Who Finances Workforce Housing?
While this critical property sector is eligible for some HUD financing, many other solid loan options exist.
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Much of the Department of Housing and Urban Development’s focus has been on traditionally “affordable” housing, such as Section 8’s Housing Choice Voucher Program or those communities benefiting from Low-Income Housing Tax Credits. However, workforce housing has become a key component of housing affordability in the United States.
What Is Workforce Housing?
The generally accepted definition of workforce housing is housing that is affordable for those earning between 80% and 120% of area median income, or AMI. Households in workforce housing typically earn too much to qualify for programs under HUD. At the same time, they are also unable to afford most quality market-rate apartments.
Many such households include those employed in essential sectors that have stagnant wages. Think teachers, police officers, hospital support staff, delivery workers, and the like. Employees in these sectors may have a difficult time finding adequate housing due to soaring rent growth in many markets.
How Does HUD Support Workforce Housing?
HUD does not offer support programs specifically designed for workforce housing. However, many HUD loans can be used for the development, acquisition, or refinance of these communities. For example, ever-popular HUD 223(f) loans, along with all their benefits — a 35-year term at a low, fixed rate — are potentially great options for investors looking to buy or refinance workforce housing.
There are a number of GSE loan products that support workforce housing, too. One such product is the Freddie Mac® Workforce Housing Mezzanine Loan. This loan has LTV allowances of up to 90% and a minimum DSCR requirement of 1.05x. While it does require at least half of units are set aside for those earning 100% of AMI or below, it may be a good option for many looking to secure mezzanine financing atop an existing, conventional Freddie Mac loan.
Of course, beyond HUD and the GSEs, many workforce housing investors and developers leverage bank loans and other more traditional multifamily financing options. However, these often are accompanied by higher interest rates, greater DSCR requirements, and shorter loan terms.