Navigating the multifamily real estate market is an arduous task for investors, complete with unfamiliar concepts and cryptic vernacular. Within this investment universe, there are limitless strategies and an infinite number of facts and figures, but atop this mountain of information, there is a simple truth: an investment in multifamily housing is an investment in people and place. At CONTI, we invest in growing communities and in the hardworking households that make this growth possible. With our investments, we aspire to provide attractive housing options, in desirable locations, and at sustainably fair prices. Here, we’ll define our target market of workforce housing, demonstrate the regional variation in housing opportunities across the United States, and illustrate the economic forces driving this market.
Throughout the commercial real estate industry, workforce housing is a term often-used and ill-defined. At CONTI, workforce housing means apartments priced to fit the needs of people who form the foundation of our communities. Our tenants are construction workers, teachers, nurses, factory workers, and tradesmen. They are young professionals starting their careers and immigrants seizing new opportunities – they are Americans building a better nation. To ensure our tenants and communities succeed, we carefully select and operate properties within specific rent thresholds relative to the area’s reported household income. Our workforce population often falls within 60 to 120 percent of the metropolitan area’s median household income (AMI) for the jobs that they perform.
For example, the median household income for Dallas residents in 2018 came in at roughly $60,000 a year. Given the 60-120 percent AMI guideline, this equates to household incomes ranging from $36,000 to $72,000 a year. The typical first-year teacher beginning their career at the Dallas school district would fall squarely within this range at an annual income of $47,000. For these teachers, nurses, and other core members of our workforce, we also maintain that households spending more than 30 percent of their monthly income on housing face an undue burden.
To promote a long-term sustainable investment strategy, we strategically target multifamily assets that allow rent growth without exceeding this burden-threshold. Fortunately, there is a steady inventory of affordable workforce housing in southern U.S. markets as existing Class A and B products age into the workforce housing category. In the Dallas-Fort-Worth metropolitan area, an estimated 60 percent of all apartment properties fall within CONTI’s definition of workforce housing.
To CONTI, increasing net income should be a function of our company’s expertise and natural wage growth over time. Unfortunately, for many Americans, the burden of exorbitant housing costs is a reality known all too well. Take the situation of a San Francisco schoolteacher making a base salary of $64,000. To avoid spending more than 30 percent of their monthly income on housing, this schoolteacher would need to make monthly payments below $1,600. In a coastal market like San Francisco where there is limited availability of housing, constricted new construction, and high demand, this teacher has no reasonable housing options. According to apartment data provider RealPage, the San Francisco average rent per unit as of 2019 topped $3,200 per month and out of the market’s 58,000 units, only 1% of apartment properties held average rents below $1,600 per month. In coastal markets like San Francisco, workforce housing is nearly nonexistent. However, such housing market disparities are just another example of long-held patterns across the nation.
As a function of people and place, the workforce housing investment strategy rests upon the continuation of two historic patterns; the first being the difference in the physical characteristics between the high-cost coasts and the southern U.S. Cities like Boston and Miami are bound by hard physical boundaries and by ‘soft’ boundaries like low-density suburban neighborhoods. These boundaries create undeniable limits to the expansion of the housing supply, resulting in systematically higher housing costs.
This is in stark contrast to the American south. Historically, the southern U.S. was sparsely populated and industrialized over a century later than the North. When the southern economy began churning in earnest by the mid-twentieth century, cities blossomed around revolutionary forms of transportation like railroads and highways allowing construction to flow out into the flat plains of the American heartland. Unlike northern cities bound by waterways and rocky coastal ports, the south has a seemingly limitless opportunity to build. Naturally, the pattern of lower housing costs in the southern U.S. is unyielding. While the physical component of the workforce housing strategy clearly favors the affordable cities of the south, this strategy, like all other multifamily strategies, depends on people.