As America begins to dig out of COVID-19 lockdowns and our society claws back into a post-vaccine world, there certainly is a need to reassess many aspects of our daily lives. At the forefront of this discussion should be our national housing policy and how it will be shaped through socially conscious investing by developers and investors.
While much of the real estate spotlight has focused on whether business organizations should continue employee-friendly work-from-home policies and decrease their brick-and-mortar footprint, our national housing policy also should go under the microscope. As we pivot out of the pandemic, investors and developers are increasingly looking for impact investments and their environmental, social, and governance criteria while still being conscious of their return on investment. Much has been said, and written, about the need for safe and secure affordable housing across the country in the confines of this discussion.
Access to safe, secure, and affordable housing is a foundational aspect of our society, and the reality is there is not enough supply to meet demand. While often overlooked in our nation’s affordable housing discussion, our need for a sufficient supply of workforce housing also should be prioritized.
Workforce Housing Versus Affordable Housing?
Generally, affordable housing projects are restricted to those households who are at or below 60% of the area median income (AMI). Excluded from these programs are a large portion of households that fall just outside of affordable housing program criteria, but still have the same housing needs and vulnerabilities. “Workforce housing” has become the popularized term describing this subset of households earning between 60% and 120% of the AMI while generally maintaining steady employment in the communities they serve. Included within this demographic are many of the essential workers of our communities—health care professionals, police officers, firefighters, retail clerks, and teachers—that our country relies on, both prior to and during the pandemic as front-line workers.
Similar Issues as Affordable Housing
The issues facing the workforce housing demographic have similar undertones as the affordable housing crisis—in many cases workers serve communities where they cannot afford to live while also enduring a housing shortage in those communities where they can afford to live. This, of course, is a foundational aspect of the affordable housing crisis that our national housing policies and market participants are attempting to combat. The conversation and action taken to address the affordable housing crisis necessarily includes and should address the subset of workforce housing. For example, the low-income housing tax credit program has been successful in spurring construction and renovation of low-income rental properties but fail to provide sufficient incentives for development of rentals serving workforce housing. The segment of multifamily properties serving households earning between 80% and 120% of the AMI has been and continues to be traditionally under-addressed.
Fannie Mae and Freddie Mac Multifamily Respond to Workforce Housing Needs
As they have done with affordable housing programs, Fannie Mae and Freddie Mac have customized multifamily lending options to assist developers, investors, and property owners striving to combat the workforce housing crisis and/or increase social impact investments. Fannie Mae’s Sponsor-Initiated Affordability loan option provides a self-imposed restriction whereby rent and income are restricted in exchange for advantageous loan pricing including lower interest rates, competitive pricing, and flexible loan terms. For communities, this equates to a reduction of rent-burdened individuals over the life of the loan whereas the investor and developer receives the benefit of lower borrowing costs.
Similarly, Freddie Mac’s Impact Loan option takes a similar private-sector approach to providing workforce housing with self-imposed affordability restrictions and social services. Under the Freddie Mac program, the loans can be done as part of a master commitment to provide aggregated loans up to $100,000,000. A master commitment provides the developer with pre-negotiated terms for future individual loans resulting in an adaptable, consistent, and rapid financing strategy while increasing the developer or investor’s opportunity to positively impact communities. Under both programs, income is generally restricted to no greater than 80% of the AMI and rent cannot exceed 30% of the as-restricted AMI per household.
During the pandemic, the exacerbated housing crisis was addressed in the short term with eviction moratoriums and federal aid stimulus packages. With increasing vaccination rates and a path to a new normal on one hand and increasing income divides on the other, the nation will need to address the root of the housing crisis that was merely highlighted by the pandemic. The past year has exposed many deficiencies (and attributes) for those who serve and work in our communities while otherwise not qualifying for traditional affordable housing programs. This subset of the population faces the same supply issues for workforce housing as seen in affordable housing, and we need to develop private-sector solutions through incentivizing market participation from property owners, developers, and lenders to assist these communities as we move to our new normal.