This article is part of our ongoing investigative series, “Stress Test: Rethinking Affordable Housing Finance.”
Financial distress in affordable housing rarely hits providers as a single catastrophic event. More often, it shows up as a series of compounding issues. Maybe it starts with a double- or triple-digit insurance premium increase at policy renewal. Then, it could be a construction estimate comes back way above budget. Suddenly, a routine loan refinance with an unexpected interest rate hike tanks an operational plan in a building where struggling tenants can’t pay their “affordable” rent.
While any one of those issues might be manageable on its own, providers increasingly say the pace and pileup of insurance, debt, operating costs, and capital needs are hitting them faster than the rents, subsidies, and public funding structures they depend on can adjust.
That mismatch is putting new strain on a sector that has always operated with constrained revenue and little room for error. Developers and operators have for decades relied on a complicated matrix of layered subsidies, favorable financing, and periodic recapitalization to keep properties stable. But as those funding tools become less reliable in a high-cost environment still shaped by pandemic disruptions, more and more providers report the foundational math is no longer holding the way it once did.
Shelterforce has spoken to dozens of providers over the last year, including Margaret Salazar, CEO of REACH Community Development in Portland, Oregon—a well-established regional community development corporation operating nearly 3,000 affordable units in three counties. Salazar describes the years since the pandemic began as a “triple whammy” for affordable housing providers: rising interest and insurance rates, inflation-driven cost increases, and rent collections that still have not recovered.
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Michelle Norris, principal of N-Sights Consulting and a former executive vice president at National Church Residences (NCR), a long-standing senior supportive housing nonprofit, uses a similarly vivid metaphor. She describes the last several years as owners playing a game of Whac-A-Mole, trying to manage insurance spikes, reduced receivables, and other simultaneous pressures. “When anything hits multifamily [operators], it’s going to be exacerbated or exaggerated inside of the affordable world where you have rent management of some kind,” she says.
Fixed Revenue in a Broken System
Organizations such as NCR and REACH are acutely affected by any increase in market- or policy-driven pressures because, while their rents are regulated or contract-bound, many of their costs are not. Mission adherence, subsidy rules, tax credit restrictions, affordability covenants, and public funding structures all limit revenue. This isn’t a new issue, which is why affordable housing providers have historically bridged the gap between net operating income (NOI) and operating costs with subsidies, philanthropy, and other below-market funding sources. (NOI is a key property profitability marker determined by subtracting operating expenses on the property from the revenue the property generates.)
But skyrocketing prices have outpaced what patient capital can save. Affordable housing operators report costs across the board began shifting wildly and unpredictably over the last several years, and continue to steer (or stall) development. Labor and materials cost whatever the broader economy demands; utility rates track both markets and policy; insurance premium adjustments follow risk models residents never see; and a roof still costs what a roof costs, whether or not a property’s operating budget is limited by a rent roll capped at 30 percent of area median income.
For example, across the Low-Income Housing Tax Credit (LIHTC) portfolio, operating expenses have been rising faster than inflation for multiple consecutive years. A 2025 Novogradac analysis reported a 10.4 percent increase in expenses in 2022, following another above-inflation increase in 2023. Separately, benchmarking data show insurance costs for LIHTC properties climbing at an average annual rate of 13.4 percent from 2020 to 2022, while owner-paid utilities and administrative costs increased by 7.9 percent and 9 percent, respectively, over the same period.
“In some ways, [financing affordable housing] hasn’t worked in a while,” says Priya Jayachandran, CEO of National Housing Trust, a Washington, D.C.–based affordable housing provider. “The pandemic was finally the straw that broke the camel’s back.”
An analysis from 2024 found that operating expenses at affordable multifamily properties grew an average of 6.4 percent year over year per unit through the first three quarters of 2024, with only partial relief as inflation slowed. Trade outlet Affordable Housing Finance in 2025 described developers trying to close LIHTC transactions while juggling higher interest rates, rising insurance costs, and unstable construction expenses as “financing through the fog.”
The challenge is more than just addressing today’s visibly amplified pressures, Norris says. It’s also the uncertainty of anticipating potential future effects. “You’re still doing the hard work of providing good, safe, decent housing, but you’ve got insurance cost issues here, growing receivables over there, regulatory changes over here, and now these big trajectories around tariffs, ‘buy America’ requirements, and more,” she says. “You don’t know exactly what’s coming, but you can guess it is going to add more complexity to your work.”
