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Market Study Terminology
Effective January 1, 2007, all affordable housing market studies performed by NCHMA
members incorporate the member certification, market study index, the market study
terminology and market study standards.
State Housing Finance Agencies and other industry members are welcome to incorporate the
information below in their own standards. NCHMA only requests written notification of use.
I. Common Market Study Terms
The terms in this section are definitions agreed upon by NCHMA members. Market studies for
affordable housing prepared by NCNCHMAHMA members should use these definitions in their
studies except where other definitions are specifically identified.
Terminology Definition
Absorption period The period of time necessary for a newly constructed or renovated
property to achieve the stabilized level of occupancy. The
absorption period begins when the first certificate of occupancy is
issued and ends when the last unit to reach the stabilized level of
occupancy has a signed lease. Assumes a typical pre-marketing
period, prior to the issuance of the certificate of occupancy, of
about three to six months. The month that leasing is assumed to
begin should accompany all absorption estimates.
Absorption rate The average number of units rented each month during the
absorption period.
Acceptable rent
burden
The rent-to-income ratio used to qualify tenants for both income-
restricted and non-income restricted units. The acceptable rent
burden varies depending on the requirements of funding sources,
government funding sources, target markets, and local conditions.
Achievable Rents See Market Rent, Achievable Restricted Rent.
Affordable housing Housing affordable to low or very low-income tenants.
Amenity Tangible or intangible benefits offered to a tenant. Typical
amenities include on-site recreational facilities, planned programs,
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services and activities.
Annual demand The total estimated demand present in the market in any one year
for the type of units proposed.
Assisted housing Housing where federal, state or other programs subsidize
the
monthly costs to the tenants.
Bias A proclivity or preference, particularly one that inhibits or entirely
prevents an impartial judgment.
Capture rate The percentage of age,
size, and income qualified renter households
in the primary market area that the property must capture to fill
the units. Funding agencies may require restrictions to the qualified
households used in the calculation including age, income, living in
substandard housing, mover-ship and other comparable factors. The
Capture Rate is calculated by dividing the total number of units at
the property by the total number of age, size and income qualified
renter households in the primary market area. See also: penetration
rate.
Comparable property A property that is representative of the rental housing choices of the
subject’s primary market area and that is similar in construction,
size, amenities, location, and/or age. Comparable and competitive
properties are generally used to derive market rent and to evaluate
the subject’s position in the market. See the NCHMA white paper
Selecting Comparable Properties
Competitive property A property that is comparable to the subject and that competes at
nearly the same rent levels and tenant profile, such as age, family or
income.
Comprehensive Market
Study
NCHMA defines a comprehensive mar
k
et study for the purposes of
IRS Section 42 as a market study compliant with its Model Content
Standards for Market Studies for Rental Housing. Additionally, use of
the suggested wording in the NCHMA certification without limitations
regarding the comprehensive nature of the study, shows compliance
with the IRS Section 42 request for completion of a market study by
a ‘disinterested party.’
Concession Discount given to a prospective tenant to induce the tenant to sign a
lease. Concessions typically are in the form of reduced rent or free
rent for a specific lease term, or for free amenities, which are
normally charged separately (i.e. washer/dryer, parking).
Demand The total number of households in a defined market area that would
potentially move into the proposed new or renovated housing units.
These households must be of the appropriate age, income, tenure
and size for a specific proposed development. Components of
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demand vary and can include household growth; turnover, those
living in substandard conditions, rent over-burdened households, and
demolished housing units. Demand is project specific.
Effective rents Contract rent less concessions.
Household trends Changes in the number of households for a particular area over a
specific period of time, which is a function of new household
formations (e.g. at marriage or separation), changes in average
household size, and net migration.
Income band The range of incomes of households that can afford to pay a specific
rent but do not have below any applicable program-specific
maximum income limits. The minimum household income typically is
based on a defined acceptable rent burden percentage and the
maximum typically is pre-defined by specific program requirements
or by general market parameters.
