Over the past decade, the multifamily industry has experienced a significant “building boom” nationwide—particularly in cities with substantial job growth, convenient public transport and attractive community amenities. Although this boom has addressed the needs of countless Americans, they typically fall on two opposite ends of the spectrum—those who need affordable housing and those able to afford luxury class-A/A+ housing. However, the housing industry has failed to consider a growing subset of renters—those in need of “workforce housing.”
With this group of renters including everyone from teachers and nurses to new college graduates and even small business owners, industry leaders need to prioritize workforce housing.
A growing need for workforce housing
Workforce housing tenants include those who fall outside of the 60 percent area medium income (AMI) requirements of the Low-Income Housing Tax Credits (LIHTC) program and up to and including those at 120 percent AMI. These individuals are unable to economically qualify for LIHTC properties, but are also unable to financially afford new class-A/A+ communities. As a result, they are forced into older communities that are far from economic centers and lack amenities, and often end up either paying a high share of their income to be in centrally-located communities or living further away from their jobs.
A persisting financing issue
Although developers, communities and the Federal Housing Finance Agency are starting to focus on supporting workforce housing construction, capital challenges persist. Equity is plentiful for LIHTC developments, and most developers of unrestricted class-A/A+ communities seek equity and cash-on-cash returns that are much greater than what they would achieve for workforce housing developments. As such, a key element to solving this issue is finding joint venture or institutional equity investors who are open to investing for consistent equity returns, part of which will be measured in mission-driven investing, rather than strictly economic.
A promising first step
Freddie Mac has taken a crucial first step on behalf of the lending community by providing a Forward Commitment product that enables sponsors to lock interest rates at the start of construction, which then convert to non-recourse permanent mortgages upon property stabilization. This creates a mechanism for mitigating long-term risk through long-term, fixed-rate financing before property construction. Solutions like this are promising, especially since the Federal Housing Administration has a long history of providing permanent loan financing for construction at lower rates, which workforce housing sponsors continue to utilize
With workforce housing demand growing, developers and lenders are increasingly aware of the complexities that must be addressed before any solution can be effective. As such, a concerted, intentional and collaborative effort by the development, capital, governmental and employer communities must be made in order to reach a solution that meets the varying needs within the workforce housing sphere.
With thousands of working families left without housing that enables them to thrive and reach success, it’s time to put the spotlight on workforce housing and demand action within the housing industry.
Phil Melton is executive vice president and national director of affordable housing and FHA lending at Bellwether Enterprise. With 20 years of experience, he and his team have financed over $4.5 billion in affordable housing communities across the country.
This article provided by NewsEdge.