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Modern families face a modern challenge: the need for affordable rental housing. Many Americans fall into the wide gap between subsidized “affordable housing” and luxury rentals. They are the face of a new multi-family sub-category: workforce housing. America’s urban core, inner-ring suburbs, and secondary markets alike are booming with renters in need of housing. That demand, in turn, leads to more activity from developers and value-add investors, but it’s not focused on meeting the greatest need. Most new apartment units fall in the market-rate, Class A marketplace, leaving the workforce housing sector – residents in search of less expensive homes but not qualifying for affordable housing subsidies – without many options. There is a critical gap to fill, but it will not be easy.

Key Learning Points:

  • Many Americans are caught in the gap between qualifying for affordable housing and being able to afford market-rate rentals.
  • As most new construction is in the luxury category, there is a significant need for “workforce housing” to address the rental housing shortage.
  • While the federal agencies have programs that address affordable housing, fewer programs address workforce housing.
  • Programs such as the Green Multifamily Loan Program, Low Income Housing Tax Credits, and the Naturally Occurring Affordable Housing (“NOAH”) Preservation Loan are geared toward making properties sustainable and viable options for lower-income renters.
  • Solving the affordable and workforce housing shortage is going to take a combined effort from the private and public sector, for example, through deals that pair faster zoning approvals with financing options.

What’s Happening at the Agencies? Multifamily Finance Overview

Annual multifamily mortgage originations have been on a steep rise since the housing market crash. Of the multifamily mortgages outstanding, government-sponsored enterprises (GSEs) are close to 50% of the market according to public records. Bank lenders are increasing share as well according to Al Beaumariage, SVP, KeyBank Real Estate Capital.® In general, Class A multifamily projects in primary markets have been the purview of life companies, private equity, and banks, while GSEs have been active in workforce housing in secondary and tertiary markets. However, overlap between lenders has increased; GSEs, banks, and insurance companies are competing more often for the same project. Lines are increasingly blurred as borrowers and lenders alike chase risk-adjusted deals.

On the agency side, both Fannie Mae and Freddie Mac have a need to manage cap volume, while uncapped volume has grown over the last few years. However, as market growth has exceeded expectations, the Federal Housing Financing Agency (“FHFA”) has raised the cap, lessening the stress felt by the market.

The agencies are addressing the housing shortage through their programs. Changes in the Green Multifamily Loan Program are encouraging responsible investment in workforce housing as well as other product types. Projects must now achieve 30% reductions in energy or water use to be considered; borrowers have a higher bar for above-code improvements, compared to less aggressive reduction requirements of 25% in 2018, and only 15% in 2017.

However, workforce housing policy could be impacted by possible reforms at the FHFA. A new director was appointed in 2019,1 and that could bring new capital rules or changes to the relationship between the government and the GSEs.

The Workforce Housing Conundrum

Workforce housing is generally understood to be rental units priced below market-rate, but that do not meet the definition of affordable housing.2 While the FHA and GSEs have programs for affordable housing that provide options for borrowers, fewer programs address the need for more workforce housing. And together, the programs that have been implemented are insufficient to meet the vast and mounting need – 8 million Americans nationwide pay more than 50% of their income on rent, according to the National Low Income Housing Coalition.3

According to Rob Likes, KeyBank National Director for Community Development Lending & Investment, a number of converging factors are putting pressure on the availability of workforce housing, including:

  • Demographic trends: younger people are delaying families and household starts and staying renters for longer, and at the same time, Baby Boomers are downsizing and looking to move into cities.
  • Price per square foot of living is rising: Single-family supply of so-called “starter homes” in particular is down, and home values are up in many areas, leading to further delays in moving from renting to owning.
  • Time is money for developers: New construction is too costly and time intensive to get through zoning approval to occupancy, making the numbers not work for developers to build anything except Class A or luxury apartments.
  • Raising rents through improvements: The below-Class A stock that used to serve as workforce housing is being acquired by investors, rehabilitated, and repositioned at higher rents, making it unaffordable for a greater proportion of renters.

Likes goes on to state “the problem is not a lack of capital, but a lack of supply – and the motivation to provide it. The challenge for policymakers, the GSEs and affordable housing lenders alike is how to incentivize economically rational factors to put capital toward this problem.” Agency representatives don’t seem to think the answer will lie in expanding the voucher program or other programs that would “finance the tenant” rather than the owner, as such programs are inefficient and don’t address the greater income inequities.

Some agency value-add, moderate rehab programs are a start for borrowers, but they should be geared toward making properties sustainable and viable options for lower-income renters – not for “flipping.” The Lower Income Housing Tax Credit program is another option that regained its popularity in 2018. But to truly make a dent, federal agencies and policies, state and local initiatives, and the private sector must come together and develop programs that either add supply or focus on the preservation of units.

For example, deals can be structured to provide appealing financing terms in combination with liquidity from the agencies and faster zoning approvals to developers who agree to preserve the units at an affordable or below-market rate for the term of the loan.

Some municipalities may also look at innovative ways to bring more density, such as micro-unit buildings or co-living or shared living buildings. In some cases, these settings can be created by retrofitting existing housing stock to make buildings accommodate more people; in other cases new housing options will need to be repurposed and redesigned with more units.

Freddie Mac has come to the market with their NOAH Preservation Loan product. The product provides reduced transaction costs and interest rates, as well as reduced debt coverage criteria (in certain situations) for properties that have at least 50% of the units affordable at 60% / 80% / 100% / 120% area median income (“AMI”) based on market at the time of origination.

At the same time, Fannie Mae has expanded its definition of Special Public Purpose “Affordable Housing” to include properties with similar characteristics. Qualifying projects receive reduced debt coverage criteria and reduced pricing when rents are affordable to the cohorts mentioned above.

The government agencies are committed to their mission of delivering more multifamily housing for America’s lower-income communities and working families. To do so, they will need to work in concert with designated lenders, local governments, and the private sector to develop workable solutions that begin to fill the gap. KeyBank Real Estate Capital and their Community Development Lending and Investment sector helps communities across the country thrive by bringing together affordable housing owner-operators and developers with complex financing in partnership with for-profit, nonprofit and government entities.

To learn more and discuss your next project, contact Rob Likes, KeyBank’s Community Development Lending & Investment National Director at 801-297-5811 and Al Beaumariage, KeyBank Senior Vice President of Affordable Housing at 214-540-9129.

Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. is a federally registered service mark of KeyCorp.


Ramirez, Kelsey. “It’s Official: Trump Nominates Mark Calabria to lead FHFA,” Housing Wire. December 12, 2018.


Affordable Housing, U.S. Department of Housing and Urban Development website:


The Gap: A Shortage of Affordable Homes, National Low Income Housing Coalition, March 2018.