Infrastructure Services and facilities including roads, highways, water, sewerage,
emergency services, parks and recreation, etc. Infrastructure
includes both public and private facilities.
Market advantage The difference, expressed as a percentage, between the estimated
market rent for an apartment property without income restrictions
and the lesser of (a) the owner’s proposed rents or (b) the maximum
rents permitted by the financing program for the same apartment
property.
(market rent – proposed rent) / market rent * 100
Market analysis A study of real estate market conditions for a specific type of
property.
Market area See primary market area.
Market demand The total number of households in a defined market area that would
potentially move into any new or renovated housing units. Market
demand is not project specific and refers to the universe of tenure
appropriate households, independent of income. The components of
market demand are similar to those used in determining project-
specific demand.
A common example of market demand used by HUD’s MAP program,
which is based on three years of renter household growth, loss of
existing units due to demolition, and market conditions.
Market rent The rent that an apartment, without rent or income restrictions or
rent subsidies, would command in the primary market area
considering its location, features and amenities. Market rent should
be adjusted for concessions and owner paid utilities included in the
rent. See the NCHMA publication Calculating Market Rent.
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Market study A comprehensive study of a specific proposal including a review of
the housing market in a defined market area. Project specific
market studies are often used by developers, syndicators, and
government entities to determine the appropriateness of a proposed
development, whereas market specific market studies are used to
determine what housing needs, if any, exist within a specific
geography. The minimal content of a market study is shown in the
NCHMA publication Model Content for Market Studies for Rental
Housing.
Marketability The manner in which the subject fits into the market; the relative
desirability of a property (for sale or lease) in comparison with
similar or competing properties in the area.
Market vacancy rate,
economic
Percentage of rent loss due to concessions, vacancies, and non-
payment of rent on occupied units.
Market vacancy rate,
physical
Average number of apartment units in any market which are
unoccupied divided by the total number of apartment units in the
same market, excluding units in properties which are in the lease-up
stage.
Migration The movement of households into or out of an area, especially a
primary market area.
Mixed income
property
An apartment property containing (1) both income restricted and
unrestricted units or (2) units restricted at two or more income
limits (i.e. low income tax credit property with income limits of 30%,
50% and 60%).
Mobility The ease with which people move from one location to another.
Move-up demand An estimate of how many consumers are able and willing to relocate
to more expensive or desirable units. Examples: tenants who move
from class-C properties to class-B properties, or tenants who move
from older tax credit properties to newer tax credit properties-
Multi-family Structures that contain more than two housing units.
Neighborhood An area of a city or town with common demographic and economic
features that distinguish it from adjoining areas.
Net rent (also referred
to as contract rent or
lease rent)
Gross rent less tenant paid utilities.
Penetration rate The percentage of age and income qualified renter households in the
primary market area that all existing and proposed properties, to be
completed within six months of the subject, and which are
competitively priced to the subject that must be captured to
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achieve the stabilized level of occupancy. Funding agencies may
require restrictions to the qualified Households used in the
calculation including age, income, living in substandard housing,
mover ship and other comparable factors.
units in all proposals / households in market * 100
See also: capture rate.
Pent-up demand A market in which there is a scarcity of supply and vacancy rates are
very low.
Population trends Changes in population levels for a particular area over a specific
period of time—which is a function of the level of births, deaths, and
net migration.
Primary market area A geographic area from which a property is expected to draw the
majority of its residents. See the NCHMA publication Determining
Market Area.
Programmatic rents See restricted rents.
Project based rent
assistance
Rental assistance from any source that is allocated to the property
or a specific number of units in the property and is available to each
income eligible tenant of the property or an assisted unit.
Redevelopment The redesign or rehabilitation of existing properties.
Rent burden Gross rent divided by adjusted monthly household income.
Rent burdened
households
Households with rent burden above the level determined by the
lender, investor, or public program to be an acceptable rent-to-
income ratio.
Restricted rent The rent charged under the restrictions of a specific housing
program or subsidy.
