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Why Workforce/Affordable Housing Outperforms Other Multifamily Apartment Asset Classes

“Workforce” or “Affordable” Housing refers to apartment communities that are geared towards low-middle income renters. These apartment communities are often referred to as Class B or Class C apartments. This is in contrast to Luxury apartments with higher end finishes which cater to higher income renters. Luxury apartments are often referred to as Class A.

Research from CBRE has shown that Workforce housing has consistently outperformed other asset classes, with lower vacancy and higher annual rent increases. Why has Workforce housing been able to perform so well? In this article we answer that question.

Limited Supply

High cost of construction limits new workforce housing starts. Developers are creating luxury apartments as these are the types of new construction that are financially viable in the current economic climate. This creates limited supply to address the increasing demand caused by growing renter populations (Baby boomers, Millennials and Gen Z). Low supply and increased demand equal value to be realized by those who invest in workforce housing.

Recession Resilience

Workforce/Affordable housing is seen as a recession resistant asset class. During recessions, this class of housing is affordable for those who previously lived in luxury apartments but have to cut back on spending. In times of economic growth, those who have benefited from increases in salary can move up from lower income housing or may remain in the affordable housing bracket as luxury apartments are still out of their financial reach. This has proven true in the post 2008 economic cycle as slow income growth compared to cost of living has created an ongoing demand for affordable housing.