Jeanette Rice

Los Angeles, CA–Workforce housing has consistently outperformed the multifamily market for the last four years with low vacancy rates and above-average rent growth, says the latest research from CBRE, “The Case for Workforce Housing.” Slow wage growth over the past decade has contributed to a high number of potential renters and an extreme lack of new supply. Plus the limited alternative lending options translates into a strong demand for workforce housing apartments with the shortage expected to continue in 2019.

Defining Workforce Housing

“We define workforce housing as the housing where individuals and families making between 60% and 100% of area median income (AMI) live. In some markets, especially high-cost markets like California, the definition could be extended to 120%. In our research, we focus on market-rate multifamily product. The way that we define workforce housing is in line with most industry participants,” says Jeanette Rice, Head of Multifamily Research, Americas, CBRE. “However, in the broadest definition of workforce housing, it would include some government-sponsored housing targeted at families earning between 60% and 100% of AMI as well as both single-family rentals and owned single-family. For families in this income range of 60% to 100%, there are many housing options, but the most common is market-rate multifamily housing.”

Rice continues, “when we think of affordable housing at CBRE, we're usually focusing on subsidized housing targeted at families making less than 60% of AMI. That definition is fairly standard in the industry, but it's true that the term “affordable housing” is often used to connote housing for a wider-range of incomes. (Colloquially, we often refer to the first definition of affordable housing as “Affordable” with a capital A and the second definition as “affordable” with a lower-case A.)

Attracting $375B In Investment

The robust market performance of workforce housing has attracted major investments of approximately $375 billion over the past five years, a total of 51.3% of all multifamily assets. This capital is increasingly coming from unlikely sources, including institutional and cross-border investors, says CBRE's report.

Investor interest in workforce housing began to grow a couple of years ago when market performance in Class A began to show some softness from the large quantity of new supply, but not from any let-up in demand, Rice says. Class B & C product market metrics were improving — rent growth rising, vacancy falling more than previous years — and also outperforming Class A. That shift came about three years ago, she says.