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New CoStar Data Reveal a Vast National Inventory of Naturally Occurring Affordable Housing—and an Untapped Opportunity

By Archana Pyati, October 24, 2016

At least 5.5 million units of naturally occurring affordable rental housing exist in cities across the United States, according to newly released data from CoStar, a leading provider of data and analytics for the commercial real estate industry.

Naturally occurring affordable housing (NOAH) is housing that is affordable without being supported by public subsidies such as low-income housing tax credits. NOAH’s market-rate affordability derives mainly from its age—most units were built 40 to 50 years ago—and lack of amenities: it is no-frills, functional housing that is nonetheless safe, secure, and inhabitable.

“The CoStar data provides probably the most detailed look yet at an underappreciated but critically important real estate asset class—the existing supply of naturally occurring affordable market-rate apartments,” said Stockton Williams, executive director of the ULI Terwilliger Center for Housing, which commissioned the CoStar report.

In addition to the number of NOAH units that exist in the marketplace, what is most striking is their ubiquity: they make up 36 percent of all the rental units CoStar tracks and exist in nearly every metropolitan area. Using its proprietary five-star rating system for buildings, CoStar determined that one- and two-star properties—defined as utilitarian apartment buildings with minimal architectural finishes, amenities, and certifications—account for nearly 76 percent of all multifamily properties in its database of nearly 335,000 properties. CoStar’s one- and two-star properties are considered equivalent to Class B and C buildings.

The CoStar database constitutes one of few attempts to quantify what housing leaders view as a critical supply of housing for middle-class workers in a wide range of professions that enable local economies to function. The firm presented its data earlier this month at a Washington, D.C., symposium jointly sponsored by the ULI Terwilliger Center for Housing and the National Association of Affordable Housing Lenders (NAAHL).

“Anyone who spends time around the real estate market probably intuitively understands that there are a lot of these one- and two-star buildings out there,” said presenter Shaw Lupton, managing consultant with CoStar and cochair of the ULI Boston Real Estate Technology Council. “When you look at this at the building level, about three-quarters are one- and two-star properties, so we see a vast opportunity in this segment of the market.”

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