Workforce housing is designed to serve families who fall somewhere between affordable and luxury accommodation. Workforce housing comes in several varieties. They usually come into play when serving families earning between 80 and 120 percent of the median income. The exact amount depends on the county, state, and market.
Most businesses in the workforce housing sector aim to develop a product that benefits working families, as the name implies. Unfortunately, many of these families’ incomes are insufficient, and they are currently falling further and further down the housing market food chain. They earn more to be eligible for proper affordable housing, another name for government-subsidized affordable housing, and too little to qualify for luxury housing.
It widens the gap between those two areas. Rents and housing costs are generally rising in all significant urban metro markets. Still, wages for this group are stagnant, which contributes to this. These families are essentially caught in the middle.
Affordable housing, workforce housing, and Section 8
Housing for working people, inexpensive housing, and Section 8 are all terms that are frequently used interchangeably. That’s not surprising; the words are commonly used in broad contexts, so we’ll explain them in the context used by most commercial real estate actors.
The Affordable Housing
The industry-standard definition of affordable housing is any housing that serves families earning less than 60% of the median income. 0 to 60% is what I call affordable housing. It is my definition because it is frequently a class defined specifically by local municipalities and most government programs as in need of affordable housing.
The Workforce Housing
Between 61 and some higher percentage of people live in workforce housing; in other words, middle-class people who are not reliant on government-subsidized rent. Some markets, such as New York, may use 120, 150, or 180 percent of median income. However, in most cases, between 80 and 120 percent would be regarded as the moderate-income area connected to workforce housing.
The Section 8
The Section 8 program, like most housing authorities, provides a voucher to a family. There are waiting lists for families who require housing assistance through government programs. It’s a HUD program that distributes vouchers through the local housing authority and whatever market the project is in or where the tenant wishes to live.
The Section 8 tenant can enter any unit that accepts a voucher – this is the key. California recently passed legislation stating landlords may no longer refuse Section 8 tenants solely based on their Section 8 voucher. Other criteria landlords must consider in other locations include credit history and rental history, for example. As of January 1st, 2020, California state law states that no landlord can exclude a Section 8 tenant solely because they are using a Section 8 voucher.
The housing authority issues the family with the voucher. It then searches for a housing complex that will take the coupon. The average rent aligns with what the housing authority deems acceptable standards. Some published figures define Fair Market Rent (FMR), which states that this is what HUD and the local housing authority consider market rent. In comparison to what a tenant would pay for a voucher-eligible unit. The tenant moves in and pays that amount as rent, with the remainder covered by the voucher.
Workforce Housing Tax Credits: What are they, and how much do they contribute to the economy’s demand side?
There are currently no workforce housing tax credits available in the market, but this may change in the future. Suppose the disparity between housing prices and stagnant incomes continues to widen.
The Opportunity Zone initiative is partly created to enable the market capital flow. It supports any project that is located in an Opportunity Zone census tract. However, it is not a tax credit but a tax-incentivized investment vehicle that works well with moderate-income housing.
Low-Income Housing Development Grants and other HUD Grants are available; are there similar programs for Workforce Housing Development?
There are currently no grants available for pure workforce housing. It will help if you exercise caution when discussing workforce housing
. Keep this in mind. Regarding affordable housing, almost all of the programs are designed to allocate capital to low-income families. There is the ability to do income averaging on a tax credit project where you could have 80 percent rent to get the tax credits for affordable housing. On the other hand, rents are as low as 30%, 20%, and 10% of median income. Projects can qualify for tax credits if they achieve a 60 percent or lower-than-average rent.
These are industry-defined terms because, like in California, where a significant income is required for homeless housing and services or permanent supportive housing must be even lower.
You get nonprofits and other people in the space to keep all incomes as low as possible across the entire project. It necessitates government funding or subsidies. It demonstrates a desire among those who work in affordable housing to see rents driven as low as possible.
Workforce Housing and Affordable By Design
Affordability is a term that people use. It is a different kind of affordable housing than what we previously discussed. Affordable housing, as defined by laws, is subsidized. The term “affordable housing” refers to the development of housing. It was made more affordable through means other than government subsidies. It could be because it is affordable by design, such as when a developer lowers construction costs, allowing them to charge lower market rents. After all, their construction costs are lower. It could be accomplished, for example, by constructing smaller units or developing more teams on a single land tract, lowering the price per unit of land.
What are the opportunities for investment in workforce housing and affordable housing?
To begin, keep in mind that affordable and workforce housing is not the same for this discussion. Affordable housing is where residents rely on government subsidies to stay sheltered. In contrast, workhouse housing is any housing that falls between high-end and affordable housing, typically designed for middle-income workers. In practice, this means that the opportunities for investment in affordable housing and workforce housing development are distinct. Let’s look at each property type and see how different options manifest.
The Affordable Housing Investment
Creating affordable housing is not the same as creating market-rate housing. The first thing to understand is that the number of affordable housing developments is decreasing. Local, state, and federal government officials have backed away from policies that involve “warehousing” low-income people in massive housing projects.
Most affordable housing nowadays comes in the form of a certain number or percentage of units designated as low-income within a single development. At the same time, the rest remain at market rents. This approach is trendy in California, but it can be found in cities, counties, and states all over the country.
Building genuinely affordable housing over market-rate housing means that a large portion of your cash flow will come from the government rather than occasionally untrustworthy tenants. The benefits of building genuinely affordable housing over market-rate housing include a large amount of your cash flow coming from the government rather than sometimes unreliable tenants.
The Workforce Housing Investment
Workforce housing is a much larger market segment than proper affordable housing. In practice, it refers to almost all affordable market housing, housing that is reasonably priced but is not subsidized by the government. It will provide housing to those who earn enough to be ineligible for public assistance but not enough to afford much of the new construction springing up all over the US. The type of housing seeks to bridge the gap between the public housing system and the free market.
As homeownership becomes out of reach for millions of working Americans, the demand for this type of housing will rise. Developing in this space comes with significantly fewer regulations than government-sponsored affordable housing. Working in the workforce housing sector will also increase your tenant base as a developer. Tenants in proper affordable housing are constrained by government assistance available. In contrast, those in workforce housing are only constrained by market demand.
FAQ on Workforce Housing
Is Section 8 housing available for the workforce?
Workforce housing differs from Section 8 housing, though Section 8 vouchers may be used at workforce housing properties. Section 8 refers to government-subsidized coupons to help underprivileged individuals and families find housing. In contrast, workforce housing is a specific type designed to bridge the gap between genuinely affordable housing and luxury options.
What precisely is a workforce housing program?
“workforce housing” refers to housing programs aimed at tenants or buyers who earn too much to qualify for traditional affordable housing subsidies.
What is the significance of workforce housing?
Clients targeted for workforce housing programs are those who cannot afford new or luxury construction but make money to qualify for government subsidies. Despite not being eligible for support, these people still require affordable housing, and workforce housing programs fill the gap.
What exactly is the meaning of affordable housing?
Government-subsidized housing accessible to Americans with the lowest incomes has historically been referred to as affordable housing. The phrase refers to a particular type of government-funded affordable housing that is also referred to as genuinely affordable housing.
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