Austin Multifamily Market’s New Focus: Workforce Housing
As demand for housing increases with Austin’s growing population, all eyes are on the multifamily housing market. But with rents rising as well, pressure on the already-sparse affordable housing stock is more intense than ever.
Traditionally, affordable housing has served as a resource for low-income residents, those who earn at or below 60 percent of the area median income (AMI). Providing affordable housing has become a major priority for Austin’s city council and developers during this cycle.
But a growing concern involves the segment of the population caught in the middle: those who may not qualify to live in traditional affordable housing properties, but for whom market-rate apartment prices are getting uncomfortably high.
The solution? Workforce housing.
Rapid Residential Growth
Average rent is increasing faster in Austin than in any other major metropolitan city in Texas. This activity is pushing workers out of housing they could afford in areas that are convenient for them and forcing many into long commutes from unfamiliar neighborhoods.
According to industry data, in 2018, rents in Austin rose by 4.4 percent, in contrast to 3.8 percent in Fort Worth, 3.5 percent in San Antonio and 2.7 percent in Dallas. And the squeeze on lower-income residents is only tightening. Austin is also experiencing one of the most rapid rates of gentrification, which raises AMI and contributes to rapidly rising rents, exacerbating the affordable housing shortage.
Workforce Housing Needs
Residents who earn between 60 and 80 percent of AMI are particularly vulnerable to the effects of Austin’s affordable housing crisis. While these residents do not qualify for conventional affordable housing resources, the market rate is outpacing what their incomes allow them to spend on rent.
The goal of workforce housing is to bridge the gap between affordable and market-rate rents, and major players in commercial real estate are finding opportunities to fill this need. We are seeing multifamily lenders focus increasingly on workforce housing as an additional weapon to help combat affordable housing shortages in competitive rental markets across the country. With the rental market reaching a fever pitch, workforce housing is crucial in Austin as well.
According to the Austin Strategic Housing Blueprint, the state capital needs about 60,000 affordable units below 80 percent of the median family income (MFI) over the next 10 years. Of those 60,000 units, 15,000 are earmarked for families earning between 61 to 80 percent of MFI.
The Austin City Council recognizes the city’s high cost of living and is working to prevent households from being priced out of Austin by working to implement this initiative through mission-based partners, community leaders and local housing authorities.
On the lending side, Fannie Mae and Freddie Mac each have their own workforce housing loan programs specifically for properties that have a percentage of the units set aside for families earning at or below 80 percent of AMI.
On the borrower side, the Housing Authority of the City of Austin and mission-based investors have been able to acquire properties and set aside a large portion of the units for residents who earn at or below 80 percent AMI. This elevated income bracket eligibility accommodates a broader segment of Austin’s population, serving more of those affected by the shortage of affordable housing stock.
With the lender and borrower pieces for financing workforce housing properties in place, Austin has made important strides toward providing solutions to the housing crisis. Bellwether Enterprise has worked with the Housing Authority of the City of Austin and other mission-driven partners on a number of projects to provide affordable and workforce housing to local communities. In the past few months, we’ve helped finance a number of new housing acquisitions in Austin that set aside units specifically for workforce housing.
The Place at Terracina and Northwest Hills are two new properties that together will add nearly 250 units of workforce housing. Preserve at Wells Branch is another acquisition that designated 51 percent of its 308 units for workforce housing. Financed by Fannie Mae loans that are well-suited to workforce housing — and tying in impactful partners such as the Housing Authority of the City of Austin, Community Development Trust, Austin Conservancy Fund, Enterprise Community Partners and AMP Management — these deals demonstrate the progress and potential of workforce housing financing in Austin.
In the years to come, Austin and many more major market cities may start requiring market-rate multifamily properties to set aside a certain percentage of their units for workforce housing before construction begins — it is a need that cannot be fulfilled fast enough. If cities are not proactive, many of the workers who earn 80 percent or less of AMI will quickly be priced out, leaving gaps.
As the rest of the nation’s major cities develop their own long-term strategic plans, the Austin City Council’s Strategic Housing Blueprint sets a great example for how communities, housing authorities and investors can collaborate to alleviate the growing workforce housing shortage.
— By Kevin Bowen, senior vice president, Bellwether Enterprise Real Estate Capital. This article first appeared in the March 2019 issue of Texas Real Estate Business magazine.