Solutions for Affordable Workforce Housing

June 13, 2018

Originally posted in Multifamily Executive

By John Schrader, AIA

In the fallout from the housing crisis, fewer people are buying homes and the number of renters has increased, especially among young people who need more-affordable homes.

New construction is focused on buyers in the more-expensive markets, and the number of “starter homes”—and buyers seeking them—is dwindling. The ownership-to-rental equilibrium is shifting back to the more logical percentages of the past, before the housing bubble, which means increasing demand for rentals. As such, the need for affordable workforce housing is increasing as demographics and cultural patterns shift.

Affordable workforce housing includes low-cost, more-utilitarian residences that allow people who work in the neighborhood to live nearby, even if they’d otherwise be priced out. Although low-income, subsidized housing often gets grouped together with workforce housing, there are varying levels of subsidy in workforce housing.

The subsidy a person receives is based on a percentage comparison between his or her salary and the median income for the area. Housing costs are prorated and categorized based on salary. The affordable housing sector includes mixed-income affordable housing and workforce housing for people who must spend more than 30% of their income on housing to live near work. Unsurprisingly, there are challenges to building affordable housing in areas where the market rate is unaffordable to young professionals and families.

Here are some insights for success.

Common Challenges for Developers

Market-rate prices for a given area are based on the relative cost of land, labor, and materials. In addition, the recent boom in multifamily housing has resulted in rising construction costs.

Whereas the costs from the foundation up (studs, exterior and interior materials, kitchens, baths, and so on) are fairly standardized, unpredictable costs arise from the foundation down: topography of the site, detention and retention if water is an issue, and the infrastructure support available to the site—water, sewer, and electricity, chiefly. Hidden expenses often come with low-priced land, such as creating a level grade, mitigating detention and retention issues, or connecting to the municipal infrastructure and grid as well as public transit.

There can also be resistance from the community in the form of NIMBYism in which local people worry that anything other than market-rate housing will be disruptive. When communities begin to discuss introducing affordable housing, the common concerns are that property values will decrease, the schools will be overloaded with additional students, and traffic will become a problem with the increased population. It’s important to listen to the concerns of residents; present structured, well-researched solutions that will set their minds at ease; and solicit and incorporate their input.

Competition for funding, as well as for building sites in the area, makes cost a huge driver in these projects. The land, labor, and materials will cost about the same whether the housing is market-rate or affordable. Developers who are making that kind of investment might be driven to add a little more capital to move from affordable/workforce housing to A-level housing and charge higher rents. This puts affordable/workforce housing in competition with market-rate housing, from a developer’s standpoint, and creates a reliance on subsidies to make the workforce/affordable housing financially feasible.

Cost Solutions

To create more from less requires creativity. With fewer programs and subsidies available for workforce housing than traditional low-income housing, funding must come from other areas, typically multiple layers of investments and loans. The most common source of funding is the low-income housing tax credit (LIHTC). Other funding mechanisms and supportive services vary by project and location. When private developers are brought in to work with tax credit dollars, they incorporate market-level designs and finishes that make buildings more appealing than the more-utilitarian structures that are typical of public housing authorities.

For developers, architects, and designers, everything comes back to cost. Early attention during the site-selection phase of the project can save money and headaches later. Costs related to site issues can add up quickly. A flat site with no retention is cheaper to build on than one with a 40-foot fall and retaining walls or a site that’s remote from existing water, sewer, and electrical systems.

Of all the expenses related to site preparation, the most costly is cut-and-fill on sites with uneven topography. An early site plan may need to be completely reworked after cut-and-fill numbers for the site are presented. The associated costs can cause major challenges with the project budget, and competitors in the same market who have flat sites will have an edge with larger budgets for finishes and fixtures. Expertise in planning allows teams the foresight needed to develop creative solutions early.

Consider two different scenarios. A water-retention challenge was met with the solution of creating a pond that turned into a functional and aesthetically pleasing amenity. In another example, a site in Atlanta had a 60-foot fall from one end to the other, and the project team planned a “hilltop village,” working within the existing topography as much as possible. At both sites, the teams took a challenge and turned it into a positive through effective planning and creativity.

Community Buy-In an Essential Step

While these issues relate to planning and site design, NIMBYism is a challenge related to people, which requires diplomacy as well as creativity and know-how. Often, part of the tax credit and grant funding structure requires buy-in from the community. The best way to achieve this is to lay the groundwork for receptivity, getting ahead of a rumor mill and educating the public on what the project is before negative perceptions take over.