Pressure from All Sides
Although housing is largely considered a local issue, federal officials in late 2024 acknowledged the effects of rising insurance costs on housing providers. The U.S. Department of Housing and Urban Development (HUD) found that insurance costs at assisted multifamily properties had nearly doubled, on average, over the previous five years, with the steepest increases along the Gulf and Atlantic coasts. That matters not because property owners needed Washington to tell them that premiums were rising, but because it shows the federal government is publicly confronting a problem that providers have managed for years.
Eric Oberdorfer, director of policy and legislative affairs at the National Association of Housing and Redevelopment Officials, says insurance has been “a hugely significant challenge” for his organization’s members. In some states, he says, it’s “almost impossible” to afford coverage under current federal subsidy levels.
Insurance is one of the top cost increases that housing operators are struggling with. For example, Central City Concern, a Portland-based nonprofit affordable housing and supportive services provider, experienced a 547 percent insurance premium increase since 2020, according to reporting by The Oregonian.
Federal officials have begun responding in some concrete ways. HUD’s 2025 operating cost adjustment factors were explicitly aimed at helping assisted multifamily properties absorb rising expenses, including insurance costs. The agency also updated some of its insurance deductible rules as coverage has become harder to obtain in high-risk markets.
[RELATED ARTICLE: Rising Property Insurance Costs: The Threat to Affordable Housing]
Operators have also had to deal with steadily increasing rent arrearages in the years since pandemic-era federal rental assistance dried up. Those pressures have already stoked foreclosure fears at some income-restricted properties. For example, Patrick McAnaney, development director at Washington–based Somerset Development Company, in a mid-2025 interview, told Shelterforce that the organization was carrying roughly three times its normal level of rent delinquency.
And then there are higher interest rates, which create a different kind of pressure than rising insurance or operating costs. Those costs often build over time. Debt can hit all at once, when a loan matures, when a construction loan converts, or when a property needs to refinance in a much more expensive borrowing environment.
Many affordable housing properties operating today were financed during years of unusually cheap debt. As loans mature, owners are not only refinancing at higher rates but also trying to find new capital for repairs, rehabilitation, or recapitalization.
When the Numbers Stay in the Red
Affordable housing finance can get technical fast. Many types of financing are typically involved, and each one, from LIHTC to Community Development Block Grants or project-based vouchers, brings its own complexity.
At the property level, though, the equation is simple: what comes in must cover what goes out. Whatever is left determines whether a property can absorb cost shocks, service debt, and keep up with maintenance and repairs. And the consequences of being unable to do so—even temporarily—compound.
When rental income drops and costs rise, McAnaney says, properties may no longer bring in enough income to cover their mortgage obligations. Once that happens, owners can fall out of compliance with loan covenants and become vulnerable to foreclosure or other lender actions, including calling in the debt early or refinancing according to less favorable terms.
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In Washington, D.C., the risk became serious enough that by February 2025, the city was using its Housing Production Trust Fund to stabilize distressed affordable housing. Mayor Muriel Bowser announced that 69 projects had been selected for bridge, gap, and support funding; together, the selected properties had applied for up to $144 million, and forecasted the investments would preserve nearly 8,000 housing units, including more than 7,700 affordable ones. But even that intervention was not expected to solve the full problem: The city had previously estimated that roughly 22,000 units, providing housing for about 48,000 residents, were at risk of delinquency-caused foreclosure. This type of emergency intervention provides another signal that the financial tools that affordable housing providers have long relied on no longer stretch as far as they once did.
Market‑rate owners respond to rising expenses by increasing rents. Affordable housing owners are limited—morally and legally—in how much they can pass along operational cost increases to low-income tenants. Instead, they find extra funding elsewhere, typically through philanthropy, fundraising, dipping into reserves, cutting costs and programs, or borrowing.
Some funding programs include mechanisms that allow rents or subsidy payments to increase over time, at least to some degree, to help properties keep up with operating costs. HUD, for example, uses tools such as Operating Cost Adjustment Factor (OCAFs) and Annual Adjustment Factors (AAFs) to update certain assisted rents each year. While these mechanisms help, they’re imperfect and don’t always move quickly enough to account for sudden insurance spikes, utility increases, or major repair costs. Even when providers secure additional funding, one rising cost often triggers another.
Kevin Cronin, policy and advocacy director at Housing Oregon, a nonprofit representing nearly 150 organizations in the state’s affordable housing field, says that some multifamily projects started during the pandemic faced such lengthy construction and lease-up delays that developers had to carry higher-interest construction loans for longer than planned.
“They saw [that] their interest rates really spiked during the construction period, and then they started having problems converting to their permanent loan,” Cronin says. “You would see a new building roll off the lot, so to speak, and it would be immediately underwater because it took so long to convert that loan and [developers] had to carry so much extra interest.”
