Rhode Island Housing (RIHousing) is working to solve the state’s “missing middle” puzzle.
In an effort to expand housing opportunities for middle-income workers, the agency is piloting a loan program to help finance developments with units for households earning between 80% and 120% of the area median income (AMI), a group often referred to as the missing middle. These are families caught in the gap between paying expensive market rents they cannot support and being ineligible for traditional affordable housing opportunities.
“The goal was to try to identify a source of financing and see if we could leverage resources to create deed-restricted housing for that band between 80% and 120% of the AMI, with an emphasis on the 80% to 100%,” says Anne Berman, RIHousing’s director of real estate development. “These are folks who are entry-level municipal workers, entry-level teachers.”
The National Council of State Housing Agencies recently recognized RIHousing’s Workforce Housing Innovation Challenge (WHIC) with an award for program excellence in the encouraging new rental housing construction category.
So far, the agency has rolled out two funding cycles, with strong interest from developers. Between the two rounds, RIHousing received 19 proposals requesting $25 million. It was able to provide a little more than $9 million to six projects, helping create 394 total units, of which 112 will be deed restricted as workforce homes.
One of the notable projects funded is known as Parcel 6 in Providence. With the help of a $2.48 million WHIC loan, D+P Real Estate is turning land freed up from the relocation of Interstate 195 into a 62-unit development with 31 workforce and 31 market-rate units. The development will also feature a 13,000-square-foot grocery store, the first in downtown Providence in decades.
“We had been in discussion with RIHousing about creating a workforce housing funding program for a number of years as we saw the growing need to deliver housing that is moderately priced and affordable to the average working household,” says Jordan Durham, principal of Providence-based D+P Real Estate. “There has consistently been a lack of new rental housing development that serves middle-income professionals and families as the ‘affordable housing’ finance mechanisms are only available for low-income housing development and market-rate development needs to target very high-end luxury housing in order to be feasible without subsidy.”
From an investment perspective, Durham sees workforce housing as a risk mitigation strategy as well as serving a critical social mission.
“There is a lot of competitive rental product being delivered [in Providence and other cities] all targeting the very top of the market in terms of pricing,” he says. “Being able to offer the same high-quality new housing at a price that is below market gives us certainty that we can achieve lease-up and stabilization even if the market softens or becomes oversupplied.”
Now under construction, Parcel 6 would have been a much different project if not for the new funding from RIHousing.
“In the absence of a program like this, we would have had to make the project 100% market-rate and would have been unable to offer a housing choice that would be affordable to the average Rhode Islander,” Durham says.
In another example, the WHIC program also will help to finance the reuse of two historic textile mill buildings into a mixed-use complex in West Warwick. The Arctic Mill development by Knight Street Capital will feature about 105 market-rate units and 31 workforce units restricted to 80% of the AMI.
Roughly 80% of the WHIC applications in the first two rounds came from developers who usually focus on market-rate housing. There could be different reasons for this, including the developers feeling a sense of mission to provide workforce housing or needing to fill a funding gap in their budgets.
Traditional low-income housing tax credit developers submitted several good proposals for projects that included a range of housing options from 30% of the AMI to 120% of the AMI, but the projects were not as far along as some others, and readiness to proceed was an important threshold, says Berman.
WHIC is funded from corporate earning as a demonstration program, with the financing structured as a loan that is secured by a mortgage and regulatory agreement. In the first two rounds, up to $80,000 per workforce housing unit with a maximum of $2.5 million per project was available at 0% interest and deferred for 30 years. All workforce units must be dispersed among the market-rate units throughout a development. New construction and adaptive-reuse projects as well as the rehabilitation of occupied rental housing operating without any affordability restrictions were eligible.
RIHousing officials are hopeful that a third round will be held in 2022. It remains in the mix, but a final decision has not been made. If the program continues, the agency may consider some changes, including being more specific about the “discount to market.” This could mean that the bigger the discount to market, the more points awarded to a project. Officials may also review how much is awarded per workforce housing unit.
Berman hopes the demonstration program will help show the need and importance of providing housing for the missing middle.
“I think there is huge recognition that this is a segment of the population that we need to house and that is hard to house because federal programs aren’t geared for it,” she says.