The first step is to dismiss expectations of traditional high-concentration, low-income housing that opponents may see in other neighborhoods. Showing them existing projects, either through photos or visits, is a good way to highlight the diversity of housing options available in the sector.

Another way to open people’s minds is to make the inhabitants of affordable workforce housing relatable. Remind opponents they may know someone—a young professional in their own family or their child’s teacher—who fits the demographic for affordable workforce housing. When neighbors stop seeing the workforce housing shortage as something that affects only other people and start noticing it in their own community, they become more receptive.

Teachers, firefighters, and police officers are a starting point. These are all respected professionals that most people would like to have as neighbors, but starting salaries in these fields are relatively low, so young professionals may need some financial assistance in their first few years as they’re getting established and paying off student loans.

It’s important to draw the distinction between poverty/low-income housing and workforce housing. Bringing publicity to the concept through ribbon cuttings for new projects and involvement of local government officials, allowing them to take some of the credit, will make affordable housing accessible.

Hybrid projects—for example, those that are one-third each low-income, workforce, and market-rate housing—provide another opportunity to make the surrounding community comfortable. Because they don’t bear the “low income” or “public housing” label, they avoid the stigma of lowering property values.

Projects could also mainstream affordable housing by adding service components: job training/computer rooms, interview help, afterschool care, or a small health clinic. Or they could focus on more specific types of affordable housing that fit in with the community. These could include senior housing, veteran’s housing, and even artists’ housing with connected gallery spaces. Appealing to the values of that community will create broader acceptance of affordable housing.

A charrette that includes community members allows them to ask questions of the project team directly. It’s also an opportunity to share images, plans, and space concepts and acquire feedback from community stakeholders. Research on traffic patterns and local schools is a key part of the discussion as well. Data may show that the project is a boon to the neighborhood.

In one example, a local school was on the verge of closing, and bringing in affordable housing allowed the school to stay open. If possible, invite experts to analyze problems, explain the facts, and present evidence to the community members. Involving everyone and working with the best available information will pave the way for project success.

Location: An Asset in More Ways Than One

Land is the beginning of the project and dictates much of what comes after. Projects often start as joint ventures between developers and housing authorities. Housing authorities possess the—often desirable—land, understand public policy and funding through tax credits, and have connections in the community but aren’t experts in real estate development and construction. The housing authorities’ involvement doesn’t politicize the process: The industry works hard to keep these partnerships bipartisan, which helps foster broader community support.

Transit-oriented developments are a specialized sector focused on reducing transportation costs as a way to help families budget. Transit-driven projects focus in urban areas near public transit. Families who live closer to work or public transportation can reduce their dependence on cars, freeing up more of their budget for housing. Land with premium downtown locations is more expensive, which will be reflected in the cost to acquire and build on it, but savings on transportation costs can help offset the higher price point for families.

When new public transit projects come up, there’s usually rezoning of the area involved, so there may be an option to incorporate affordable housing. Providing affordable units may mean a higher density is allowed, which is necessary because housing developers are competing with retail developers as well as market-rate housing.

One example of this is the Scott Boulevard project in Atlanta, where the developer sought to build a mixture of market-rate housing and retail, but the city required some affordable housing options as part of the rezoning for the project. The team added senior housing to the project to obtain the zoning permissions.

Modular Design Gaining Ground

Modular housing is relatively new to the affordable housing market but is gaining ground quickly. Modular solutions save money in construction, and their level of prefabricated, premanufactured parts varies, from kitchen and bathroom components to entire manufactured houses. Cost is key where there’s a shortage of labor amid a multifamily construction boom and competition from market-rate projects is stiff. The labor shortage and material cost increase are happening in tandem, creating an opening for modular solutions.

Modular technologies make the entire construction process more efficient, streamlined, and cost-effective, which will be increasingly important as the industry becomes more competitive. Experts predict a major overhaul in the construction industry over the next decade with the rise of premade, plug-in components.

Entire bathrooms and kitchens can be assembled off-site and delivered using modular technology, mitigating cost concerns as well as making labor more efficient. As land continues to be developed, there will be a more urgent need to do more with less, more efficiently, and to produce housing that’s affordable for workers and their families.