Workforce Housing Vs. Affordable Housing 2021 investment opportunities?
Workforce Housing is a type of housing that offers an alternative for people looking to live in the city but cannot afford it. There are a lot of different versions of workforce housing. They typically come into play for families that make between 80 and 120 percent median income. Still, the exact amount depends on what county or state you’re in and what market your project is located within- there might be more demand for affordable housing in one area than another.
The article discusses what Workforce Housing is and terms that can generate confusion, such as affordable housing. We also answer questions related to investing in this type of real estate.
What is Workforce Housing?
Workforce housing is a type of home that aims to provide affordable, safe, and comfortable living spaces for the working class. It’s an option for homeownership or rental homes near job centers where their workers can affordably live near work every day without much commute time on public transportation.
One popular concept of workforce housing was developed by the Urban Land Institute, defining workforce housing as “housing that is affordable to households earning 60 to 120 percent of the area median income.” Others have defined housing as affordable as long as the housing costs no more than 25-45 percent of actual income.
Communities are using various percentages of a person’s income to determine who is eligible for affordable housing. Some communities use 80% as their lower threshold, and some higher-cost areas have up to 140%.
There are other variations of this definition. Some communities use 80 percent of area median income as the lower threshold. Some communities, particularly higher-cost places, use a higher percentage, such as 140 percent of area median income as the upper threshold.
Workforce housing is the type of home for public employees – teachers, police officers, firefighters, and others integral to a community but often cannot afford to live in them. However, workforce housing also includes homes for young professionals, workers in construction trades, or retail salespeople who have difficulty finding work close by, which would allow them affordable rent near their workplace.
Why is workforce housing important?
The targeted clients of workforce housing programs are those who make enough money that they can’t benefit from government subsidies, but not enough to afford new or luxury construction. Despite this, these individuals still need access to affordable and quality housing. So the goal for this type of program is to provide them with a way out without breaking budget!
Workforce Housing Vs. Affordable Housing
It’s more than ordinary to confuse this term if you’re not in the real estate business. That isn’t surprising; the terms are often used broadly, so we’ll explain how these terms are used by professionals in the commercial real estate world.
Housing that serves families at or below 60% of median income is the industry-standard definition for affordable housing. This type of housing meets a specific class defined by local municipalities and most government programs as requiring affordable housing because it falls within 0 to 60% – our category we call “true” affordable homes, which are often needed due to their low cost relative to other properties on the market.
As a relatively new concept, Workforce housing has no unique definition; the line between affordable and workforce housing can be blurry. However, it’s common in the United States for these to be considered workforce housing somewhere between 61% and some higher figure; essentially, middle-earners who are not dependent on government-subsidized rents in solutions like New York City. However, in most cases, 80%-120% of median income would generally qualify as moderate-income space associated with workforce housing.
Are these the same as Section 8?
Section 8 is a government program that provides vouchers to families living in poverty. Section 8 was created as an emergency measure after World War II. They’ve been providing housing for America’s lower-income communities ever since. According to the U.S. Department of Housing and Urban Development (HUD), there are currently 1 million households on waiting lists nationwide (with some areas having waitlists up to 10 years long!)
A key to understanding Section 8 is that this can go into any unit that accepts a voucher. California just passed a law stating that landlords cannot now bar Section 8 tenants because of their vouchers alone; other criteria need to be underwritten. Naturally, this has caused quite an uproar in places like West Hollywood, where there are many high-end apartments with luxury amenities and exclusive access to local restaurants for those who live nearby.
A voucher will be issued by the housing authority to a family. Then they’ll go find an appropriate unit that takes vouchers. Rent is usually based on what’s considered reasonable for individuals with such a voucher, but this may vary depending on each case. The rent a tenant pays for housing is determined by the Fair Market Rent (FMR). The FMR balances what HUD and local authorities consider fair market value against how much of that cost they will cover with rental assistance. Tenants are responsible for paying at least 30% of their gross monthly income on rent. Still, if this does not meet the requirements, then government subsidies may provide additional funding.
Workforce Housing Investment
Workforce housing is a much broader segment of the market compared to genuinely affordable housing. In practice, it describes almost all affordable market housing that’s more reasonably priced than other markets. This type of low-cost home is meant to fill in gaps between government and free enterprise assisted living for workers who make just enough money not qualify for help but can’t afford new construction going up everywhere across the U.S. either.
Building workforce housing will give you a more specialized tenant base and fewer regulations.
The demand for affordable homes is rising faster than the availability. Hence, as homeownership slips out of reach for millions of working Americans, developers prioritize building workforce housing to fill in that gap. The level of regulation when developing this type of property is substantially lower compared to government-sponsored affordable properties due to fewer restrictions on who can live there (i.e., renters vs. homebuyers). Meaning your potential market from which tenants might come expands exponentially with only one limitation: how much people are willing or able to pay monthly rent–which goes up if they’re being taken care of by their employer too!
Affordable Housing Investment
Affordable housing is a different game than market-rate. For an investor, the first thing to know is that the number of affordable developments is falling, but local governments have found new ways for lower-income people to live and work in safe communities with their families at an accessible price point.
The housing market is being revolutionized by affordable living spaces. Low-income units that are designated to be part of a certain number or percentage within an existing development can provide for those who need it the most without putting an undue burden on developers and contractors alike.
An affordable housing development is a sustainable way to go. The benefits of affordable housing, in addition to being more financially feasible than market-rate alternatives, are that the government will provide much of your income and lower costs for land, construction materials, maintenance services, as well as incentives from federal programs like tax breaks or subsidies.
Are there any tax credits for Workforce Housing?
Unfortunately, there are no workforce housing tax credits available in the market right now. But suppose prices continue to rise and incomes stay stagnant. In that case, it may be a viable solution for people who need good quality homes but can’t afford them on their own.
A new initiative designed to help moderate-income projects flourish been introduced. The Opportunity Zone Initiative provides a tax incentivized investment vehicle paired nicely with these types of projects. It can serve as the pathway for capital into marketplaces, allowing them to thrive.
If you loved the information above and want to learn how Voyager Pacific can help you with Real Estate investing, get in contact with us today! For more investment-related information, be sure to check out our blog.