Building affordable workforce housing remains the greatest real estate challenge. For this, the housing market itself is responsible. The traditional rent payers pay more attention to their financial status, credit ratings, etc. But the affordable workforce housing renters struggle to maintain the standards as they come with bad credit or eviction history. Besides, institutional investors find it difficult to meet increasing liabilities because of the likelihood of lower returns.

Due to this, affordable workforce housing may also not appear attractive proposition for the fixed-income class. However, behind all these issues, there are some opportunities. But you have to first look at the challenges of the different groups, investors, communities, etc., to get a better grip over the whole matter.

Cap rates and current price variations

The real estate market has to go through cycles of ups and downs like any other sector. Affordable and low-income housing has a selling cap rate of 5 to 6. One of the findings suggested that the median home rates have jumped by 20% compared to the last year. It can be attributable to low interest rates and accessibility to funds. However, the risks increase when the cap rate changes.

With low-income housing, the main problems include property maintenance, cash flow, security, taxes, etc. Then, the attention of the leading insurance funds and pensions on Class C and Class D properties can be another threat. So, all these are some of the challenges faced by an investor.

Earlier, investors managed their affordable housing projects themselves or with the help of the management company, adds Maxwell Drever. However, management companies have come to the forefront with easy accessibility to funds. So, it can be a plus. But it can only be successful when they do the proper risk assessment and take care of the delivery.

Market size and knowledge

The two main barriers in the investment universe of affordable housing are the small size of the overall market, and the new fund managers need to learn a lot about this space. Fund managers have to increase their knowledge about the government programs to strike small deals and replicate the approach at a bigger scale with institutional-style investors. For this, having a proper grip over underwriting and affordable housing loans becomes essential. 

Things to consider

As the experts say, investors and developers have to balance between business and community enhancement goals. For this, every factor deserves close attention, including the base property cost.

They can be successful when they listen to the community and create a suitable renting process. When they do this, they would realize that the target should be long-term renters. Also, the application process has to be accessible as it is not the traditional market space.

Since affordable housing has become a focal point for everyone, it is critical to understand that these homes can change many lives. But it requires proper handling, right from investment to development to delivery, etc. All these aspects can be deep-rooted. With seriousness and inclination, one can solve this problem, though.