In the wake of the pandemic, workforce housing has become the most sought-after multifamily asset segment among renters. Cathy Danigelis, western region manager at KeyBank, estimates that workforce-housing renters make up about 60% of the total renter pool, more than both market-rate and affordable housing.

“During the pandemic, demand dropped for class-A product, especially in larger cities like San Francisco and Seattle. Workforce housing is the largest swath, by far, of the renter pool,” Danigelis tells

KeyBank defines workforce housing as apartment units with an area-median income above 61% that are not dependent on government subsidies. Often conflated with sub-60% AMI housing that qualifies for Section 42 LIHTC or Section 8, it generally serves firemen, teachers and other vital workers who would not qualify for low-income or affordable housing but who find market-rate units out of reach. It’s a housing segment that has often been overlooked. “There has been somewhat of a lack of cohesive strategy around workforce housing and the missing middle,” says Matthew Haas, relationship manager in community development at KeyBank.

The most popular way for investment capital to tap into the demand for more workforce housing supply has been a value-add strategy, which also helps these projects pencil in the face of cost constraints. “It is difficult to balance those sources and uses in a construction loan. You still have high construction costs, land costs, labor costs,” says Danigelis, who adds that construction activity is lagging despite the demand, but “the workforce segment is thriving as a value-add play.”

Danigelis notes that those deals are mostly balance sheet loans at 70% loan-to-cost with 25% to 50% recourse. “That has mostly not changed from before the pandemic,” she says. “What has changed is the investors. Before the pandemic, investors were making higher returns, in the 10% to 12% range, and now the return is a little lower. This is a high demand asset class and a relatively safe area for an investor to put their money.”

Borrowers looking to secure a workforce housing debt should sit down with a lender in advance to outline execution. “As you look at deal structure, what you define as affordable is extremely key,” says Haas. “Under Fannie and Freddie’s duty-to-serve, the max is 100% AMI. Other structures, like income averaging and tax-credit deals, are 80% balanced against lower, deeply skewed units. When you talk about affordability, it is important to understand what you mean by affordability and the income band that you are targeting.”

The Biden Administration is also doing its part to support the creation of workforce housing. Haas notes budget reconciliations with new funding and the announcement of the DASH Act to create affordable rental housing for households that do not qualify for LIHTC as potential boons for the industry.

From banks and the private sector to the public sector, there is now a spotlight on workforce housing—and as a result, more deals are getting done. “The workforce housing strategy is critical and extremely important,” says Haas. “This is the time.”