Investing in Workforce Housing Properties
Many people struggle with affording an apartment in the city that they work. In central Ohio, average monthly rents have boomed as the region grows, but wages have not kept pace. The Columbus Dispatch reports that of the ten most common jobs in the state, only two (registered nurses and customer service representatives) earn enough income to afford a modest two-bedroom apartment.
Some communities in the region, such as Whitehall, Reynoldsburg and Grove City, have taken notice and sought to encourage the availability of more affordable “workforce housing”.
Affordable housing communities are typically built for households making less than 60% of the area’s annual median income ($45,840 for a four-person household). Workforce housing targets households making 60% to 120% of the area median income.
Whitehall plans to add about 1,500 additional housing units by 2050, with the goal of ensuring 25% are considered affordable or workforce housing. By then, central Ohio’s population is expected to increase by 3,000,000.
In a National Real Estate Advisor article, Christine Espenshade of real estate firm JLL explains that investment in workforce housing will remain one of the more attractive strategies in 2019 on a national scale as the unemployment rate keeps falling and demand for workforce housing – since it offers an inexpensive housing option – continues to rise.
“Class-C properties tend to have a value-add component, given their natural affordability,” says Espenshade. “This is one of the hottest investments right now, so we are seeing ample demand.”
Household growth is greatly outpacing new apartment unit completion, with luxury housing making up most of the newly delivered units. The supply of affordable housing, however, has remained relatively unchanged. “Nearly all of the multifamily properties you see being built in central Ohio over the last several years are class-A,” says Matt Brown of Brown Multifamily Advisors. “With the increased costs to build, owners simply cannot make the numbers work for most new class-B or, certainly, class-C multifamily.”
Developers cannot build new workforce housing without some subsidies due to the high cost of new construction projects, including the high cost of land, labor and materials. As a result, many investors are buying existing properties and making improvements.
“Investors are going in and making the necessary improvements to increase rents – and the resulting value of the property – because they know that demand is very strong, specifically in the workforce housing segment,” says Brown. “They are making targeted updates consistent with the market at level and price point that working class families can afford.”
The average national class-C vacancy rate has dropped to near 4.0% and effective rents have increased 5.2% over the past year, as of February 2019. Over that same time period, rents for class-A and -B apartment units only grew by 4.4% and 4.5%, respectively.
Low vacancy rates and high demand would suggest an opportunity to raise rents and working class families are spending more money on rent now than in the past. Census data in 2017 indicated more than 35% of workforce housing renter households were paying more than 30% of their income on rent, up from 20.6% in 2006.
Contact Brown Multifamily Advisors to learn more about workforce housing and other types of multifamily real estate currently in-demand.