Longer development timelines are both a symptom of the current environment and a driver of additional strain. For affordable multifamily developers who earn their fees at financing, completion, and lease-up, that extended timeline means more carrying costs, more uncertainty, and less room for error. Pennrose CEO and principal Timothy Henkel, for example, whose company has developed more than 350 mixed-income and affordable multifamily projects, says that projects that took 12 months before the pandemic started now take at least 18—and that’s on the quicker side. “If our widgets are supposed to go through the factory in 24 months total,” he says, “and now it’s like 36 to 48, the model degrades fast.”
That matters because affordable housing deals are rarely financed by a single source. “You’re basically creating a layer cake of different funding sources to actually get something over the finish line,” Oberdorfer says. Any shift in one of those layers “has the potential to disrupt the entire development.”
A Harder Preservation Environment
Whether the pressure comes from rising operating costs, weak collections, or more expensive debt, the effect is the same: once too much income is spoken for, the property loses its margin for error. Owners lose more than flexibility; they also lose resources they need to fulfill their mission. Repairs slip. Reserves get raided. Positions stay vacant. Eventually, low-income renters are left living in buildings that are “affordable” yet less safe, less decent, and less stable.
[RELATED ARTICLE: Affordable Housing Finance 101]
Preservation has always been one of affordable housing’s major goals and achievements. Organizations acquire older buildings, layer subsidies with financing, reinvest in them, keep them out of speculative markets, and retain their affordability. But preservation only works if owners can continue recapitalizing the buildings themselves. Roofs, boilers, elevators, plumbing, and electrical systems all have finite lives. Delay it long enough, and the problem does not go away; it gets more expensive. These days, “it’s really hard to find financing for small properties and to find an economy of scale to make a preservation deal work,” Salazar says.
It’s important to distinguish between ordinary maintenance and major building systems. For example, Laurelhurst Apartments, a 23-unit building REACH had owned for decades and kept up with standard maintenance, needed nearly $300,000 in major repairs. The nonprofit tried multiple times to secure financing for that rehab but wasn’t successful. With larger or more deeply affordable properties taking priority for scarce public funding dollars, keeping Laurelhurst became harder to justify as a preservation investment, even after decades in REACH’s portfolio. The organization was forced to sell the building in 2024.
What Critics Get Wrong, and Why It Matters
When affordable housing providers talk about financial stress, critics of public investment often respond with a familiar refrain: “See? It doesn’t work.”
Sector-level performance data tells a more complicated story. Large portfolio studies of LIHTC properties have consistently found high occupancy and low foreclosure rates over time, even during periods of economic stress. In its 2025 Affordable Housing Credit Study, CohnReznick reported a 97 percent median physical occupancy rate for the national LIHTC portfolio in 2024, with a cumulative foreclosure rate of just less than 0.5 percent and no new foreclosures reported since 2021. Separate national research, commissioned by the Community Opportunity Alliance and conducted by the Urban Institute, similarly found that community-based development organizations showed good financial health overall, even as some organizations faced greater financial challenges.
That kind of data shows evidence of a sector that has typically been well managed, and, until recently, able to adapt to significant economic fluctuations. However, a strong occupancy rate does not guarantee that a building has the reserves to replace a failing HVAC system or to spring for a new roof, and a low foreclosure rate does not mean that owners are not selling assets, deferring capital work, or scrambling to patch together new financing. Stability in the aggregate can mask fragility in specific places.
Norris puts it more bluntly: “It’s not that the model doesn’t work; it’s that the market doesn’t work to support the model. The political will to fund what can’t be covered out of rents just isn’t there consistently.” Denise Muha, executive director of the National Leased Housing Association, similarly describes affordable housing as “a really good example of public and private partnerships”—but one that depends on the program rules and financing structures around it working as intended.
For affordable housing owners, those pressures can lead to difficult decisions that are often made quietly. A property sale or transfer doesn’t reflect mission abandonment so much as a calculated act of survival. It may be a way to free up capital to stabilize stronger properties elsewhere in a portfolio, to exit a building whose rehab no longer pencils out, or to prevent deeper distress from spreading across an organization’s holdings.
Unfortunately, whether that decision protects tenants from potential displacement or exposes them to it depends on the terms of the sale, the durability of affordability restrictions, and the protections that follow residents through the transition to new ownership.
What Would Change the Capital, Subsidy, and Risk Equations?
As with most housing-related issues, there is no single fix. But the mounting pressures point to three broad sets of levers: how risk is priced and shared, how capital is structured, and how subsidy and debt are designed.
