Two Ways to Unlock the Missing Middle
Workforce housing financing models from The NHP Foundation.
Across the U.S., the housing crisis is increasingly affecting households caught between traditional affordable housing programs and market-rate housing—the so-called “missing middle.” Teachers, health care workers, municipal employees and service workers often earn too much to qualify for deeply subsidized housing, yet far too little to afford rents in today’s high-cost markets.
For nonprofit developers like The NHP Foundation, addressing this gap requires rethinking how housing is financed, built and delivered.
NHPF is one of only a handful of nonprofit housing organizations with an S&P AA- credit rating. That rating allows the organization to access capital markets in ways many nonprofits cannot, supporting a development model that ranges from deeply affordable housing to projects requiring little—or even no—traditional subsidy.
In addition to developing projects directly, NHPF increasingly partners with private developers whose market-rate projects no longer pencil out in today’s environment. By combining nonprofit financing tools with private-sector development expertise, these projects can often move forward while advancing NHPF’s mission.
NHPF has developed two primary models to help address workforce housing needs: a low-subsidy model and a high-subsidy model.
Low-subsidy model: in Denver
NHPF is currently developing a transit-oriented, build-to-rent townhouse community in Denver.
Using only 501(c)(3) tax-exempt bonds and a tax abatement, NHPF is developing townhomes that can be rented at approximately 100 percent of area median income without relying on traditional housing subsidies.
In Denver, purchasing a three-bedroom townhouse often requires an income exceeding 150 percent of AMI. Yet there are relatively few rental townhomes available for young families earning less. At the same time, apartment rents have softened due to overbuilding, dropping closer to 80 percent of AMI, while townhouse rents have remained above 100 percent of AMI because of limited supply.
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NHPF’s approach helps fill a critical gap for households that cannot afford homeownership but remain underserved by the traditional rental market. Even as Denver’s rental market returns to historical rent growth patterns, these homes will remain affordable at 100 percent of AMI.
Several factors help make the model work. Townhouse construction is generally less expensive than mid-rise multifamily construction, and the projects avoid some of the added costs often associated with public funding requirements, such as prevailing wage mandates, local contracting requirements and extensive compliance-driven amenities or green building standards. These developments can also be completed in less than half the time of traditional affordable housing projects while requiring significantly fewer staff hours.
Connecticut Housing Finance Agency, one of the few housing finance agencies with an active middle-income housing program, has seen similar results. In a recent conversation, CHFA noted that its LIHTC developments average approximately $560,000 per unit, while its highly amenitized middle-income developments average closer to $350,000 per unit.
High-subsidy model: in Colorado’s Ski Country
A different approach is required in extremely high-cost markets.
One example is a 54-unit workforce housing development currently under construction in Frisco, Colorado, near Breckenridge Ski Resort. This model is designed for areas with exceptionally high construction costs, including ski communities and major metropolitan markets such as New York and Washington, D.C.
The project is financed using 501(c)(3) bonds, allowing NHPF to access capital markets at rates below 4.5 percent, with 10 years of interest-only payments and no traditional volume cap constraints. That financing structure alone reduced the subsidy required for the project by an estimated 25 percent to 33 percent.
The development will serve residents earning up to 120 percent of AMI, with rents effectively targeted closer to 100 percent of AMI—a critical price point in communities where housing costs are driven by second-home and vacation-home demand.
Building in ski-country markets, however, comes with substantial challenges. Construction costs approached $500 per square foot due to labor shortages, transportation costs for materials and a short construction season.
To make the project feasible, NHPF combined multiple tools, including:
- A public land lease
- A municipal loan
- A density bonus
- State infrastructure support
The development also represents the first project completed under Colorado’s Middle Income Housing Authority, a statewide initiative created specifically to address workforce housing shortages.
This project demonstrates how nonprofit financing tools, combined with supportive public policy, can unlock housing production in high-cost communities where workforce housing is desperately needed.
Local policy can unlock significant density
The Frisco development also highlights the power of creative local policy solutions.
Working closely with the municipality, the development team helped implement an affordable housing incentive structure that allows increased density in exchange for workforce housing commitments.
By extending the program to middle-income housing, the team was able to increase allowable density by nearly 400 percent, making it possible to build 54 units on a site that previously allowed only 12.
Policies like these can dramatically expand housing supply while still meeting community affordability goals.
A scalable path forward
As housing markets continue to evolve, traditional affordable housing programs alone will not solve the nation’s housing shortage.
The future will likely require a broader toolkit that includes:
- Nonprofit access to capital markets
- Public-private development partnerships
- Flexible policy incentives such as density bonuses
- Creative financing structures using bonds and tax abatements
For organizations like NHPF, these tools make it possible to deliver workforce housing faster, more efficiently and at greater scale—helping close the growing housing gap facing middle-income households across the country.
A partnership model: Minnesota Workforce Housing
NHPF’s platform also allows it to partner with private developers struggling to move projects forward in volatile capital markets.
One example is an $84 million workforce housing development currently underway in Minnesota.
The project includes units affordable to households earning between 60 percent and 120 percent of AMI, combining traditional affordable housing with middle-income workforce housing in a single development. Approximately 45 units are targeted at 60 percent AMI, effectively embedding a LIHTC component within a broader workforce housing project.
Unlike many affordable housing developments, the project requires limited public subsidy. The primary public support comes through a Tax Increment Financing structure covering 75 percent of property taxes.
The remainder of the capital stack is financed through tax-exempt bonds issued through NHPF’s credit platform.
To make the partnership work, NHPF structured the deal so the original developer remains involved as a fee developer, providing construction and stabilization guarantees while managing the construction process.
Under the agreement:
- NHPF receives 20 percent of the development fee
- The partner developer receives 80 percent of the fee in exchange for providing construction and stabilization guarantees and overseeing construction management
- The partner developer also receives a tax-exempt “B” bond that captures 20 percent of long-term cash flow and is repaid upon recapitalization or sale within 10 years
This structure allowed the private developer to avoid losing millions in predevelopment investment while enabling the project to move forward quickly.
The importance of political will
When evaluating new development opportunities, local political support for workforce housing is often the most important factor.
NHPF generally focuses on markets where it already operates, but it will enter new markets when:
- Local governments recognize workforce housing shortages
- Municipalities are willing to adopt supportive policies
- Strong local development partners are in place
Political will is the first thing on our checklist.
Neal Drobenare is senior vice president of The NHP Foundation.
