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  1. Slow Wage Growth Means More Renters – Slow wage growth over the past decade contributing to a high number of potential renters, an extreme lack of new supply, and limited alternative options means strong and sustained demand for workforce housing apartments is expected to continue in 2019 (CBRE: “Here’s where multifamily investors should be putting their money in 2019.”  December 5, 2018)
  2. 50% of Multifamily Investments Have Been in Workforce Housing – According to this report, workforce housing has brought in nearly $375 billion in investment over the last five years, more than 51% of the total for all multifamily asset classes.  (CBRE: “Here’s where multifamily investors should be putting their money in 2019.” December 5, 2018)
  3. Affordable Multifamily Housing Is Shrinking Every Year – The multifamily industry removes more than 100,000 units per year due to obsolescence, and these are predominantly workforce and affordable housing units. The redevelopment of older housing units is tremendously valuable to the multifamily sector, providing better-quality and updated units for renters. The physical improvement to the older multifamily housing stock has also made it more attractive for investors.  (CBRE: “Here’s where multifamily investors should be putting their money in 2019.” December 5, 2018)
  4. Strong Market Conditions for Workforce Multifamily throughout the US nearly all areas in the U.S. are benefiting from workforce housing’s “strong” market conditions, with Orlando and Las Vegas leading the way with 7% workforce housing rent growth in the last year.
  5. Summary – The balance of the market forces points to continued strength in workforce housing, justifying the strong investment appeal. Investment in this segment is also very good for the housing market by helping to preserve much-needed accommodation for lower income renters.  Value-add investment helps to preserve workforce housing inventory directly by improving the physical quality of the asset through renovation. (CBRE: “Here’s where multifamily investors should be putting their money in 2019.” December 5, 2018)
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1.  Very Low Vacancy Rate – Currently, workforce multifamily housing has a vacancy rate of 3.9% while Class A product has a vacancy rate of about 5.8%. (Marcus and Millichap multifamily investment forecast 2019)

2.  Younger people are moving toward rentals – Millennials face significant barriers to homeownership, with unprecedented student-loan debt, rising home prices and more rigorous mortgage requirements. Even though 80 percent of millennials would like to purchase a home, the ability to afford one remains an obstacle that could take one or two decades to overcome.

3.  The Renter Population Is Growing – According to CoStar, this “rentership society” is expected to grow by more than 7 million through 2025, and 80 percent of the renter demand, representing 4 million units, is from renters with incomes less than $75,000, the “renters by necessity.” This population makes up the lesser-known but increasingly important — and potentially lucrative for investors — workforce housing segment.

4. Provides Good Fundamentals for Investors – The class C multifamily buildings that comprise workforce housing offer good fundamentals for investors: steady demand, low vacancy rates, and the ability to incrementally raise rents with low capital expenditures on improvements. (Real Asset Advisor. “The Workforce Housing Investment Opportunity.”  June 1, 2018)

5.  Shortage of Affordable Options – From 2005 – 2015, the supply of affordable units renting for less than $800 declined by two percent with 260,000 units disappearing from the market.  In fact, industry research supports a pressing need for more apartments with a forecast of 4.6 million new units needed by 2030 in order to keep up with the demand. This data sets the stage for a strong demand for multifamily housing, especially affordable rental housing.   

(2017 State of the Nation Housing Study)

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General Obsolescence – Older properties are removed for a variety of reasons. It’s having a greater impact, possibly enhanced due to the abundance of 1960s and 1970s product.

Site Redevelopment – properties might be scrapped from ground up development of new Class A communities. This is particularly driven by urban infill developments and gentrification of older neighborhoods.

Value Add Upgrading – some properties are upgraded enough to move out of the price range of most workforce multifamily housing renters.

NOAH (Naturally Occurring Affordable Housing) Process is Slower – Organic creation of workforce multifamily housing has been slower due to the large volume of value-added activity and the high quality product that has been built in the past decade.

Available Older Stock Somewhat Limited – the amount of 2000’s product has kept pace with the late 1990s, but the first half of the 2010’s has produced lower levels of new supply.

 

(Source – 2018 CBRE The Case for Workforce Housing Report)

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