Workforce housing a new darling of investors?

Workforce housing has become a draw for the dollars of investors, according to the latest research from CBRE. The reason is simple: This type of multifamily housing is generating strong returns for investors.

CBRE reports that workforce housing, made up of rental communities that are affordable to low- and moderate-income workers, has outperformed the overall multifamily market for the past four years. This housing type has boasted low vacancy rates and above-average rent growth during this period.

CBRE doesn’t expect this to change anytime soon. The brokerage says that wages have grown slowly during the last decade for U.S. workers. This has led more would-be homeowners to the rental market. Workers also face a lack of homes for sale in many markets, which has also provided a boost to the multifamily sector across the country.

According to CBRE, workforce housing has attracted nearly $375 billion in investments during the last five years, 51.3 percent of the total for all multifamily assets. This capital is coming from a variety of sources, including institutional and cross-border investors.

“The balance of the market forces points to continued strength in workforce housing, justifying the strong investment appeal,” said Brian McAuliffe, president of institutional properties for CBRE, in a written statement. “Investment in this segment also benefits the housing market by preserving much-needed rental accommodations for lower-income renters.”

CBRE said that about 13.5 million households live in workforce housing, with most of these renters classified as “renters by necessity.” Many of these renters can’t afford a monthly mortgage payment because they are paying off student-loan debt or saving for a down payment to buy a home.

There is a problem here, though: CBRE reports that during the past decade only a small amount of workforce housing has been built, while many older apartment communities have been demolished to make way for high-end multifamily developments. According to CBRE, the multifamily industry removes more than 100,000 housing units each year. These are usually workforce and affordable units.

The hope is that developers will be able to add more of these projects in the future, probably relying on incentives from governmental bodies to make these projects worthwhile financially.

CBRE said that Minneapolis has been a particularly strong workforce housing market. Minneapolis has seen a rent growth of 3.8 percent for the year ending in the second quarter of 2018 in its workforce housing product.