WORKFORCE RENTAL HOUSING, ideal for professionals such as teachers, firefighters, and nurses, has always been treated as a stepchild in the affordable housing world. The majority of financing vehicles for rental product target the poor, specifically the Low Income Housing Tax Credit (LIHTC), which targets those earning less than 60 percent of area median income (AMI).

When workforce housing—aimed at filling the gap between unaffordable marketrate housing and affordable housing supported by public sector subsidies—does get attention, it is typically the for-sale variety. “When we talk about workforce housing, we end up talking about for-sale products,” says Rick Haughey , senior fellow for the National Housing Conference (NHC), a Washington D.C.-based advocacy group. “I think [governments] saw a real need for homeownership because there was a group that couldn't own a home. But I'm not sure there's much of a push in the rental sector.”

And with local and state governments struggling, it's even more difficult to produce workforce housing—be it for-sale or rental. For every New Hampshire that adds a workforce housing program, there's a Florida that has to close its doors down because of budget issues. “Cities, counties, and communities don't have a lot of money,” says John K. McIlwain , the senior resident fellow/ J. Ronald Terwilliger Chair for Housing at the Washington, D.C.-based Urban Land Institute (ULI). “Sources are drying up because of their difficult financial situations.”

While financing vehicles are few and far between, here are three possible streams to tap into to help with the creation of rental workforce housing.

1. Find federal funds.

On the surface, LIHTC funds don't work for workforce housing because the sector usually covers those making between 60 percent and 120 percent of AMI. But in an expensive market, 60 percent of AMI could be considered workforce housing. For instance, Ten Fifty B , a 184-unit project developed by San Diego-based Affirmed Housing Group in high-cost San Diego, is a LIHTC project serving workforce needs.

“It will be targeting mostly 60 percent of AMI,” says Jim Kroger , a partner in the San Francisco office of Novogradac & Co. , a national accounting and consulting firm with a focus on real estate. “Tax credits and bonds don't go over 60 percent levels. But I see some projects targeted at 60 percent AMI that don't hit 30 percent and 40 percent levels [targeted at the poor].”

Typically, however, HOME Investment Trust Funds and C ommunity Development Block Grants (CDBG) —not LIHTC funds— are the federal drivers of workforce housing. Both of these funds are funneled from the federal government and distributed at the local level. HOME funds let state and local governments create affordable housing for low-income households. The funding provides formula grants that communities can use to build, buy, and/or rehabilitate affordable housing for rent or homeownership— or to provide direct rental assistance to low-income people. The CDBG program is more flexible and provides communities with resources to address a wide range of community development needs, including business grants to produce jobs.

“In a block grant, if a property meets the slum and blight requirements, you can go above the typical minimum incomes,” says Chickie Grayson , president and CEO of Columbia, Md.-based Enterprise Homes.

2. Turn to the local government.

Local governments do a lot more than distribute funds when it comes to initiating workforce housing. They have to take an active role in order for workforce housing to become a reality. In Portland, Ore., for instance, the city supplied floors above a library for a 47-unit, transit-oriented development called The Bookmark Apartments , built by Portland-based developer Shiels, Obletz, Johnson.

Cities can also help developers with the biggest hurdle of all: obtaining land. “A lot of times the key is the locality giving free [or discounted] land,” Haughey says. “Then the developer might build income- or rentrestricted apartments.”

This isn't uncommon, Grayson adds. “In some cases, local government will have some land available that they can provide at a below-market price,” she says. “If you can get the land for less, that's helpful.”

But Haughey says localities are cognizant of the use of the land they're handing out. That sometimes restricts a development's AMI requirements. “If it is marketrate, it can be difficult for a community to justify giving land. The locality has to make a conscious choice that they don't want a pure affordable [project] with an intention of not concentrating lower-income people.”

3. Seek mortgage relief.

Outside of grants or discounted land, below-market interest rates can help a workforce deal pencil out. Sometimes these soft second mortgages may be a cash flow mortgage, where developers only pay a percentage of cash flow after the first mortgage. Other times, they may be at a below-market interest rate. And sometimes, the loans may not have to be repaid until the property is sold or refinanced in 10 to 15 years.

These soft second mortgages could come from any number of places. McIlwain says the Federal Home Loan Bank offers one such program. But again, localities play a huge role. “Many cities have these mortgage programs and some counties do,” McIlwain says. “Some make loans from local housing trust funds.”

Regardless of the source, McIlwain adds, the goal is the same: “The trick is to fill in the gap between the first mortgage that the property can support with reduced rents and the total financing cost.”