In large parts of the country, the high cost of housing is making it more difficult for employers to find workers.
Local officials are starting to take notice.
“You hear housing tied to economic development in a much more explicit way,” says Chris Estes, president and CEO of the National Housing Conference (NHC), an affordable housing advocacy group.
Fortunately, developers and officials are responding to the problem by creating new products, programs, and initiatives to create more workforce housing. Among the most-promising are new programs aimed at financing the construction or renovation of housing for moderate-income renters; new rules from cities and towns that allow builders and property owners to create a greater variety of housing types; and an effort brewing in Congress to expand the largest federal program for producing and preserving housing that’s affordable to working people: the federal low-income housing tax credit (LIHTC).
Clearly, “workforce housing is a national topic of conversation,” says Rob Likes, national manager of community development lending and investment for KeyBank Real Estate Capital.
Not Enough Workforce Housing
The number of people who struggle with the high cost of housing continues to increase, according to a nearly endless supply of reports and studies. “There’s a real mismatch between the service-economy workforce and the housing available for them,” says Estes.
Housing advocates having been talking about the shortage of affordable housing for years, but developers still produce much less than is needed. “We haven’t see any substantial increase in workforce housing, partially due to the lack of gap financing, which can incentivize developers to build for this population,” says Catherine Cawthon, president of the Fifth Third Community Development Corp.
In fact, in many parts of the country, the amount of affordable housing is shrinking, even as the number of low-income people continues to rise.
“In Arlington [Va.], we can’t replace our market-rate affordable housing units fast enough,” says Holly Bray, senior director of Love Funding, a multifamily lender. Between 2000 and 2013, the number of housing units that received no government subsidy but were still affordable to low-income households dropped by 13,000.
More Housing Choices
New apartment developments can also be part of the solution if they provide some units at different sizes or in different configurations. For example, in New York City, co-living company Ollie manages and develops apartments in which renters double and triple up with roommates in shared suites. The firm recently partnered with developers to create eight new co-living properties, including a 166-unit building in Pittsburgh.
These developers typically build only three-bedroom apartments designed for families. Units designed for roommate living, however, might include more bathrooms per bedroom and more amenity spaces. “It makes perfect sense to design and operate developments that promote shared living,” says Chip Moore, president of Highland Commercial Mortgage. “This is simply another option you offer your renters.”
“Accessory” dwelling units can further create living spaces. In a growing number of areas, for example, homeowners can rent part of their house as an apartment. “Just the flexibility to do that can increase the supply of rental housing,” says Estes.
Populous cities such as Boston and New York City have also allowed developers to build small, or “micro,” apartments, with less than 500 square feet of space each. Such units can provide a housing option for young workers and people in transition, such as those who are new to the city.
Inclusionary Zoning Rules Can Help
In desirable cities and towns, local officials can ask developers to include workforce housing in their plans to build new apartments in exchange for the right to build. Massachusetts, New Jersey, and New York City all have inclusionary zoning statutes.
Housing officials must take care, however, not to demand so much with inclusionary zoning that developers build fewer units of housing. “It can have a draconian effect on the feasibility of developments, consequently limiting overall supply,” says Moore.
Some local officials have considered cutting the fees they charge developers, in order to get small apartment projects built on sites that bigger developers would pass up, in exchange for including workforce housing units. “That would help the economies-of-scale issue and, in exchange, the community could require some sort of rent restriction,” says Love Funding’s Bray.
In New York City, some of the apartments created under inclusionary zoning deals are priced to be affordable to moderate-income residents earning 80%, 100%, or even 120% of the area median income (AMI). However, apartments with rent restrictions explicitly targeted to moderate-income households are still very rare—even in New York.
New Moderate-Income Construction Programs
In a handful of high-cost housing markets, officials are creating programs designed to produce new buildings that are affordably priced for moderate-income households. In Massachusetts, the new, $100 million MassHousing Workforce Housing Initiative provides soft financing to support moderate-income housing.
The MassHousing program provides up to $100,000 of subsidy per unit to support the construction of new workforce housing. The plan is to create 1,000 new units of workforce housing across Massachusetts. These new apartments will be priced to be affordable to households earning 61% to 120% of the AMI. These restrictions are written into the property deed and must last at least 30 years.
Action (Maybe) in Congress: Cantwell–Hatch
Housing advocates are also fighting hard to preserve—and expand—the largest U.S. program ever to finance the construction of new workforce housing, the LIHTC, which helps finance the renovation or new construction of roughly 100,000 units of affordable housing every year.
“LIHTCs have been the dominant way multifamily developers have produced workforce housing,” says Chris Espenshade, managing director for real estate services firm JLL.
These units certainly count as workforce housing. Even among residents who receive Sec. 8 rental housing subsidies, the vast majority are employed, elderly, or disabled, according to a 2013 study by the Center for Budget and Policy Priorities.
Despite brutal negotiations in Congress over the federal budget, the LIHTC seems to have broad, bipartisan support, even though other housing programs have been threatened with deep cuts or elimination. Even controversial HUD secretary Ben Carson has made strong statements in favor of the program.
“No one is talking about the LIHTC program going away,” says the NHC’s Estes.
Instead, a congressional bipartisan proposal introduced earlier this year to expand the tax credit would provide more resources to build additional workforce housing. In March, Sen. Maria Cantwell (D-Wash.) and Senate Finance Committee chairman Orrin Hatch (R-Utah) introduced the Affordable Housing Credit Improvement Act of 2017.
In addition to providing more LIHTCs, the proposed Cantwell–Hatch bill would allow LIHTC properties to use “income averaging” to set rents, at the discretion of local housing officials. An affordable property could set rents to be affordable to households earning a range of incomes, as long as those incomes averaged out to 60% or lower of the AMI.
“In higher-cost areas, that could allow states to serve some of those moderate-income folks, to offset lower rents for people further down the income spectrum,” says Jennifer Schwartz, assistant director for tax policy and advocacy at the National Council of State Housing Agencies.
