Financial Dilemmas

By and Suzann D

Better definition is needed for what qualifies as workforce housing—along with expansion of financing options. But growing interest is resulting in some solutions.

Editorial Director Suzann D. Silverman

Editorial Director Suzann D. Silverman

Reviewing plans for a session I moderated not too long ago, my multifamily expert panelists and I got on the subject of terminology for the segment of housing that fits between low income and luxury—the portion that is affordable for teachers, firemen, journalists, policemen, shopkeepers and others in the middle-income range. It sounds like it should be simple enough, but there’s a real lack of consistency that’s been creating confusion among investors, developers, financiers and fund managers. Maybe even renters. The situation has been further complicated by overlap with existing segment terminology and concern for the exclusionary nature of some nomenclature.


To be more specific, the term “affordable,” which used to refer only to low-income housing, has now been expanded to also encompass this middle segment. Given current housing affordability concerns, it makes sense—but it eliminates necessary differentiation, especially as it pertains to tax credits. And then there’s “workforce housing.” Some have pointed out that low-income renters work, too, as do many luxury-housing dwellers. Does “middle income” work? Maybe, although it hasn’t really caught on as much.

But assigning a name isn’t the only challenge for this sector. “Middle income” actually comes the closest to what should be the differentiating factor, percentage of area median income—which is already a prime consideration for low-income housing qualification. But pinning down a consistently defined range that constitutes middle income has proven challenging. It has likewise remained difficult for developers and investors to make this product pencil out, caught between the rising cost of land and price of existing properties and the rental rate limitations of keeping these properties affordable for the middle-income segment. A shortage of financing options doesn’t make this any easier. Lenders need adequate returns, too, and state and local funds are limited. Tax credits don’t exist for this segment, and finding a broad solution for a national portfolio is particularly difficult.

Fortunately, growing interest in this segment is driving creation of new financing options like private debt funds and additional local and state-level capital alternatives. Meanwhile, investors are becoming more adept at cobbling together creative solutions that may draw on capital earmarked for other qualifications also applicable to their property—such as, in one case, historic rehabilitation tax credits. (You can read about this example as well as a more in-depth discussion of financing alternatives in “Work It!—Financing Solutions to the Middle-Market Housing Affordability Gap.”)

Demand for middle-income housing is not likely to diminish. If anything, it will probably increase as more Millennials strike out on their own, apart from parents and roommates, with Gen Z not far behind. Additional financing solutions are needed to viably meet this need.


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