You get many options in luxury housing projects because real estate developers bank on them to meet expensive land and building costs. But there is a need to look after underserved communities today. Many households cannot afford high rents as it consumes over 30% of their income per month explains Maxwell Drever. They need accommodation that can offer them all the essential amenities and some financial relief by lowering their monthly rental charges. Affordable workforce housing can be the best possible solution in sight. But despite the precise demands, there is hesitancy in the investors, primarily driven by misconception or unawareness.
The hurdles on the path of workforce housing investment
The myth about investment yield
Since affordable housing comes with an inherent social impact message, most investors believe that these will not give returns. However, experienced investors know these projects can provide excellent profit from an investment after the proper risk analysis. Since it is not a speculative investment, you don’t have to worry about interest rates or other such matters. The demand for high-standard affordable workforce housing is dependable. If you meet them, you can expect better returns. As a bonus, you can also build community trust and hope.
The flaws in federal and state-level investment opportunities
Most government funding programs don’t cover middle-income groups with 80% to 100% of AMI (area median income). As a result, they don’t get enough buying opportunities. Then, most real estate investors are pension funds, sovereign wealth funds, etc. They tend to be exempt from taxes. Hence, opportunity zones don’t attract them. There is also a lack of long-term investing opportunities. There is a time limit to pay taxes on deferred gains. Due to this, investors remain occupied with their tax liability and end up selling their options too soon. Private funding players can change this scene. But the main problem is that they mainly focus on lower-risk projects, says Maxwell Drever.
Things to consider
The housing crisis is not going to end soon. With the increasing gap between rental income and housing costs, the affordable workforce housing option is shrinking. Also, the worries around high land and building costs keep investors away from exploring urban areas, despite the demand for this type of accommodation in the market. There are ways to deal with every problem. A case in point is the hotel transformation or conversion. Covid-hit hotels on the verge of shutting down or already out of business can be an opportunity for interested investors. Since these come with basic infrastructure, the costs of building, material, and others remain in control.
With this, the possibility of faster project completion can be another advantage. Because it is less of construction work and more of a renovation task, you, as an investor, can soon ship your product to the market. More precisely, you can start getting results or responses faster.
There are lucrative investment opportunities in workforce housing says Maxwell Drever. It may not give high returns like the luxury housing market. But then, the risk is lower, and it can become a steady revenue stream. Hence, it can be wise to explore this segment once.