The Value Proposition of Workforce Housing

Eric Wilson


July 24, 2023

4 min read

Eric Wilson


July 24, 2023

5 min read

As developers and investors we've learned that achieving great returns isn't always about chasing top-dollar rents. In recent years, we have focused on a unique niche: workforce housing, a segment of the market that offers significant opportunities while providing a necessary service to our communities, addressing the country's housing affordability crisis.

Workforce housing is a term typically used to refer to housing that is affordable to households earning between 80-120% of the Area Median Income (AMI). According to traditional guidelines, 'affordable' is defined as spending no more than 30% of gross income on housing costs, including rent and utilities. However, the complexities of defining "workforce housing" and the economic realities many families face can make this issue much more nuanced.

In a landscape where many developers chase luxury, high-rent markets, or navigate the intricacies of subsidized affordable housing, the middle-income, or 'workforce', segment is often overlooked. Which is precisely why it has caught our attention.

Attainable Rents and the Missing Middle

Our goal with workforce housing is to fill the gap in the 'missing middle' housing sector. We aim to provide rents that limit a family's expenditure on rent to no more than 30% of their income. This leaves adequate income for essential expenses like food, utilities, and transportation.

However, we acknowledge that in some highly desirable or supply-demand imbalanced markets, the 30% AMI goal may differ slightly. Despite these challenges, our focus remains on making rents attainable for our target demographic.

"Affordable Housing" vs. Attainable Workforce Housing

To understand workforce housing, it's important to differentiate it from 'affordable housing'. While 'affordable housing' may imply housing that a family can afford, it has become synonymous over the decades with government-sponsored programs offering subsidies to support low-income households.

On the other hand, 'workforce housing' or 'attainable housing' is aimed at households earning near the AMI—typically more than 80% of AMI in standard markets, up to about 120% of AMI in very cost-burdened markets. This distinction is crucial as we strive to develop, invest in, and finance workforce housing.

Resilience in Market Fluctuations

Investing in workforce housing allows us to be well-positioned for all market cycles. In times of economic downturn, as people look to cut back on their expenses, our product becomes an attractive option. It's a step above low-income housing but remains affordable for those needing to tighten their belts. Conversely, in a thriving market, tenants of older properties might look to 'trade up' to our new, clean, and well-maintained apartments, without venturing into the high-cost luxury sector.

Addressing an Increasing Demand

The demand for middle-income housing has far outpaced its supply, especially after the 2007-2009 housing bubble burst. Despite the recovery of the housing market, new single-family and multifamily production has failed to keep pace with increased demand, driving prices up and out of reach for many middle-income households.

By focusing on the development, investment, and financing of workforce housing, we aim to bridge this gap. We are responding to a pressing need, as indicated by the National Multifamily Housing Council's prediction for the requirement of an additional 4.3 million apartments in the US by 2035.

The Road Ahead

Developing workforce housing is not without its challenges. Land acquisition costs, construction costs, and regulatory hurdles can pose significant barriers. Yet, with careful planning and strategic acquisitions, these challenges can be overcome.

Investing in workforce housing is more than just a business decision. It's a commitment to supporting the backbone of our communities - the workforce - while ensuring a resilient and sustainable investment strategy. At Freedom Venture, we believe that this dual focus on community impact and solid investment returns positions us and our investors for long-term success.