On the risk side, insurance has become less of a manageable operating expense and more of a destabilizer. Public reinsurance models, pooled risk arrangements, and stronger regulatory intervention could help blunt that volatility and keep insurance from consuming the very resources properties need to remain habitable and financially sound.
On the capital side, the sector needs refinancing and recapitalization tools that match the scale and character of the distress. Not every property should take on more debt—and many cannot. That shifts the focus to preservation funds that can move quickly, more patient capital willing to accept lower returns for long-term stability, and policy changes that make it easier to bring in equity without weakening affordability protections. As Salazar notes, what distressed properties need isn’t deeper leverage; it’s a way to reduce financial pressure before it becomes irreversible.
“We just need more dollars for preservation,” she says. “We need flexible tools to be able to figure out how to preserve the long-term affordability of properties, and that’s both sticks-and-bricks money and resources to do things like buy down debt on distressed properties or refinance [them].”
On the subsidy side, the challenge is not just scarcity but fit. “There are just certain things you can’t do without subsidy,” Jayachandran says. Rent adjustment mechanisms such as OCAFs and AAFs still matter, but many providers say they have not kept pace with the size and volatility of recent cost increases—especially in insurance—and they can only help so much in buildings where tenants or subsidy structures cannot absorb higher rents.
There are also less visible ways that public policy could reduce strain. In a highly regulated field such as affordable housing, governance is as important as finance. Owners and developers repeatedly point to regulatory and compliance burdens that add time, cost, and uncertainty to preservation and development deals.
Resolution requires more than simply choosing between more money and less regulation, Jayachandran says. “It’s more like a both/and problem. It’s got to be deregulation and money, and too often it’s one or the other,” she says. “Democrats want huge appropriations and never want to improve the process or take anything away. Republicans want only deregulation and not to recognize that there are certain things you can’t do without subsidy. And so I think the answer is somewhere in the middle.”
While markets are cyclical, the people Shelterforce spoke with for this article describe this moment as less of a temporary squeeze than a structural shift. Climate risk is driving up insurance costs. Capital is more expensive and often less patient. Policy volatility is making long-term planning harder. Subsidy remains essential, but in many cases it’s too thin or too rigid to absorb the shocks now hitting properties all at once.
That does not mean affordable housing has stopped working. It means the pressure on the model is intensifying—and forcing harder choices about what gets stabilized, what gets transferred, and what may be lost.
Norris puts the stakes more plainly: When larger forces stress systems such as affordable housing, “it always impacts harder those who have the least.”
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5 thoughts on “Breaking Point: Why the Affordable Housing Business Model Is Unraveling”
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Shelby,
You are spot on with this piece. I’ve been developing affordable housing for 35 years. It has always been hard, but the last few years have produced on intractable problem after another. I agree, this is not a cyclical squeeze, it is a structural shift. And I fear we those extremely rare LIHTC foreclosures will be a thing of the past if we don’t change the structure.
This is an excellent profile of affordable housing issues, challenges, policies, funding, and insights. That said, I wish that every “affordable” story be followed up by a related factor: the aggressive, subsidized, built environment agenda adopted by “representatives” of the same communities affordable housing advocates are fighting for. We need a story or two about the role public actors play in shaping dynamic market forces which squeezes low-moderate income families and individuals toward inter-generational poverty, all in the name of “economic development”.
Public actors tilt the playing field in favor of the commercial real estate industry, the same folks who fund election campaigns to assure their longstanding dominance of their market economy. We also need a story or two about the critical role public actors can play to support avenues for income generation in those communities left behind. We need investigative stories in equal measure about these overlooked realities.
Shelby, this is an excellent article on affordable housing financial distress. I am recently retired from affordable housing asset management and development finance – and have seen these stresses build for years, slowly getting worse but then accelerated by the Pandemic. Clearly, the current affordable housing finance structure with limited rents, heavy compliance burdens, and unlimited exposure to operating expense increases, needs reform. One place to start is to restructure the LIHTC program removing many of the “middle men”, and also creating an additional long term capital preservation escrow at closing, which enjoys an initial capitalization, annual contributions, and cannot be touched for the first 5 or 7 years of the 15 year compliance period.
Wow, yes. All that!
Spot on.
When the political tides shift, we will have an opportunity to do big things. We must demand nothing less than fully funded operating subsidies (all eligible S8 households, public housing operating subsidy that matches needs, etc) and fully funded capital subsidies (an amount sufficient to build the number of homes our nation is short within a decade). No more blood from stones. No more tax credit crumbs. Nothing less than what is necessary.