Q&A: What’s Attracting Workforce Housing Investment?

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By Dennis Kaiser

Affordable and workforce housing is a product type all agree is in short supply, but meeting rising demand has proved perplexing in cities across the U.S. One company doing something about the issue is Kingbird Properties. Connect Media asked Kenneth A. Munkacy, of the real estate investment management subsidiary of a fourth generation family office, Grupo Ferré Rangel, to share insights into the workforce housing sector. Check out his responses in our latest 3 CRE Q&A.

Q: What continues to cause the housing crunch in many American cities?
A: Cities across the United States are experiencing a housing disconnect, with many people unable to find or afford a place to live, even as new construction starts have added up to a multifamily building boom. The housing crunch remains in many American cities, and it is the result of a combination of demographic, cultural and sociopolitical events. The impact from the housing market collapse from 2007 to 2009 is still lingering, impacting millions of Americans who lost their homes during the recession and are now unable to finance in the future, as banks tighten their lending criteria. Millennials are facing barriers to home ownership ranging from student loan debts, rising home prices to more rigorous mortgage requirements. Private equity investors are deterred from investing in affordable housing developments, as changes to the federal tax structure have increased interest rates and development costs. These events create a lack of housing options for individuals that don’t qualify for subsidized housing, but also don’t make enough for “market-rate” rentals in their cities – offering a valuable and growing market share for workforce housing.

Q: What opportunities lie within workforce housing for family offices?
A: With the influx of younger and older, and lower- and higher-income individuals all coming into the renter pool, it is squeezing the availability and affordability of apartments. A majority of the new development that has happened over the past five years has been focused on luxury towers in prime markets. This creates an abundance of new inventory that converges with renters ability of what they are able to realistically afford. Workforce housing in class B and C multifamily buildings, offers a lesser- tapped market with good fundamentals for investors– steady demand, low vacancy rates, and the ability to incrementally raise rents with low capital expenditure on improvements.

Q: What makes the multifamily sector a compelling investment for investors, real estate investment companies and family offices such as Kingbird?
A: This “rentership society” is expected to grow by more than 7 million through 2025, and 80% of the renter demand, representing 4 million units, is from renters with incomes less than $75,000. These individuals are “renters by necessity,” they make up the lesser-known but increasingly important and lucrative workforce housing segment. The multifamily sector continues to be a compelling investment for investors, real estate investment companies and family offices, as the country sees a demand for affordable rental housing for middle-income families that are unable, or unwilling to purchase a home.

Pictured Bentree Apartments, Columbus, OH

For comments, questions or concerns, please contact Dennis Kaiser