Naturally Occurring Affordable Housing Benefits Moderate Income Households, But Not the Poor

The commercial real estate information company CoStar released new data on rental homes that are affordable without public subsidy, known as naturally occurring affordable housing (NOAH). CoStar presented the data earlier this month at a symposium cosponsored by the Urban Land Institute (ULI) Terwilliger Center for Housing and the National Association of Affordable Housing Lenders. The presentation identified 5.5 million unsubsidized rental units that were affordable to middle income households but not to the lowest income households.

CoStar analysts rated multi-family properties in their proprietary database of nearly 335,000 properties on a scale of one to five stars, with one star representing the lowest quality properties, 2 stars representing functional properties with minimal amenities, and five stars representing the luxury end of the multi-family housing market.

One and two star rental properties constitute a significant segment of the rental market, accounting for 75.4% of all properties tracked by CoStar and 36.2% of the rental units. They provided 5.5 million NOAH units for middle income households. The average rent for a one or two star rental home was 16.5% of the average median income across all metro areas, while the average rent for a 4 or 5 star rental home was 26.4% of average median income.

CoStar highlighted that this NOAH stock was a stable, income-producing asset that presented a significant opportunity for private investors to receive competitive and consistent returns. A challenge may be protecting the affordability and quality of NOAH units. A significant portion of the NOAH for middle income households can be maintained with innovative capital structures and, in places where affordability is threatened, mission-driven investors willing to protect the stock’s affordability.     

It is important to note that even the average one- and two-star NOAH apartment is not affordable to extremely low income (ELI) renter households, those earning less than 30% of their area’s median income. The average rent of these units is 55% of the average ELI income threshold, meaning that ELI households renting such units would be severely housing cost-burdened. ELI renter households face a national shortage of 7.2 million affordable and available rental homes, leaving three out of four spending more than 50% of their incomes on rent and utilities, the definition of severely housing cost-burdened. The private market does not adequately serve these renters because the rent they can afford to pay generally does not cover a landlord’s operating costs.

CoStar’s presentation is available at:

A ULI blog post about the CoStar data is available at: