Workforce Housing: Critical to the Economy and a Passive Income Opportunity
By Charles Schaffer
Major economic shifts have driven the need for additional workforce housing in certain parts of the US.
A prime example is the consumer pivot from buying in person to buying online. Fewer workers are now required on Main Street and in malls. Many more workers are needed in distribution warehouses. However, the need for housing in distribution warehouse centers like California's Inland Empire has not nearly kept pace with demand.
A rendering of a workforce housing site in Southern California
What is workforce housing?
Workforce housing refers to any type of affordable accommodation that's near a worker's job or an employment hub.
According to the California Statewide Communities Development Authority (CSCDA), "workforce housing (sometimes referred to as middle-income or moderate-income housing) is housing for individuals and families typically earning between 60% and 120% AMI [area median income]."
Workforce housing as we know it today first appeared in Aspen, Colorado, in the early 1970s.
As a tourism hotspot, Aspen needed affordable communities where hospitality workers could live. However, most neighborhoods close enough to commute to tourist spots within Aspen were too expensive for workers. Thus, workforce housing was born.
Today, there are clusters of workforce housing in areas of many states, including California's Inland Empire. The Inland Empire is east of Los Angeles and home to thousands of miles of workforce housing because of its proximity to eCommerce company warehouses, including Amazon's.
Workforce housing isn't only for distribution warehouse workers. This housing classification helps everyone from teachers to nurses to other white-collar jobs — people who contribute to a thriving society.
Why does the US need this category of housing?
Workforce housing, which tends to be affordable and close to employment development areas, allows workers to live nearer to their workplaces. Specific jobs will become more accessible to those workers whose prior living situations may have excluded them from reaching specific workplaces.
Multifamily housing projects help to build strong communities. They also lead to business growth and improved economic health for a region.
With the US economy arguably in a recession, market-rate housing prices are more necessary than ever. Inflation has reduced the purchasing power of most households.
Housing that is convenient and affordable for workers is a necessity. The law of supply and demand says that a greater supply of anything leads to better pricing for buyers.
While there is ample government assistance for low-income housing, workforce housing for middle-income earners is not eligible for tax credits or private activity bonds. In addition, this level of housing does not qualify for most federal, state, and local government subsidies.
While there are some public-private partnership solutions to workforce housing, the private sector plays an important role in developing housing for middle-income workers.
Multifamily housing as an investment
Many private sector workforce housing projects rely on the participation of individual real estate investors. Accredited investors can earn passive income without spending time managing real estate.
Multifamily syndicators and their associated developers are constantly searching for high-value opportunities to build in areas where there is a strong demand for workers.
Because real estate syndicators are competing with other asset classes for investor capital, they are compelled to provide above-market financial returns. Internal Rates of Return over 20% are not uncommon.
Syndicators tend to avoid risky investments by analyzing and vetting different markets thoroughly.
If investors are earning steady and reliable returns and the country's middle-income workforce has greater housing affordability and availability, market mechanisms are functioning positively.
Please contact us for more information about investing in real estate and generating a passive income stream.
Charles Schaffer
President and Founder, SDC Capital Ventures
Charles has founded and operated several development companies over his 35+ year history to pursue his passion for Alternative Investing where he believes outsized returns can be achieved without a corresponding increase in risk. Under Charles' leadership, SDC has developed and financed over $80 million of commercial real estate and renewable energy projects.
