Benefits of Investing in Workforce Housing

Workforce housing is a term that most people refer to as affordable housing. While they may seem similar, workforce housing should not be mixed up with the affordable housing programs by the United States. Although they may offer similar housing solutions, the target markets differ significantly. Affordable housing caters to the lower-income class, while on the other hand, workforce housing provides housing solutions for middle-income earners. The benefits of investing in workforce housing are hinged on the ever-increasing housing need of the middle-income class. To understand the benefits that lie in workforce housing investments, let’s explore the underlying dynamics of the market niche.

What is Workforce Housing?

For the most part, workforce housing caters to the needs of people who neither qualify as high net-worth individuals nor low-income earners. In essence, they belong somewhere in the middle class. People who require workforce housing are average Americans with decent income from the average types of jobs.

The workforce housing market group do not necessarily need government aid to afford a house, and even if they did, their income levels put them in a position where they may not qualify for government affordable housing programs. Publications by the Urban Land Institute refer to workforce housing as the housing for American households with income within sixty (60) to one hundred and twenty (120) percent of area median income (AMI).

Rising housing costs and inflation unmatched by increasing wages have resulted in housing affordability issues; not many people are able to own homes outrightly, the ones who want to own their own houses look for more affordable options.

What are the Benefits of Investing in Workforce Housing?

The advantages of investing in workforce housing are linked to the opportunities that the market niche provides. They include:

Rising demand: Households considered to be in the workforce housing class generally have income levels between $38,000 and $78,000. This can be considered decent enough to afford housing without government subsidies. The average person who belongs to this group is either a government worker, social service worker, teacher, firefighter, construction worker or even a regular corporate American who needs affordable housing with adequate accessibility to the workplace. When you look around, these are the everyday people who live around you and they drive rising demand for affordable housing. This demand exceeds the current market supply, the economics of this situation creates a rising need for more workforce housing units.

A Fannie Mae publication shows an increase in multi-family construction as of mid-2021, however, the majority of the new apartments are geared towards Class A apartment units which leave the demand for more affordable units unmet.

High Occupancy Rates: Riding on the wave of a high demand, multi-family apartment units that serve the workforce population apartment are mostly occupied by essential workers with a need for proximity to the workplace. Low vacancy rates suggest higher rental returns in the long term. The combination of high demand and affordability, drive high occupancy rates for workforce housing real estate properties. One of the most costly expenses real estate investors face is high vacancy rates which may be more for high-end properties but lower for multi-family apartments that cater to the needs of the large middle-class population.

Resilience to downturns: Even in periods of downturns, the rental and occupancy rates for workforce multi-family houses remain resilient. This is as a result of the basic housing solution that workforce housing provides for middle-class Americans whose income levels are not rising as fast as the cost of living. Multi-family workforce houses serve renters by necessity as opposed to high-end luxury housing units which are not usually affordable or occupied in periods of economic recessions. For example, the post-pandemic era saw many luxury apartments recover slowly from the downturn amidst high vacancy rates.

Possible returns from alternative assets: Most investors with traditional assets in the stock market seek alternative investments that yield returns. Investing in workforce housing can provide a direct or passive means of income due to cash flow from rental income.

How to Invest in Workforce Housing

One of the most lucrative housing solutions to the demand for workforce housing is through multi-family and apartment units. This is because not only are these housing units affordable for the actively employed middle-class, they provide the basic housing needs for the average American. The majority of workforce housing units are multi-family properties which creates investment opportunities while meeting the housing needs for individuals who do not classify as low-income and therefore have minimal access to government funding for affordable housing. Investments in workforce housing can either be direct or via passive investing programs.

Direct Investment in workforce housing: A direct investment in workforce housing apartment units requires active property management and involvement in the day-to-day running of the housing units. This includes managing tenants, property repairs, and maintenance.

Passive Investment in workforce housing: Investors can passively partake in the possible benefits of workforce housing through investment vehicles like the real estate investment trust (REITs), real estate investment funds, or crowdfunding programs. Most passive real estate investment platforms provide investors with affordable investment options as they can purchase fractional interests in professionally managed multi-housing units.

Key Takeaway

The housing crisis in America continues to affect the average middle-income worker as housing costs increase and the demand-supply gap widens. Workforce housing solutions can provide a lucrative investment opportunity due to high demand and occupancy rates. Also, the ability to maintain rental income even in downturn periods makes multi-family workforce housing units preferable investment assets.

To sustain affordability for renters, workforce housing units are usually multi-family apartment units. While they may provide good investment opportunities, investors may not be able to purchase properties outright due to the high cost of purchase; passive investments through real estate investment programs and vehicles make this possible through pooled funds or fractional units in trusts or real estate funds.

The benefits of investing in workforce housing include possible returns as a result of high demand and low vacancy rates. Even most likely, high demand may see rental income increase over time.