Restricted rent,
Achievable
The rents that the project can attain taking into account both
market conditions and rent in the primary market area and income
restrictions.
Saturation The point at which there is no longer demand to support additional
units. Saturation usually refers to a particular segment of a specific
market.
Secondary market
area
The portion of a market area that supplies additional support to an
apartment property beyond that provided by the primary market
area.
Special needs
population
Specific market niche that is typically not catered to in a
conventional apartment property. Examples of special needs
populations include: substance abusers, visually impaired person or
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persons with mobility limitations.
Stabilized level of
occupancy
The underwritten or actual number of occupied units that a property
is expected to maintain after the initial rent-up period, expressed as
a percentage of the total units.
Subsidy Monthly income received by a tenant or by an owner on behalf of a
tenant to pay the difference between the apartment’s contract rent
and the amount paid by the tenant toward rent.
Substandard
conditions
Housing conditions that
are conventionally considered unacceptable
which may be defined in terms of lacking plumbing facilities, one or
more major systems not functioning properly, or overcrowded
conditions.
Target income band The income band
from which the subject property will draw tenants.
Target population The market segment or segments a development will appeal or cater
to. State agencies often use target population to refer to various
income set asides, elderly v. family, etc.
Tenant paid utilities The cost of utilities (not including cable, telephone, or internet)
necessary for the habitation of a dwelling unit, which are paid by
the tenant.
Turnover turnover
period
1. An estimate of the number of housing units in a market area as a
percentage of total housing units in the market area that will likely
change occupants in any one year. See also: vacancy period. Housing
units with new occupants / housing units * 100 2. The percent of
occupants in a given apartment complex that move in one year.
Unmet housing need New units required in the market area to accommodate household
growth, homeless people, and households in substandard conditions.
Unrestricted rents Rents that are not subject to restriction.
Unrestricted units Units that are not subject to any income or rent restrictions.
Vacancy period The amount of time that an apartment remains vacant and available
for rent.
Vacancy rate-
economic vacancy
rate - physical
Maximum potential revenue less actual rent revenue divided by
maximum potential rent revenue. The number of total habitable
units that are vacant divided by the total number of units in the
property.
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II. Other Useful Terms
The terms in this section are not defined by NCHMA.
Terminology Definition
Area Median Income
(AMI)
100% of the gross median household income for a specific
Metropolitan Statistical Area, county or non-metropolitan area
established annually by HUD.
Attached housing Two or more dwelling units connected with party walls (e.g.
townhouses or flats).
Basic Rent The minimum monthly rent that tenants who do not have rental
assistance pay to lease units developed through the USDA-RD Section
515 Program, the HUD Section 236 Program and HUD Section
223(d)(3) Below Market Interest Rate Program. The Basic Rent is
calculated as the amount of rent required to operate the property,
maintain debt service on a subsidized mortgage with a below-market
interest rate, and provide a return on equity to the developer in
accordance with the regulatory documents governing the property.
Below Market Interest
Rate Program (BMIR)
Program targeted to renters with income not exceeding 80% of area
median income by limiting rents based on HUD’s BMIR Program
requirements and through the provision of an interest reduction
contract to subsidize the market interest rate to a below-market
rate. Interest rates are typically subsidized to effective rates of one
percent or three percent.
Census Tract A small, relatively permanent statistical subdivision delineated by a
local committee of census data users for the purpose of presenting
data. Census tract boundaries normally follow visible features, but
may follow governmental unit boundaries and other non-visible
features; they always nest within counties. They are designed to be
relatively homogeneous units with respect to population
characteristics, economic status, and living conditions at the time of
establishment. Census tracts average about 4,000 inhabitants.
Central Business
District (CBD)
The center of commercial activity within a town or city; usually the
largest and oldest concentration of such activity.
Community
Development
Corporation (CDC)
Entrepreneurial institution combining public and private resources to
aid in the development of socio-economically disadvantaged areas.
