By Lori Johnston
“We had to tell them, ‘Don’t work the overtime,” he says. “Otherwise, they get counted as income.”
That may seem like a minor detail, but it’s just one of many factors that can impact the success of workforce housing projects. The workforce population is defined as those earning between 60 percent and 120 percent of the median household income, according to the Urban Land Institute’s Terwilliger Center for Workforce Housing. In the past few years, however, these workers and their families were priced out of many booming markets. As a result, more and more companies today are trying to create communities for vital workers in cities with a high cost of living. And while the challenges are great, the rewards can be greater still.
A TOUGH SELL
Unfortunately, in the development sector, workforce housing has a reputation as a largely insolvable problem—and a substantially unprofitable venture. Ron Terwilliger, chairman and CEO of Atlanta-based Trammell Crow Residential, who put up $5 million to create the Terwilliger Center, says he’s not aware of a private company that has been able to “crack the code” and profit from workforce housing.
Terwilliger says major obstacles are a lack of local subsidies and practical zoning codes that preclude high-density developments “from being placed in neighborhoods [with] decent schools and jobs.”
Also detracting from the effort are developers who use what Terwilliger calls a “convenient” description of workforce housing to make it appear that they’re responding to a social need. It’s a trend many developers have noticed as well. Jeff Sapounas, owner of Nyack, N.Y.-based Sapounas, has seen some developers peg an abandoned building as workforce housing so that they can take development shortcuts and find easy money. Paul of AMCAL, for one, admits there’s a fine line between those who create true workforce housing and those who build inferior residences and market them as workforce. “It’s a disservice to the workforce buyer,” he says.
Sapounas, whose first real estate project includes 10 apartments for volunteer firefighters in New York’s Hudson Valley, says the term is often arbitrarily used, with little of the money is actually used to help those in need. “The reason the problem exists is there’s no sense of urgency on the
part of very many people to address this problem,” Terwilliger says. “The guy who comes and mows your lawn? People don’t care where [he] lives. The dental hygienist, the librarians, the teachers—nobody seems to worry about where they live.”
PUBLIC PARTNERS
Recently, more developers have chosen to bypass the challenges that come with developing one-off workforce housing projects by finding a public partner, then acquiring the land, in order to keep key workers living in the community.
Sapounas in New York did just that. “I think that you’ll have a far easier time if you find the need or the need finds you, before you find the property,” he says.
In fact, his original plans for the city-owned plot in Nyack, N.Y., did not include a housing component—plans were only for a grocery store. But after learning about volunteer firefighters receiving training in the city then leaving the area to find more affordable housing, Sapounas teamed with the fire department to add a residential component. Aided by $2.8 million in construction financing from Key Bank, the development got under way earlier this year and was qualifying potential renters for the 10 units this summer.
Consider also the case of Bruce Dorfman, co-founder and principal with Mill Valley, Calif.-based real estate development firm Thompson|Dorfman. When the Santa Clara Unified School District sought someone to create the state of California’s first housing community built for a public school district, he competed with nonprofits by establishing one of his own—Education Housing Partners. The group won that bid and built the 40-unit Casa Del Maestro, which was completed in 2001. Phase two, which will be completed in May, will add 30 more units. The development will house 10 percent of the district’s teachers when complete.
A number of developers think of workforce housing as a for-profit vehicle, Dorfman says. “I think you have to take a different view toward this,” he says. Employer-assisted housing efforts are also a possible solution. Lynn Ross, state and local initiatives director of the Washington, D.C.-based National Housing Conference and Center for Housing Policy, cites Aurora Heath Care in Milwaukee, Wis., as an example. When the nonprofit health care provider faced a shortage of workers, it began to help the city redevelop certain areas. Their hospitals were located in parts of the city that had available homes but were in need of revitalization, Ross says. Today, Aurora Health Care offers up to $3,000 in downpayment assistance per employee as well as home buyer counseling. Between 2000 and 2007, the program provided housing to 208 employees, who purchased homes at a median price of $135,750, compared with Milwaukee’s median price of $185,000.
Nearly three-quarters of the participants still work for Aurora Health Care. “It’s usually not just the employer or the community or a nonprofit or a developer doing it alone,” Ross says. “To have a successful program, you need to bring all of those players together. The more people at the table, the better the result.”
Ross advises developers to talk with city housing officials and employers to determine a niche they can fill and find tools they can use. Seek out comprehensive plans, housing need assessments, demographic information, and data from local employers during the process, she adds.
“A problem that we run into is folks hear about a solution that is really working someplace else, and they want to take a cookie-cutter approach to their own situation, which may not work,” she says.
SUCCESS FACTORS
Beyond finding a solid partner, however, there are other factors that contribute to a thriving workforce housing project. Proximity to employment centers and accessibility to public transit are always vital. Both were important elements in the success of Avenue 26, AMCAL’s Paul says.
Buyers also prefer choices. At Avenue 26, the units ranged from 652-square-foot studios to four-bedroom spreads at 1,500 square feet. AMCAL also worked with the school district, housing department, and several nearby cities to find qualified home buyers. But Paul says a key step was identifying state and county programs offering buyers downpayment assistance.
“It’s a matter of researching and accessing,” he says. “When we added all those together … the right income-qualified buyer could come into our sales office and access about $170,000 worth of [funds].”
That gave them an advantage over their market-rate competitors, Paul adds. What also made Avenue 26 stand out was its use of high-end finishes, including granite countertops and stainless steel appliances.
“Affordability isn’t the end-all answer,” he says. “They won’t say, ‘OK, I’ll have a regular countertop instead of a granite countertop because I’m getting this great deal.’ They’re exposed to the sam products [as] market-rate home buyers. So their desires really are no different.”
As a result, Paul says AMCAL plans to continue the success of the award-winning Avenue 26 project at other sites in California. “We think it’s an underserved area,” he explains. “When times are good, it’s easy to forget about the need for workforce housing. In this segment of the market, the returns are limited, but there’s the social returns as well.”
