, low mid-range, and workforce.
New construction is concentrated in higher-end luxury segments, so metros with a larger percentage of apartment stock built over the past 10-20 years usually have a higher proportion of luxury market rate apartments that are not competitive with affordable units. An example is Miami, where 68% of market rate stock is in the two highest quality categories (discretionary and upper mid-range).
Conversely, some metros have a large percentage of market rate apartment stock that was built decades ago and now is classified in the lower quality scale categories. These units tend to be more competitive with affordable units due to lower rents that come from age, property quality, and (sometimes) deteriorating neighborhoods. One market example of this phenomenon is Detroit, where 56% of the total market rate stock is classified by Matrix as workforce, the lowest quality level. Those workforce units in Detroit are deemed competitive with fully affordable housing. Another example is Baltimore, where 63% of total market rate stock is in the two lowest quality levels, low mid-range and workforce. Those Baltimore properties are deemed competitive with affordable units.
Competitiveness is important because it correlates to demand for affordable housing. A rule of thumb is that renters are more likely to choose to live in a market rate property if rents are within 10% of affordable housing rents. That is critical at a time when a growing number of renter households across the country spend more than 30% of their income on rents, fueling demand for lower-cost units and markets. A Harvard Joint Center for Housing Studies report found that a record 22.6 million renters in 2023 met the definition of cost-burdened.
Matrix Expert occupancy rate data supports the link between competitiveness and performance. Most of the Matrix top 30 metros with high advertised rents and low competitiveness scores recorded fully affordable occupancy rates of 95.0% or more. The average occupancy rate was 97.0% or higher in fully affordable units in less competitive markets such as Miami, Boston, Orlando, and San Diego.
The converse is true, as well. The fully affordable occupancy rate is only 87.4% in Austin, where three quarters of market rate properties are competitive with fully affordable units due to the rapid supply growth in both segments. Metros with high competitiveness scores and rents below the national average generally record fully affordable occupancy rates between 92% and 94%.
WHY SUBMARKETS DIFFER
Our metro-level analysis has established a wide variation in competitiveness. A deeper dive into each market reveals that there is a similar variation within metros. In other words, competitiveness between market rate and fully affordable properties is not consistent within metros. That makes it incumbent on affordable housing developers to underwrite submarkets where they plan to build.
Examining the submarkets of a few metros with different competitive profiles provides context. Boston has a 0% metro-level competitive score, meaning very few market rate properties are competitive with affordable. Because of the high average income among Boston households, its average maximum net rent in fully affordable properties is $1,845 per month, well above the $1,414 national affordable housing average.
The impact of the high affordable rents in the metro differs depending on location. Markets near the city center are less competitive with affordable, while submarkets at the edge of the metro are more competitive. Market rate rents tend to be the highest in high-end downtown and inner-ring submarkets such as Cambridge and Somerville, where average advertised rents top $3,000 and are therefore not competitive with affordable properties.
The story, however, is different in the northern outer suburbs such as Ipswich, Hampton, and Portsmouth which have higher competitiveness scores. Gloucester stands out as an area of heightened competitiveness in a metro that traditionally has a tight housing market. Although the $1,800-plus average fully affordable rent is still above the national average in those submarkets, rents in market rate apartment stock are much less pricey due to the long commute to the city center and the age of much of the apartment stock. In Milford, for example, nearly 90% of the stock is classified as competitive.
Denver is in the middle of the competitiveness scale, with one-third of market rate units deemed competitive with fully affordable. Denver’s less competitive submarkets are downtown and in the outer suburbs, where the average market rate advertised rent in higher-quality product tops $2,100. That’s well above Denver’s average affordable rent of $1,545 due to the lower AMI of households in those submarkets.
A contrast occurs in Denver’s higher-end suburbs such as Lakewood, Aurora, and Cherry Creek, where most of the apartment stock is higher quality, with market rate rents averaging more than $2,000 per month. But the average rent in fully affordable properties is between $1,500 and $1,800, because household incomes are greater, leading to higher rents in fully affordable units.
Austin, as noted, is among the most competitive markets. In large swaths of the suburbs, market rate properties are highly competitive because the influx of supply in recent years has led advertised rents to fall. However, there are pockets of less competitive submarkets, such as the downtown or the West End, where the spate of new luxury units has raised the average market rate rent relative to affordable apartment stock.
AFFORDABLE DEVELOPMENT NEEDS
It is important to understand the competitive environment for many reasons, including the decision where to allocate affordable housing resources such as where to build new stock or preserve existing units.
In markets and submarkets that are not competitive, new affordable supply in DDAs can help maintain housing opportunities in dense, high-demand urban areas where market rate housing is increasingly unaffordable to low- and moderate-income households.
In more competitive areas, development can be justified to meet demand for low-cost units, to improve the quality of local housing stock in places where most low-cost units are decades old and many lack modern amenities or need rehabilitation. In these conditions, new supply can help restrain future rent growth and increase the choices available to income-qualified tenants.