Condominium A form of joint ownership and control of property in which specified
volumes of space (for example, apartments) are owned individually
while the common elements of the property (for example, outside
walls) are owned jointly.
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Contract Rent 1.The actual monthly rent payable by the tenant, including any rent
subsidy paid on behalf of the tenant, to the owner, inclusive of all
terms of the lease. (HUD & RD) 2. The monthly rent agreed to
between a tenant and a landlord (Census).
Difficult Development
Area (DDA)
An area designated by HUD as an area that has high construction,
land, and utility costs relative to the Area Median Gross Income. A
project located in a DDA and utilizing the Low Income Housing Tax
Credit may qualify for up to 130% of eligible basis for the purpose of
calculating the Tax Credit allocation.
Detached Housing A freestanding dwelling unit, typically single-family, situated on its
own lot.
Elderly or Senior
Housing
Housing where (1) all the units in the property are restricted for
occupancy by persons 62 years of age or older or (2) at least 80% of
the units in each building are restricted for occupancy by Households
where at least one Household member is 55 years of age or older and
the housing is designed with amenities and facilities designed to
meet the needs of senior citizens.
Extremely Low Income Person or Household with income below 30% of Area Median Income
adjusted for Household size.
Fair Market Rent
(FMR)
The estimates established by HUD of the Gross Rents (Contact Rent
plus Tenant Paid Utilities) needed to obtain modest rental units in
acceptable condition in a specific county or metropolitan statistical
area. HUD generally sets FMR so that 40% of the rental units have
rents below the FMR. In rental markets with a shortage of lower
priced rental units HUD may approve the use of Fair Market Rents
that are as high as the 50th percentile of rents.
Garden Apartments Apartments in low-rise buildings (typically two to four stories) that
feature low density, ample open-space around buildings, and on-site
parking.
Gross Rent The monthly housing cost to a tenant which equals the Contract Rent
provided for in the lease plus the estimated cost of all Tenant Paid
Utilities.
High-rise A residential building having
more than ten stories.
Household One or more people who occupy a housing unit as their usual place
of residence.
Housing Unit House, apartment, mobile home, or group of rooms used as a
separate living quarters by a single household.
Housing Choice
Voucher (Section 8
Federal rent subsidy program under Section 8 of the U.S. Housing
Act, which issues rent vouchers to eligible Households to use in the
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Program) housing of their choice. The voucher payment subsidizes the
difference between the Gross Rent and the tenant’s contribution of
30% of adjusted income, (or 10% of gross income, whichever is
greater). In cases where 30% of the tenants’ income is less than the
utility allowance, the tenant will receive an assistance payment. In
other cases, the tenant is responsible for paying his share of the rent
each month.
Housing Finance
Agency (HFA)
State or local agencies responsible for financing housing and
administering Assisted Housing programs.
HUD Section 8
Program
Federal program that provides project based rental assistance.
Under the program HUD contracts directly with the owner for the
payment of the difference between the Contract Rent and a
specified percentage of tenants’ adjusted income.
HUD Section 202
Program
Federal Program, which provides direct capital assistance (i.e. grant)
and operating or rental assistance to finance housing designed for
occupancy by elderly households who have income not exceeding
50% of Area Median Income. The program is limited to housing owned
by 501(c)(3) nonprofit organizations or by limited partnerships where
the sole general partner is a 501(c)(3) nonprofit organization. Units
receive HUD project based rental assistance that enables tenants to
occupy units at rents based on 30% of tenant income.
HUD Section 811
Program
Federal program, which provides direct capital assistance and
operating or rental assistance to finance housing designed for
occupancy by persons with disabilities who have income not
exceeding 50% of Area Median Income. The program is limited to
housing owned by 501(c)(3) nonprofit organizations or by limited
partnerships where the sole general partner is a 501(c)(3) nonprofit
organization.
HUD Section 236
Program
Federal program which provides interest reduction payments for
loans which finance housing targeted to Households with income not
exceeding 80% of area median income who pay rent equal to the
greater of Basic Rent or 30 percent of their adjusted income. All
rents are capped at a HUD approved market rent.
