WHEN BETHESDA, MD.-BASED EYA was opening its Capitol Quarter mixed-income development in the height of the housing boom, it set up a lottery for the 20 “workforce” homes in the project, those priced for individuals earning between 80 percent and 115 percent of Washington, D.C.'s area median income (AMI). Not surprisingly, the lottery was extremely popular. The company had 150 people apply for the 20 units.

Earlier this year, the company auctioned off an additional 20 homes in the same complex. Economic circumstances had changed drastically since the first auction, but 60 people still showed up. “We were three times oversubscribed instead of being six times oversubscribed,” says Brian Allan (A.J.) Jackson, senior vice president for EYA.

Even in a historically bad housing slump and recession, there's still a need for housing affordable to the working class, as demonstrated by EYA's experience. And if that housing is near the urban areas where people work, even better. The problem: Even though demand for so-called workforce housing is still strong today, there is a significant dearth of projects and units priced at that level. What's more, government support is essential to the success of these communities, and with local municipalities, counties, and states focused on other housing priorities, making these projects work isn't easy.

Steady Demand

The term “workforce housing” has existed for a while, but it really came to the forefront in the past five years. “The run-up of housing prices in high-cost areas brought this issue to the forefront,” says Kris Siglin, vice president and senior policy advisor for Enterprise Community Partners in Columbia, Md.

There is no real cut-and-dried guideline for workforce housing, though most people consider it to fall somewhere between 80 and 120 percent of AMI. As home prices skyrocketed in many metros around the country, it became increasing difficult for integral members of society, such as school teachers and firefighters, to live close to their work.

“The people who provide government services for those communities can't afford to live in those markets,” says Richie Butler, managing director and executive vice president in Dallas for CityWorks, a Los Angeles-based equity provider in workforce deals. “It's hard for a mid-level city employee to afford housing within the city they work. Some of that may be by choice, for instance, putting the kids in a suburban school, but I think a lot of it has to do with affordability.”

The stabilization and decline of housing prices has mitigated demand for workforce housing, as evidenced at EYA's Capitol Quarter. “The demand is clearly down as the demand from everyone is down,” Jackson says. “People at that income level are concerned. With less cash and resources, they're concerned about their jobs and making financial decisions.”

But as the 60 people wanting 20 spots in Capitol Quarter illustrates, there's still interest in workforce housing in the right neighborhood. “We're a market-rate developer trying to sell a market-rate product [since] we'll be in a location where we could sell an $800,000 house,” Jackson says.

In Washington, D.C., where the AMI is $78,000, an affordable property in a nice neighborhood will sell. Unlike a lot of other areas, the nation's capital is holding up fairly well throughout this recession. And that means housing affordability is still an issue. Just last year, The Terwilliger Center for Workforce Housing at the Urban Land Institute (ULI) did a survey saying that households in the region spend an average of nearly $23,000 per year on housing and $13,000 on transportation. Together, these costs represent almost 47 percent of the median household income.

But D.C. isn't alone. Even cities that aren't as recession-proof still have affordability issues. “Housing costs are still relatively high in places like New York, Los Angeles, and Boston,” Siglin says.

A Difficult Mix

While the economy hasn't necessarily shuddered the need for good workforce housing, it has hampered the ability to produce it. “There's not a lot of state and federal programs in place to help that segment,” Jackson says. “There are programs for people below that range and above that range, where people don't necessarily need the help. But in that middle segment, there's no coordinated subsidy available.”

Instead, like many other kinds of affordable housing, developers are forced to piece together funding from an array of sources. All of EYA's mixed-income products have a marketrate element to help pay for their slice of workforce housing. EYA also relies on a number of local subsidies, whether it's infrastructure or subsidies for buyers of their for-sale product.

“The land contributes something, and the local jurisdiction contributes something,” Jackson says. “The market-rate side is subsidizing the affordable side. We can get land value from market-rate that can subsidize the affordable units.”

Butler commonly sees developers use money from cities, historic tax credits, lowincome housing tax credits, and Community Development Block Grant (CDBG) dollars in most deals. Siglin says she sees localities use inclusionary zoning to require mixed-income housing or offer expedited zoning for workforce projects.

“Everybody is putting something in,” Jackson says. “A lot of what we do is in partnership with public entities, cities, redevelopment agencies, housing authorities. That's because a lot of urban sites are controlled by public entities.”

Some counties have tried things to grease the wheels for workforce, but the economy is playing havoc with that. Suburban Washington, D.C.'s Montgomery County offers programs to help renters and home buyers, such as inclusionary zoning as well as a program where the county has right of first refusal on all apartment sales in the market. (Multifamily real estate executives aren't fond of either policy.) Nearby Fairfax County offers density bonuses but also requires inclusionary zoning. It also has the Magnet Housing Program, where it partners with both public and private employers such as INOVA Health Services, the Fairfax County Department of Human Resources, and the Fairfax County Public Schools, to provide affordable workforce housing for the county's vital workers—nurses, teachers, county government and school employees, and police and fire cadets.

Ken Aughenbaugh, the housing director in Arlington County, Va., another D.C. suburb, says that in these difficult economic times, his county is focused on helping people most in need. “The county's affordable housing goal prioritizes families with children and the elderly and disabled,” Aughenbaugh says. “Quite frankly, as the recession has gotten worse, most of the assistance from the county has been for those most in need.”

That doesn't seem to include workers at 80 percent of AMI or above. But there's some hope that Shaun Donovan, a multifamily alumnus now turned Secretary of the U.S. Department of Housing and Urban Development, will enable the federal government to take a larger role in providing much-needed affordable housing for the country's workers. “Donovan is clear, articulate, and forceful about mixedincome communities,” Siglin says.

So far, the federal government is allowing Neighborhood Stabilization Program (NSP) funds to provide housing for people earning up to 120 percent of AMI, provided the homes they're getting are vacant. That's a direction that makes sense to Siglin. “Something that Congress could do is looking at preserving existing housing units,” she says.