Savvy real estate investors don’t just buy properties. No, the best investors develop a diversified portfolio that can withstand market fluctuations and provide multiple income streams. For Houston area landlords, this includes investing in workforce housing.
Workforce housing specifically refers to those housing units that are not only affordable to moderate to middle-income earners, but are also located close to major workplaces. In Houston, that’s just about any affordable housing, since there are important employers distributed throughout the city. And, with slow wage growth and high student loan debt, the demand for workforce housing is even greater, as wage earners in higher income brackets seek out lower rental costs.
Despite strong demand, one of the biggest problems for those who want to invest in workforce housing is that there just isn’t enough of it to go around – and demand will only increase if the predicted recession arrives. For Houston investors considering adding workforce housing to their portfolio, these 3 considerations can help with the process.
The Case For New Construction
While the ideal way for investors to acquire workforce housing is by buying up existing units, as we’ve already noted, there just aren’t enough available, and that means you should be open to investing in new construction instead. There are plenty of advantages to new construction, whatever sector is involved, but when it comes to workforce housing, designing around your ideal market can help contain costs and increase income in the long term.
Unfortunately, one of the reasons that there’s a shortage of workforce housing, besides the fact that gentrification tends to push these properties out of desirable areas near offices or drive increased rents, is that there aren’t many incentives for building such properties. While there are tax incentives for building low-income housing, specifically targeting housing for those making less than 60% of the area median income (AMI), there’s not much support for middle-income housing, or that designed for those in the 60-120% bracket. As more banks recognize the earnings potential of such multifamily units, especially if they’re part of mixed-income construction, such funding may become available to Houston investors.
If you find yourself investing in new construction workforce housing, it will of course take longer to start seeing profits, but its difficulty may be balanced out by broader overall appeal. And, as noted, such units are increasingly being planned alongside higher income units in multifamily construction, which allows investors to better balance their properties while keeping overall operations costs at a minimum.
The Wealth Barrier
The most significant barrier to increasing the stock of workforce housing isn’t the cost of construction or lack of space near key employment centers; the biggest issue is wealthy investors and residents who are focused on luxury developments. Texas has seen huge economic expansion recently, with the percentage of wealthy renters in Houston up 59% in the last decade. That’s a small increase compared to other major Texas cities. In comparison, Austin has seen a 142% increase over the same period, and rent increases have followed with these changing demographics.
Overall, it’s harder to incentivize luxury developers to include middle-income units in their properties because it’s not coherent with their larger investment strategy. While you can mix middle- and low-income housing, luxury unit tenants want a completely separate space and will steadily take over entire neighborhoods, pushing workforce housing out of the convenient locations that make it so desirable. In this regard, a recession might actually be good news for investors – it could open up investment opportunities to develop more affordable units as business growth slows.
Hitting The Center Circle
Investors who are looking at properties that could be modified for workforce housing or who are considering undertaking a new construction project want to hit the precise middle of several categories if they want to be successful. Scott K. Choppin describes the ideal situation as the “missing middle” – it targets middle-income individuals, is situated in a middle-density area, and is designed around a middle of the road lifestyle. The final category essentially means that the housing is designed to rent, but for tenants who expect to stay for an extended period. In some areas this means row houses, while in others this description is more likely to fit multi-bedroom apartments or condos.
One advantage that Houston has when it comes to this formula is that the city tends toward sprawl. That means it’s easier to find those middle-density spaces, either in the city or in the surrounding suburbs, which are also seeing a significant employment boom. Houston’s had some success increasing workforce housing in the past by converting single family homes into townhouses, and there are likely other areas of the city that are home to more conversion-ready properties. Additionally, since a larger number of affluent professionals in the city are moving into luxury apartments rather than single-family homes, more of these homes are available to become affordable middle-income units.
A Growing Tenant Group
Investors who do take a chance on workforce housing should know that, in this particular moment, it’s actually not just workers who are likely to be interested in their offerings. Rather, many retired individuals are likely to seek out similar, middle-market housing options. Workforce-style housing is ideal for retired but still active individuals – those who don’t yet need supportive housing or significant nursing care – since the units are located in convenient areas, near cafes and grocery shops. Combining workforce housing specifically targeting young workers with senior-focused units could also help some investors find funding for their projects.
Moving into the workforce housing sector can benefit both investors and the local community, but these developments won’t run themselves. Rather, they require a skilled hand to take them from promotion and contract to daily operations – which is why you need Green Residential, Houston’s premier property management company. Contact Green Residential today to learn more about our comprehensive property management services.
Great property management is the quickest and easiest way to make your workforce housing profitable, but more important, skilled property management will ensure your residents are happy and taken care of, even when emergencies strike.
That’s the Green Residential difference, and it can set your properties apart.