The Fabled Realm of Workforce Housing
By David A. Smith
6 min read
For centuries during the late Middle Ages, tales were told of the realm of Prester John, whose empire of milk and honey lay among the heathen somewhere beyond the horizon. Expeditions were mounted in search of this Most Christian King, reputed to breed unicorns, whose prized horns were brought back by intrepid explorers.
Today workforce housing is much prized, much reputed to be somewhere beyond the political horizon – in the next city, metro, or state, perhaps – yet seldom glimpsed. Before setting off to capture its profits, intrepid housing developers need to know what they are looking for and why it is so scarce.
Workforce housing is rental in a market-specific income range. Though people’s imaginations vary, workforce housing has only one proper and useful definition with two key parameters:
Workforce housing is permanent rental housing, affordable to households above LIHTC income limits and below ‘natural local-market rental’ in each community.
1. Permanent rental: Programs that end in homeown-ership (down payment assistance or rent-to-buy) are no longer affordable after the first occupant household, and as such are a wealth-transfer device to help a few (worthy, lucky, or connected) families up the economic ladder.
2. Capped below ‘natural local-market level’. While the lower limit is fixed, the upper limit varies. Despite the ULI Terwilliger Center’s arbitrary cap at 120% of Area Median Income (AMI), that is well above market in some locales and below it in others. New York City goes to 140%, and folks in high-cost locales (San Francisco, Boston) cite even 150% of AMI.
Workforce housing is a byproduct of two prevailing winds in the macro-environment. In the 21st century, the need for workforce housing has dramatically accelerated due to a dual paradox: two similarly-intentioned forces working directly against each other.
1. Urbanization. As our cities go network, and more things can be delivered to us electronically – shop on-line, deliver via van and drone – the premium rises for living within walking distance of other face-to-face experiences. The result is density pressure: go up, go infill, go public- or gig-economy transport. These urbanization pressures are gravitational by size: county seats pull in people from the county; market hubs pull in from the metro area; megacities pull in people from the state, region, and even international. Economic growth is also gravitational: an anchored clean jobs-generator (universities are ideal) increases the people pull, and as that happens, the city needs ever more housing supply.
2. Zoning obstructiveness. Ironically, the very people who most need workforce housing –those highly educated green new urbanists drawn to economic centers of gravity in pursuit of new clean jobs – are also most likely to oppose it by any means necessary. All the barriers they earnestly set up – environmental quality reviews; traffic and parking studies, mandates, and prohibitions; historic preservation unfunded mandates; non-revenue-producing public amenities – add costs. So do cost of multi-year approval processes and endless whittling down of a property’s height, width, and scope.
Hence the paradox: even as the city needs more new affordable than before, it simultaneously makes producing new housing less affordable than before.
Workforce housing is the ‘topical cure’ for self-inflicted wounds of spatial exclusion. When even New York Times columnist and economics professor Paul Krugman has come around to the notion that zoning is gratuitously and harmfully restrictive, you know there’s a movement afoot.
Workforce housing is nationwide. Every state has a few mayors who grapple weekly with workforce housing’s shortage. At the same time, it’s a need only in places where the local market rents are above LIHTC affordability caps – and that happens only in places that combine urbanization growth and zoning obstruction. Color blue all the counties that need workforce housing (market >60% AMI), color red all the counties that do not (market <60% AMI), and you will have a map where every state has some blue islands amid an ocean of red. This does much to explain current American urban politics.
Workforce housing is not a national issue, it’s state-level. Though urbanization is good in the aggregate, locally it has winners and losers. Massachusetts has its Pittsfield; New York its Buffalo; California its San Bernardino. Each state’s blue cities need workforce housing; its red ocean needs jobs. Mayors can ignore the contradiction; governors cannot.
Workforce housing is key to statewide economic competitiveness. Just as America has rural-to-urban immigration (the subject of countless coming-of-age movies) and international immigration (the subject of countless thumbsucking editorials), we also have intra-national immigration – state to state. In the Networked Age, jobs go where the business and housing climate suit, and all the tax inversion legislation and localized investment credits enacted by any state legislature will not change that. Instead, states will be economically competitive with other states only if they produce enough workforce housing.
Workforce housing eschews federal resources. Federal programs by definition assume that America is in legal and policy terms economically homogenous and economically mobile. They all target populations based on statutorily mandated sharp-boundary caps tied to AMI that do not consider local variation in housing production and delivery costs. Because all federal programs assume implicitly that they are supreme over state programs, they exclude workforce housing. There will never be a national consensus for a federal workforce housing tax credit (additional tax expenditure) because one cannot summon a consensus at the level of any state.
Workforce housing needs state-level tools: laws and money. The challenge of workforce housing will be met at the state level, using the twin tools of government: laws and money.
• Laws. Workforce housing needs density bonuses, inclusionary zoning, and fast-track bypass of obstructive local zoning.
• Money. Workforce housing needs real estate tax abatements or intermediate-term PILOT agreement, state-level tax-exempt bonds (or state-level CRA-style exhortation), and provident funds or similar sponsorship by large employers, especially those professing social responsibility.
Workforce housing is a global challenge. Just as all the kings in Christendom sought without success for Prester John, no developed nation’s government has found a workforce housing policy solution; it’s a continuing political sore spot in (to name but a few) London, Paris, Berlin, Barcelona, and Sydney.
For America’s national competitiveness, we need to create workforce housing – and if it’s any consolation to American readers, nobody else is doing any better about it than we are.
