Real Estate’s ‘Missing Middle’
Looking at Opportunities in Workforce Housing
Over the last decade, income growth for many American families has not kept pace with rising housing prices leading to a shortage of affordable dwelling units for a significant segment of the population. These forces have created demand for ‘workforce housing,’ a term that has come to mean housing options that are affordable, by design, to those who don’t qualify for housing assistance but find it too difficult to rent or buy housing available in reasonable proximity to their workplace.
Below, we explore:
– Why there is demand for workforce housing.
– The kinds of solutions that are attempting to meet the demand.
– How Forum is helping to meet demand and serve investors.
The ‘missing middle’
As of the third quarter of 2019, average wage earners across almost three-quarters of the nation’s counties could not afford to buy a median-priced home, according to a recent report by property-data firm Attom Data Solutions. Unfortunately, at the same time that homes have become too expensive for many American workers to buy, the cost of renting also has increased as the availability of affordable rental apartments has declined. Supply at the higher end of the rental market appears to be sufficient, as the number of apartments renting for $1,000 a month or more, for example, has increased from about 12 million units in 2011 to about 18 million in 2017. But over the same period, the number of units renting for $600 and below has fallen from about 14 million to 11 million units.
Long-standing, federally-sponsored programs like Section 8 and the Low-Income Housing Tax Credit (LIHTC) are crucial and more needed than ever for the lowest-income segments of our population, but they don’t serve an increasingly large percentage of our population that don’t income qualify for federal subsidy but can’t afford market rents.
This has created a gap or ‘missing middle’ in the housing market, which has come to be known as ‘workforce housing’ — a home that is affordable for average Americans and located near enough to work so that excessively long commutes are avoided. By that definition, much of workforce housing tends to be multifamily residential properties that offer reasonable rents.
Driving the need for solutions
In addition to median family income that has not kept pace with rising home prices or rising rental rates, there are additional factors driving demand for rentals in affordable, multifamily dwellings. Chief among these are demographics. Over the past two decades, for instance, the median age of first marriages has increased from about 25 to 28 for women and from about 26 to almost 30 for men. The greater number of older singles as well as the rising age of first-time motherhood — from about 24.5 two decades ago to about 27 — have increased the number individuals in the approximately 87-million-member 22-44 year-old age group that are prime rental candidates.
Even among today’s 46-64 year-old age cohort, which numbers over 80 million and which traditionally has not been a prime renting group, the rising level of divorce is driving demand for additional housing. Downsizing and a shift in lifestyle tastes is propelling demand in another traditional non-renting segment, 65-79 year-olds, an age cohort expected to grow 29% to about 55 million by 2030.
With demand likely to be strong well into the future for reasonably priced rental apartments — which spells opportunity for investors in well-managed multifamily real estate investment vehicles — the challenge will be for developers and operators to assemble attractive properties with the right economics. Given the combined of cost of land, labor, materials and local regulations in many fast-growing markets, delivering truly attainable workforce housing increasingly depends on creative state and local governments working within the private market to incentivize and support the creation and preservation of high-quality, lower cost housing.
With demand likely to be strong well into the future for reasonably priced rental apartments — which spells opportunity for investors in well-managed multifamily real estate investment vehicles — the challenge will be for developers and operators to assemble attractive properties with the right economics.
Meeting the demand: Forum Real Estate Group
Developing, owning and operating multifamily residential housing is the specialty of the Forum Real Estate Group, which oversees a $2 billion, largely multifamily, real estate portfolio in 18 states. Forum is committed to the development, ownership and long-term stewardship of workforce housing for two key reasons: it is the right thing to do given the unmet housing needs of millions of hardworking Americans, and because Forum has the skills and experience to deliver and maintain attractive workforce housing opportunities without sacrificing returns to lenders and investors.
To be sure, the current stresses from the COVID-19 pandemic on public health resources, our economy and our emotions are being felt by everyone. But the demand for workforce housing is not going away, and may even become stronger as the nation recovers from its battle against the pandemic. Now and during the recovery period, Forum Real Estate Group — a long-term, financially solid real estate investor and operator with extensive multifamily housing experience — will continue to meet the needs of the renting public and investors by working in partnership with state and local governments and capital partners to ensure long-lasting, high quality housing opportunities are available the very “front line” workers who are finally recognized, as a result of the pandemic, as crucial members of our community.
Brad Weinig, Senior Director – Workforce Housing
Forum Real Estate Group, a Glendale, Colorado-based real estate investment firm with a focus on multifamily living – develops owns, operates and manages properties across the United States.
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