Understanding competitiveness also sheds light on affordable housing as an asset class for institutional investors. The mission of affordable properties is to provide low-cost housing to households earning income lower than average in the area, and is not generally thought of as a money-making venture. However, the segment historically is competitive with returns of market rate apartments.
Fully affordable multifamily properties nationally recorded an average 5.7% income growth in 2025, compared to 2.1% for market rate properties, per Matrix. That helped produce 8.7% growth in net operating income (NOI) for fully affordable multifamily units in the US, while market-rate units saw NOI increase by only 2.2%. Over the last eight years, Matrix Expert data found fully affordable and market rate properties were evenly split as to which segment recorded higher annual NOIs per unit.
That said, although demand for affordable housing is at an all-time high and the construction market is set to enjoy increased funding thanks to the increase in LIHTC and hundreds of other state and local programs that incentivize development, significant challenges exist. Because construction and financing costs have risen in recent years and the value of tax credits has declined, each dollar deployed for affordable housing builds fewer units.
Another issue is that affordable properties, on average, cost more to build per unit than market rate housing. Why? One reason is that many jurisdictions place extra regulatory requirements on affordable housing, such as high environmental standards and requiring more expensive union labor. Another factor is that affordable developments have higher soft costs such as legal and consulting fees because projects increasingly require developers to layer subsidies and grants, which gets more parties involved in the deals.
A recent study by the Boston mayor’s office found that large public development projects (50,000 square feet or more) cost $624 per square foot to build, more than 50% higher than the $406 per square foot for private developments. “Affordable housing consistently costs more to build across housing typologies and does not capture the same economies of scale as the private market,” the report said. “Key driving differences include divergent incentive models, higher soft costs, and longer development periods.”
To ensure that dollars are spent wisely and serve the purpose for which they are intended, affordable housing developers should analyze every relevant factor, including—and especially—metrics such as the competitiveness of the submarkets in which they build.
+ ISSUE 21
Note from the Editor: Issue #21
Benjamin van Loon | AFIRE
US Capital Market Trends: H2 2025
Will McIntosh, PhD; Shawn Moura, PhD | NAIOP Research Foundation
The US Data Center Market: Powering the AI Economy
Mark Fitzgerald, CFA, CAIA, Managing Director, Head of Research | Affinius Capital
Five Maps to Forecast America’s Real Estate Future
Dr. Parag Khanna, Founder and CEO | AlphaGeo
Green Shoots Spotted in the Office Sector
Scot Bommarito, Vice President, Research; William Maher, Director, Strategy and Research | RCLCO Fund Advisors
An Update on Housing: The Interplay Between Market Rate and Affordable Housing Rents
Paul Fiorilla, Director of Research; Jacob Gonzalez, Senior Research Analyst | Yardi Matrix
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NOTES
The methodology for the Matrix competitive index includes four property quality types, embedded in the Matrix: Discretionary (equivalent to A+, A apartments); Upper Mid-Range (A-, B+); Low Mid-Range (B, B-); and Workforce–Upper (C+, C).
For each metro, the Matrix calculates the average advertised rent in each of the quality segments and the share of apartment units comprising each quality segment. To use Austin as an example, the maximum average fully affordable rent is $1,631 (10% of stock in the metro), while the advertised averages in the market-rate segments are $1,915 for Discretionary, which comprises 22% of stock in the metro; $1,659 for Upper Mid-Range, which comprises 46% of stock in the metro; $1,296 for Low Mid-Range, which comprises 17% of stock in the metro; and $1,190 for Workforce–Upper, which comprises 5% of stock in the metro.
Using the government’s definition of “affordability” (when housing costs consume 30% or more of household income), we calculated the percentage of Area Median Income it would take to “afford” the rent in each quality segment before becoming cost burdened. In the example of Austin: Households that earn 68% of the AMI could afford the average rent of a Discretionary property; Households that earn 58% of the AMI could afford the average rent of an Upper Mid-Range property; Households that earn 46% of the AMI could afford the average rent of a Lower Mid-Range property; Households that earn 44% of the AMI could afford the average rent of a Workforce–Upper property; Households that earn 58% of the AMI could afford the average rent of a Fully Affordable property.
Housing quality categories were deemed “competitive” with fully affordable when the percentage of households that could afford the average rent for market-rate units fell below 10% of the same calculation for fully affordable units. We further credited all of the properties within the quality category to be competitive with affordable. To use the Austin example, Upper Mid-Range (46% of total stock), Low Mid-Range (17%) and Workforce–Upper (5%) were all considered competitive with affordable. Totaling the percentage of stock in those categories, we determined that 68% of multifamily properties in Austin are competitive with fully affordable units.
ABOUT THE AUTHOR
Paul Fiorilla is Director of Research and Jacob Gonzalez is a Senior Research Analyst for Yardi Matrix, which offers an industry-leading data solution designed to power the success of real estate professionals across multiple markets.
