Real estate managers are ramping up investments in workforce and affordable housing, focusing on properties outside the popular and pricey urban core.
There is expected demand for an additional 4.5 million new apartments in the U.S. by 2030, according to data from the Workforce Housing Committee of the National Multifamily Housing Council, Washington.
What's more, deal activity for the affordable housing sector of the apartment market is not declining to the same degree as the overall apartment market, said Jim Costello, senior vice president of New York-based real estate research firm Real Capital Analytics Inc. Subsidized housing — properties in which any portion of apartments is reserved for low-income residents — dipped 4%, compared to a 10% year-over-year decline for the overall apartment market as of June 30.
"We are seeing an increasing number of funds raising capital to pursue opportunities in this workforce housing space," said Peter Rogers, Chicago-based senior investment consultant in the manager research group of general investment consultant Willis Towers Watson PLC.
"The term 'workforce housing' has become somewhat of an industry buzzword," Mr. Rogers noted. Managers' definition of workforce housing can include any apartment building catering to middle-income renters, with middle income defined as people who earn 60% to 150% of the area median income. By comparison, the Urban Land Institute defines workforce housing as housing for people who earn 60% to 120% of the area median income.
Renters are getting priced out of areas with high job growth, said Russ Minnick, president of Salt Lake City real estate manager Bridge Investment Group LLC. Mr. Minnick, said an estimated 12 million households spend more than half of their annual income on housing in a sector that has declined 9% since 2000.
The idea is to create apartments for people who have been priced out of inner cities, which has been a popular destination for real estate investors. More real estate managers have discovered the sector in the past year to 18 months, industry executives say, a continuation of a trend in moving away from pricier downtown areas.