Houses under construction with machinery in foreground.

I always thought that we could benefit from a high school course on real life skills.[1] Things like “how to build your credit,” “how to calculate your taxes,” and “what portion of your income should be used for housing” would be taught in the class. The percentage of renters in the United States that are now considered “rent-burdened” (those paying more than 30% of their income towards rent[2]) has steadily increased over the years from 41% in 2001 to 49% in 2021.[3] Meanwhile, new housing construction has continued to fall short of demand with the United States’s housing deficit estimated to be nearly 4 million homes. Thus, the drive to develop and grow workforce housing has grown, but still faces many challenges to succeed. Whether you’re a developer, investor, or potential resident, understanding the unique considerations surrounding workforce housing is essential.

Every conversation that the author of this blog post has had regarding workforce or affordable housing has started with a 5-minute conversation about what is meant by “affordable housing” and the differences between “capital ‘A’ ‘H’ affordable housing” and other definitions of “affordable housing.” There is no universal definition of “workforce housing” or “middle-income housing” but the terms are most often used to indicate a program targeted at households earning too much to qualify for traditional housing subsidies, but not enough to afford many of the new market rate or luxury housing developments. Since the program’s inception in 1987, low income housing tax credit tax equity — on its own or with federally tax-exempt bonds called “exempt facility bonds” — has generated more than three million units of housing set aside for households earning 60% or less of area median income (“AMI”). However, this program only benefits households earning 60% or less of AMI. What about the rest? Many working families and young professionals, especially public employees like police officers and teachers, fall into the “middle” – making too much to qualify for these affordable housing programs, but not enough to afford market-rate housing. To illustrate, in 2021, the median family income in the Tampa-St. Petersburg-Clearwater region of Florida was $72,700 and the 2020 annual mean salary for a high school teacher in the same area was $62,500. Based on these numbers, the teacher would make 86% of the local AMI – exceeding the requirements to qualify for affordable housing, but likely not enough to comfortably afford market rate or luxury apartments in the same area. Thus, workforce housing is commonly intended to assist the households with incomes between 80% and 120% of the AMI.

Notwithstanding the obvious need for workforce housing, its development can be complicated and face an array of challenges. Below are several of the key factors that developers and investors should consider early on in a workforce housing project to help ensure its success.

  1. Location: Given that proximity to job centers and public transportation is essential to the success of a workforce housing project, the development must be strategically located. Accessibility to employment opportunities and essential services is vital for the working demographic at which workforce housing is aimed. For example, if workforce housing is being built in Park City, Utah to provide housing to workers at certain Deer Valley Resorts, the workers must be close enough to access the “perfect powder” at the top of the mountain on snowy days.  The workers cannot be expected to drive over an hour each way to attempt (and possibly fail) to get to work. 
  2. Public-Private Partnerships or State & Municipal Government Engagement: Receiving the support or backing of the State and municipal government where a workforce housing project is located is imperative to completing a project. State and/or municipal government support will be required to obtain zoning approvals and building permits; and if certain types of tax-exempt financings are sought, such state or municipal government approval will likely need to be obtained.[4]  Further, state and municipal governments are more eager than ever to collaborate between public and private sectors can facilitate the development of workforce housing. Taking advantage of existing government incentives and resources can help address many of the funding challenges and regulatory considerations.
  3. Affordability and Income Levels: The goal is to provide a development that can reach as much of the workforce demographic as possible. Tailoring housing costs to the income levels of the workforce and striking a balance between affordability and quality is essential to create a development that caters to a broad range of income brackets. Additionally, it is possible that in discussions with State or municipal government entities, certain income levels for a number of units will need to be met to obtain approvals from such entities.
  4. Community Engagement: It is imperative to maintain open communication and engagement with the local government and community by actively addressing concerns and involving residents in the decision-making process. We recommend starting this process early in the development of your project.  The local chambers of commerce can also play an important role in soliciting support for the project. Community involvement can lead to a more accepted and successful workforce housing development.
  5. Community Amenities: Amenities are increasing important to the new working generations. Considering enhancements such as parks, recreational spaces, and communal facilities will contribute to a better living experience and quality of life for residents.
  6. Flexible Housing Designs/Sustainability: Creating housing that allows for different family sizes and lifestyles helps to ensure that the workforce housing meets the diverse needs of its residents. Additionally, implementing sustainable building practices and energy-efficient technologies to reduce long-term operating costs not only benefits residents but also aligns with evolving environmental standards. Many developers have considered conversion style models in lieu of traditional new builds.
  7. Employer Involvement: Employers also have a vested interest in ensuring there is a sufficient and affordable workforce living within commuting distance of their jobs. Thus, taking advantage of and encouraging partnerships with local employers who have that vested interest in providing housing options for their workforce is essential. The results may lead to employer-sponsored housing initiatives or support for the workforce housing development. In addition to community engagement, the local chambers of commerce can play an important role in helping to organize the local employer support for the development.
  8. Regulatory Landscape: The regulatory landscape for workforce housing can be a “minefield” to navigate. Thus, it is important to carefully consider zoning regulations and land use policies in the very early stages of development. It is imperative to engage with the local authorities to ensure compliance in addition to advocating for policies that support workforce housing initiatives.
  9. Financial Models: There are many different financial models to consider for workforce housing such as public-private partnerships, tax incentives, and financing programs. We will take a closer look at the tax incentives and other financial structuring techniques in for workforce housing in a subsequent post.

               Although the development process for workforce housing might seem daunting given the depth of considerations, Squire Patton Boggs offers a unique combination of public policy expertise, development expertise (ranging from public/private partnerships, financing, tax credits, construction and other real estate matters), financing expertise, and regulatory expertise (ranging from environmental matters to real estate matters)to help guide you along the way. We would be happy to discuss any of these topics in depth and to help address your workforce housing challenges.

[1] The author of this blog can’t tell you the last time he applied anything that he learned in his sophomore Chemistry class.

[2] Which is the absolute maximum amount that this author was taught that housing should make up of his income.

[3] Further – the share of those severely rent-burdened (i.e. paying more than 50% of their income towards rent) has increased from 20% in 2001 to 26% in 2021.

[4] The Squire Public Policy Group has assisted and can assist developers with working with local, county, and state governments for this purpose.