NEWS HEADLINES

Workforce Housing Goes Mainstream

By Bendix Anderson

Oct. 9 —New York City—This September, as the housing credit crisis on Wall Street stretched into its third month, Moody’s Investors Service issued a report trumpeting the “great demand” for housing targeted to workers such as teachers, policemen, and nurses.

It’s nice to have some good news to report about housing, particularly from the usually skeptical analysts at Moody’s, which rates the bonds backed by real estate loans. This summer Moody’s tightened its subordination standards for bonds backed by commercial mortgages, drawing a hard line against what Moody’s analyst Florence Zeman called soft underwriting practices by many lenders.

Zeman went on to co-author the September report, titled “Workforce Housing On the Rise.” It cites several of the ways states and municipalities are confronting the severe shortage in workforce housing. The programs many localities have set up are financed by bonds ranging from general obligation bonds issued by municipalities to tax-exempt bonds issued by housing finance agencies (HFAs). Moody’s differentiates workforce housing from the broader category of affordable housing, which is available to any individual or family that meets the development’s income targets. "Workforce housing is designed for specific employment groups such as teachers, police officers, or health care workers who struggle to buy homes in the affluent communities where they work," said Moody's analyst Rachael Royal McDonald, a co-author of the report.

When rating bonds that back loans to these projects, Moody’s considers the potential strengths and challenges inherent in targeting housing to a specific worker population. For multifamily developments, that framework includes financial performance, asset management, covenants, and the financing structure—in addition to the target populations and the local market.

Despite the smaller number of residents that could move in to a workforce housing project, the demand is high in many markets, Moody’s said.

To support this point, Moody’s quotes a series of reports. In most of the nation’s 25 largest metro areas, people holding three of the most important community service jobs—police officers, teachers, and nurses—could afford homes in less than one half of the census tracts, according to a report by the National Association of Home Builders (NAHB). The most affordable census tracts tended to be concentrated either in urban core neighborhoods or on the outside edge of the metro area, forcing many lower-income residents to drive long distances to work.

In 28 metro areas studied by the Center for Housing Policy, families earning between $20,000 and $50,000 per year paid an average of 57 percent of their incomes for housing and transportation combined. Moody’s rates bonds that back loans to several types of workforce housing developments. State housing finance agencies (HFAs) issue bonds that back home mortgages. These programs, like Louisiana’s “Teacher Assisted Program Loans,” provide assistance payment grants that can be used to pay closing costs and a portion of the required down payment.

Unlike many subprime home loans, which often charge high interest rates, workforce housing loans programs like Louisiana’s fix interest rates at below-market prices.

Moody’s also rates tax-exempt bonds that are often mixed with low-income housing tax credits to finance rental housing projects, in addition to bonds used to fund loans to employer-assisted housing and even military housing projects.