Interest is also strong on the equity side. "There are groups that perhaps in the past only had funds targeted toward class A [apartments]," Stoffers says. "They are now looking at class B and C rentals and bringing their quality levels up a bit. Those are renters that rent by necessity and not by choice. There's more equity chasing that space."

In most cases the capital lining up for workforce housing is focused on existing assets. With land and construction costs rising, it is not easy to build workforce housing without a government subsidy. "It's very difficult to build workforce housing at those price points," Stoffers says. "So, typically workforce housing results from class A or class B properties aging out after 30 or 40 years. You don't see the ability for many groups to build it right out of the box."

But Hilary Provinse, executive vice president and head of mortgage banking for Berkadia, sees some former Low Income Housing Tax Credit [LIHTC] developers trying new approaches to build more affordable apartments without subsidy. To bring down costs, these developers are constructing stick-built, garden-style communities further out of cities where land costs are less expensive.

"They're also looking at some of the modular opportunities to see if it is possible to get development costs down little lower and build more workforce-targeted projects that aren't rent restricted projects," Provinse says. "It is the first time we've been having conversations with some of those historically affordable developers."

Still, to be able to produce more affordable new apartments, Stoffers thinks localities need to reduce fees and regulations and allow for more building in infill locations. "For instance, they could allow building on surplus land from school districts or governments, where the land can be subsidized and the fees could be reduced," he says. "That is going to help."