A Cornerstone of Our Investments: Workforce Housing—the “Missing Middle” Sector
DLP Capital develops solutions to increase attainable housing options for America’s workforces as part of our mission to address the housing affordability crisis.
Attainable rental housing is also at the core of our investment funds, which provide consistent year-over-year returns. So exactly what is “workforce housing”? While there is no one definition, and some use the term loosely, we apply a rather rigorous approach to defining our “workforce housing” goals. What’s very clear is that when referring to developing, investing in, or financing workforce housing, we are speaking of attainable rental housing for America’s middle-income earners: the teachers, police officers, firefighters, health care workers, and service/retail professionals, among others who serve our communities, keep them safe, and keep the gears of our local economies working smoothly.
“Affordable Housing” vs. Attainable Workforce Housing
To understand workforce housing, it’s helpful to first understand the term “affordable housing.” While the phrase might simply imply housing that a family can afford, in fact the term “affordable housing” became synonymous over the decades with government-sponsored programs that offer subsidies to support low-income households. In the 1970s and 1980s, a number of federal housing programs were enacted to support initiatives for low-income affordable housing. These included:
Tax credits for multifamily developers/owners who allocate portions of their apartment buildings to low-income residents (Low-Income Housing Tax Credits)
Direct rent subsidies for qualifying low-income families
Grants to help public housing residents develop skills for economic self-sufficiency and eventual homeownership
The term “affordable housing” originates in reference to those types of federal programs noted above, which have generally been targeted toward households making 60% or less of the Area Median Income (AMI).
Area Median Income (AMI) Benchmarks
Attainable “workforce housing” refers to rental housing geared toward those making income near to the actual Area Median Income—typically more than 80% of AMI in standard markets, up to about 120% of AMI in very cost-burdened markets. So if the AMI in Fort Worth, Texas is $75,000 for a family of four, workforce housing would target those families with household incomes of $60,000-$90,000 (80%-120% of $75,000). The AMI in specific regions is determined, in any given year, by the U.S. Department of Housing and Urban Development.
Over the years, of course, America’s middle-income workers have increasingly faced financial pressures when trying to find housing within their economic means. The housing bubble that burst in 2007-2009 exacerbated the issue, as new housing production ground to a halt. While the housing market has long since recovered, new single-family and multifamily production has failed to keep pace with increased demand, driving prices up and out of reach for many middle-income households. By early 2023, single-family home prices had experienced 131 consecutive months of year-over-year increases, the longest on record—with homeownership becoming a distant dream for many Americans. Meanwhile, as many of the nation’s workforce families turned to apartment rentals instead, the National Multifamily Housing Council, in turn, predicted a need for 4.3 million more apartments in the US by 2035. Demand, however, is far outpacing planned supply. Herein lies DLP Capital’s focus on developing, investing in, and financing workforce housing.
Having discussed above the Area Median Income (AMI) target levels that pertain to workforce housing, DLP Capital’s goal is to offer properties with attainable rents for that target audience. That means that our workforce housing properties—the missing middle sector of housing—will typically offer rents that limit what a family spends on rent to no more than 30% of their income. If a family spends no more than 30% of their income on rent, it theoretically should leave adequate remaining income for essentials such as food, utilities, transportation, etc. That being said, there are always exceptions, and in some highly desirable markets, the 30% AMI goal may differ slightly. Some markets may also be under extraordinary supply/demand imbalances.
DLP Capital Investment Opportunities
DLP Capital, as an opportunistic investor with a long track record investing in the workforce housing sector, seeks to fill the voids in underserved markets. We especially focus on tier 2 and tier 3 real estate markets, near and around mid-tier cities across the Sunbelt. These markets are often ignored by other investors, which exacerbates rental housing voids but provides tremendous opportunities and upside potential for DLP Capital investments. Tier 1 markets are the most competitive, expensive metro areas. Tier 2 markets include cities with solid fundamentals that have not yet reached their full potential, such as Jacksonville, Florida, where there may be price elasticity and underpriced assets. Tier 3 may include smaller cities and suburbs that hold high potential for harnessing growth in real estate values. An example of a DLP Capital workforce housing investment in a tier 3 market would be our multifamily development in Sevierville, Tennessee. The city is home to Dollywood theme park and has millions of annual visitors, but there are minimal workforce housing options.
Market Tiers - Examples
- Tier 1: Most competitive, expensive metro areas
- Tier 2: Cities with solid fundamentals and unrealized real estate potential and/or underpriced assets
- Tier 3: Smaller cities and suburbs with high potential for harnessing growth in real estate
In short, there is skyrocketing demand for workforce housing that offers attainable rents—and DLP Capital has made it one of its missions to bring quality solutions to those workforce communities in need. Currently, among our investment funds focused on building thriving communities are developments and/or property revitalizations that will deliver 8,000+ rental housing units to workforce communities across America’s thriving Sunbelt region and beyond. And, our investment portfolios are growing by the day.
To discover how you can invest in housing America’s workforce communities while reaping consistent, superior returns, review DLP Capital’s investment fund options.