Income Limits Maximum Household income by county or Metropolitan Statistical
Area , adjusted for Household size and expressed as a percentage of
the Area Median Income for the purpose of establishing an upper
limit for eligibility for a specific housing program. Income Limits for
federal, state and local rental housing programs typically are
established at 30%, 50%, 60% or 80% of AMI. HUD publishes Income
Limits each year for 30% median, Very Low Income (50%), and Low-
Income (80%), for households with 1 through 8 people.
Low Income Person or Household with gross Household income below 80% of Area
Median Income adjusted for Household size.
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Low Income Housing
Tax Credit
A program to generate equity for investment in affordable rental
housing authorized pursuant to Section 42 of the Internal Revenue
Code, as amended. The program requires that a certain percentage
of units built be restricted for occupancy to households earning 60%
or less of Area Median Income, and that the rents on these units be
restricted accordingly.
Low Rise Building A building with one to three stories
Metropolitan
Statistical Area (MSA)
A geographic entity defined by the federal Office of Management
and Budget for use by federal statistical agencies, based on the
concept of a core area with a large population nucleus, plus
adjacent communities having a high degree of economic and social
integration with that core. Qualification of an MSA requires the
presence of a city with 50,000 or more inhabitants, or the presence
of an Urbanized Area (UA) and a total population of at least 100,000
(75,000 in New England). The county or counties containing the
largest city and surrounding densely settled territory are central
counties of the MSA. Additional outlying counties qualify to be
included in the MSA by meeting certain other criteria of
metropolitan character, such as a specified minimum population
density or percentage of the population that is urban.
Mid-rise A building with four to ten stories.
Moderate Income Person or Household with gross household income between 80 and
120 percent of area median income adjusted for Household size.
Public Housing or Low
Income Conventional
Public Housing
HUD program administered by local (or regional) Housing Authorities
which serves Low- and Very-Low Income Households with rent based
on the same formula used for HUD Section 8 assistance.
Qualified Census Tract
(QCT)
Any census tract (or equivalent geographic area defined by the
Bureau of the Census) in which at least 50% of Households have an
income less than 60% of Area Median Income or where the poverty
rate is at least 25%. A project located in a QCT and receiving Low
Income Housing Tax Credits may qualify for up to 130% of the
eligible basis for the purpose of calculating the Tax Credit
allocation.
Rural Development
(RD) Market Rent
A monthly rent that can be charged for an apartment under a
specific USDA-RD housing program, that reflects the agency’s
estimate of the rent required to operate the property, maintain debt
service on an un-subsidized mortgage and provide an adequate
return to the property owner. This rent is the maximum rent that a
tenant can pay at an RD Property.
Rural Development
(RD) Program
(Formerly the Farmers
Federal program which provides low interest loans to finance housing
which serves low- and moderate-income persons in rural areas who
pay 30 percent of their adjusted income on rent or the basic rent,
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Home Administration
Section 515 Rural
Rental Housing
Program)
whichever is the higher (but not exceeding the market rent). The
Program may include property based rental assistance and interest
reduction contracts to write down the interest on the loan to as low
as one percent.
Single-Family Housing A dwelling unit, either attached or detached, designed for use by
one Household and with direct access to a street. It does not share
heating facilities or other essential building facilities with any other
dwelling.
State Data Center
(SDC)
A state agency or university facility identified by the governor of
each state to participate in the Census Bureau’s cooperative network
for the dissemination of the census data.
Tenant One who rents real property from another.
Tenure The distinction between owner-occupied and rente
-occupied
housing units.
Townhouse (or Row
House)
Single-family attached residence separated from another by party
walls, usually on a narrow lot offering small front and back-yards;
also called a row house.
Very Low Income Person or Household whose gross household income does not exceed
50% of Area Median Income adjusted for Household size.
Zoning Classification and regulation of land by local governments according
to use categories (zones); often also includes density designations.