Nineteen million families in the United States currently pay more than half their income in rent. A predicted 13 million families will become renters over the next 20 years while the supply of affordable housing is shrinking. The need to increase affordable rental housing is clear.

Part of the solution is hidden in plain sight: rentals in single-family homes and small multifamily buildings that are not only plentiful but can be very affordable. Currently, single-family rental units make up more than half of the 14 million rental units in the United States, but government programs to increase affordable rental housing exclude them. That needs to change.

Multisite, multifamily

Single-family rentals should be considered a key part of an affordable housing strategy for three reasons: their volume, location, and affordability. Single-family homes are plentiful; millions of units already exist.  Many are downtown or in close-in suburbs where people already want to live. And many units are affordable to low- and moderate-income individuals and families, providing more space for only slightly more rent, often with yards, garages, off-street parking, and other amenities.

Traditionally, single-family rentals were owned by small mom-and-pop investors. But in the last four years, institutional investors have entered the space. Once upon a time, multifamily developers would look at anyone proposing to manage a portfolio of scattered single-family rentals as if they had two heads. But new investors have shown that by using proper systems and standardized processes, it is possible to manage single-family rentals in a professional manner and on an institutional scale.

Turning distressed single-family houses into rentals can be an important way to absorb the overhang from the credit crisis and stabilize neighborhoods. Even though foreclosures are down from the peak of the housing crisis, many continue: there were over 50,000 new foreclosure filings in July 2015. Preserving existing portfolios of single-family rentals can provide quality housing for thousands of families, particularly when policymakers are worried about the shrinking stock of multifamily units and the lack of new affordable rentals.

How do we get there?

But single-family rentals’ promise as affordable housing will only be realized if we make traditional multi-family financing tools available to single family rental developers.

Three policy steps could add or preserve quality affordable single-family rentals in the housing stock now and in the future:

• Adjust HUD’s 223f program. Policymakers should allow single family developers to access 223f loans from HUD. Currently the 223f program does not allow for multi-site projects unless they contain at least five contiguous properties. Single family rentals are generally much more scattered, so this requirement would need to be modified to enable developers to use HUD financing.

• Open up the low-income housing tax credit program. Policymakers can also open up the low-income housing tax credit program (LIHTC) for single-family rentals, by modifying the rules that make it difficult to purchase scattered properties and rehab them, and which make it impossible to purchase properties that have been rehabbed.

• Clarify Community Reinvestment Act (CRA) credit rules. Policymakers should clarify that under the act, traditional bank financing is eligible for credit to single-family rental developers who provide affordable rentals to low- and middle-income households. Providing CRA credit would facilitate private sector financing for these types of units.

In short, the tools exist, the programs exist, and the housing is already plentiful and affordable. Let’s use the tools to preserve single-family housing as affordable housing for the long term.

Read more about our proposal to allow single-family rentals to access traditional multi-family programs in our brief, view charts and data about the housing market in our September Chartbook or subscribe to the bi-weekly Housing Finance Policy Center newsletter.