The nation's affordable-housing shortage is fueling a fast-growing corner of the municipal bond market, as lenders securitize portfolios of multifamily mortgages to free up capital for new loans.
The structure, popularized by Citigroup Inc., allows issuers in the tax-exempt market to package mortgages across multiple properties rather than finance a single development, then sell the securities and recycle the capital into additional affordable-housing loans. Investors have been snapping up the bonds as they seek investment-grade debt with relatively wide spreads.
Issuance of securitized affordable-housing bonds reached $4.5 billion across 37 deals through August 13, already surpassing the $3.4 billion issued across 25 deals in all of 2025, according to data collected by Bloomberg. The market totaled just $714 million across five deals when the structure first appeared in 2019.
"Now that Citigroup has proven there's market access, we're going to continue to see more of these," said Gabe Diederich, a portfolio manager at Robert W. Baird & Co.
In July, the National Finance Authority, a conduit issuer for tax-exempt bonds, sold $162.3 million of affordable-housing certificates originated by Impact Community Capital, an investment manager focused on affordable multifamily housing debt. The certificates are backed by interests in 21 multifamily mortgages across 10 states. In such deals, investors are underwriting a pool of mortgages rather than a single project, putting more focus on the underlying loans, properties and deal structure.
"Some of the backdrop that the securitized and mortgage market has had for years, we're seeing more of that develop inside of the muni housing sector as well," Diederich said.
Jeremy Holtz, portfolio manager at Income Research + Management, said some of the extra yield available in housing debt reflects market mechanics rather than additional credit risk. Many housing deals carry 3% or 4% coupons instead of the 5% coupons preferred by much of the muni market, limiting the number of natural buyers and pushing spreads wider, he said.
Investors still need to scrutinize the underlying mortgages and deal structure, and Holtz cautioned that valuations can become less attractive as spreads and market conditions change. "There's always a risk of becoming too comfortable," he said.
Housing has long been a niche part of the municipal market, but rising issuance has brought in more investors and increased familiarity with securitized structures. The national housing shortfall is estimated at as much as 7.3 million units by the Mortgage Bankers Association, helping keep demand high for affordable rental properties.
Jason Appleson, head of PGIM's municipal bond team, said the projects backing the certificates generally have high occupancy rates because demand for affordable housing is so strong. According to Impact, there are only 35 affordable and available rental homes for every 100 extremely low-income renter households.
"Even when the economy is slowing, these facilities still have a line out the door," Appleson said.
Many securitized affordable housing deals carry mid-investment grade ratings. Still, the securities can offer yields comparable with junk-rated or unrated charter-school or senior-living debt, Appleson said. He attributed some of that spread to limited participation from retail investors and separately managed accounts.
The NFA offering was Impact's first private tax-exempt securitization and was oversubscribed at pricing, said Michael Lohmeier, Impact Community Capital's president and chief executive officer. It drew interest from banks, insurers, municipal fund managers and investors outside the traditional muni market, he added, saying that Impact expects more such deals over the next several years.
Lohmeier described it as a "positive feedback loop" as more issuance could broaden the investor base and give lenders a larger outlet to recycle capital into new affordable-housing loans.
--With assistance from Martin Z. Braun.
