Workforce housing: The $1.8T opportunity for real estate investors

The U.S. housing crisis, driven by a shortage of 3 million units and mortgage rates hovering around 7%, has hit workforce households the hardest. These are the essential workers—teachers, nurses, police officers—earning 60% to 120% of the area median income. The combination of rising home prices, inflation and stagnant supply has put homeownership out of reach for many of these workers, while also driving up rental demand and costs in already underserved communities.

In the multifamily rental market, the widening divide between subsidized low-income housing and market-rate units is known as the affordability gap. Closing this gap will require both public support and private investment. At the same time, the growing demand for rentals has created opportunity for multifamily developers, with strong occupancy rates continuing to hold steady nationwide.

A market in gridlock

Potential homebuyers now need an income of $116,600 to afford a median-priced house of $423,892, but only $64,200 to rent a typical apartment, according to Redfin. This affordability gap is pushing more workers into rentals, even as rent burdens continue to rise. In cities like San Francisco and Miami, high costs are driving essential workers out of their communities and creating a negative impact on local economies.

While a strong rental market creates opportunity for multifamily developers, they also face barriers, including zoning laws and land prices, that make new projects financially unworkable without incentives. Workforce housing is in high demand, but without subsidies and public-private partnerships, the economics simply don’t add up. 

Policy solutions to address the shortage

To fix the workforce housing shortage, a mix of federal, state and local strategies is essential. Thousands of affordable units built under the Low-Income Housing Tax Credit program are nearing the end of their extended-use period, taking much-needed units off the market, as the graph below illustrates. Developers need assistance to make a development viable.

States like Texas are responding with innovative programs such as public benefit corporations or public facility corporations, which are designed to help developers provide mixed-income and workforce multifamily properties in metro areas like Houston and Austin. Many cities and municipalities use property tax exemptions to help provide new mixed-income developments or convert existing properties that commit to making a percentage of units available to households that earn 60% to 120% of area median income.

Tax increment financing (TIF) is another powerful tool. Used in cities such as Chicago and Denver, TIF districts help fund infrastructure for mixed-use developments, often with workforce housing at the core. On the federal level, renewed interest in opportunity zones could bring fresh capital by offering tax deferrals and step-ups for projects in underserved communities.

These combined efforts to streamline zoning, increase subsidies and maximize tax incentives are key to closing the affordability gap and helping essential workers live in the communities they serve.

Investors take notice

The workforce housing market is poised for growth as investors, including family offices, recognize its potential for stable returns and social impact benefits. These properties serve what’s known as “sticky tenants”—renters who stay long-term, creating steady income and high occupancy.

With $1.8 trillion in commercial real estate loans maturing by 2026, distressed multifamily properties offer investors opportunities for acquisition, recapitalization and conversion to workforce housing, especially while leveraging government subsidies to lower costs and align rents with workforce budgets. Additionally, easing zoning restrictions could spur development in underserved areas, drive costs down and increase supply for this much-needed product type. Streamlined permitting and fewer delays would go a long way toward bringing costs down and supply up.

Lastly, this is a social issue worthy of impact investment capital. Many investors, such as family offices, are focused on impact investments that address a critical need, help create communities and support local economic development—all while earning a reasonable profit. Workforce housing checks all the boxes: community development, stable financial returns and meaningful social benefits. Family offices are playing a growing role as investors in real estate, especially when pairing investments with social responsibility aligns long-term, tax-advantage returns with the equally important goal of fostering community stability.

The outlook

Workforce housing is an employment and economic stability issue that demands urgent action. With nearly half of all U.S. renter households cost-burdened, the need is growing but so is the opportunity.

Developers and investors willing to navigate the landscape by leveraging tax breaks, partnerships and public incentives can help solve the crisis while building lasting value. With inflation easing and lending conditions stabilizing, now may be the moment to act. Affordable by necessity, workforce housing is a chance to create impact, community and profit all at once.