The 122-unit 705 Serramonte in Daly City, California, is home to a mix of Jefferson Union High School District employees.
Dale Lang/NW Architectural Photography The 122-unit 705 Serramonte in Daly City, California, is home to a mix of Jefferson Union High School District employees.

Essential housing. Middle-income housing. Workforce housing. Attainable housing. These are some of the terms that describe housing for households earning between 60% and 120% of the area median income (AMI) who make too much to qualify for subsidized housing and too little for market-rate communities.

“If you look at the demographics of essential or moderate-income households, especially in California, what we have found is 52% of renters are housing burdened—they’re spending more than 30% of their monthly income on housing,” says Sean Rawson, co-founder of Waterford Property Co., a diversified real estate investment and development company based in California. “As you start to peel back the onion, the data shows that the most adversely effected groups of housing-burdened households are public safety employees, civil servants, members of labor, nonprofit employees, teachers, medical technicians, police officers—the real fabric of our local communities.”

Waterford has a portfolio of 6,500 multifamily units, a mix of market-rate, capital A affordable, and essential housing. Through its experience in the market-rate and affordable segments, it found that there are very few dedicated funding sources to provide middle-income housing. Rawson says, as a result, what you have seen is a stratification of housing where there are funding resources to provide Class A market-rate units and capital A low-and very low-income units but very few resources to provide middle-income housing. “By virtue of that, we are significantly undersupplied of middle-income housing,” he says. “And this story plays out nationwide.”

He says additional financing sources are needed at all levels to create this housing.

Many localities and states have been establishing programs to help build and preserve missing-middle housing. California, Massachusetts, and Rhode Island are just a few of the states with programs to help finance middle-income or workforce housing developments.

The Michigan State Housing Development Authority announced a new program in September to address the lack of attainable housing and other housing challenges amplified by the pandemic. Its Missing Middle Housing Program will utilize federal resources allocated under the American Rescue Plan Act of 2021 to provide funding to developers investing in, constructing, or substantially rehabbing properties. The qualifying properties will target residents with household incomes between 185% and 300% of the federal poverty guidelines to encourage economic mobility and increase the attainable housing stock of both rental and for-sale properties in Michigan.

Government-sponsored enterprises Fannie Mae and Freddie Mac also have programs driving financing to workforce housing.

“The more we can create the narrative that essential housing is an acceptable asset class for institutional investors to invest in and work with local governments to develop innovative funding tools, the more units we will be able to supply,” Rawson says. “It’s also not a one-size-fits-all approach, you need multiple tools in the toolbox.”