For decades, institutional capital has poured into high-end multifamily developments—Class A luxury apartments stacked with amenities, rooftop pools, and Peloton-equipped gyms. The reason? Baby Boomers and affluent renters drove demand, creating a safe, predictable asset class. But here’s the problem: Class A tenants are renters by choice, meaning when the economy takes a hit, they tighten their budgets or move out entirely. Vacancy rates rise, and rent growth slows or even reverses.
Now, contrast that with workforce housing—Class B and Class C apartments—where tenants aren’t renting for the amenities; they’re renting because they have to. This segment serves middle-income earners who are priced out of homeownership but still need housing near jobs, schools, and transportation. Unlike luxury renters, they don’t flee when the economy dips. Instead, demand for workforce housing stays steady—or even rises—as more people get squeezed out of the ownership market. That’s why smart investors are shifting their focus to workforce housing: it delivers stability, strong occupancy rates, and long-term rent appreciation without the volatility of the luxury sector.
What Exactly is Workforce Housing?
There’s no single definition, but the Urban Land Institute pegs it as housing affordable to households earning between 60% and 120% of the area median income (AMI). In practical terms, these properties are older, less amenity-rich Class B and C apartment buildings. And here’s the kicker: in major markets like Los Angeles, New York, and Miami, workforce housing makes up the majority of rental stock. In L.A., for instance, 90% of rental units are in buildings with 50 units or fewer, most of them built decades ago.
Why Demand for Workforce Housing is Skyrocketing
- The U.S. is in a housing affordability crisis.
The country is short by 3.8 million housing units, and most of that deficit is in the affordable and workforce segments. Home prices surged nearly 40% from 2020 to 2022, while mortgage rates hit a 20-year high. The result? Fewer people can afford to buy, increasing demand for rentals—especially workforce housing. - Rising interest rates make homeownership unattainable.
In 2021, a buyer could lock in a 3% mortgage rate; today, they’re looking at 7% or more. That rate hike alone adds hundreds of thousands of dollars in interest over a 30-year loan. As a result, homeownership is increasingly out of reach, keeping more middle-income earners in the rental market. - Essential workers need places to live.
Think teachers, nurses, first responders, and service industry workers—the backbone of every city. They don’t qualify for government-assisted housing, but they also can’t afford high-end rentals. Workforce housing is their only viable option, meaning this demand isn’t going anywhere.
Why Investors Should Be Paying Attention
- Recession-resistant cash flow – Workforce housing historically maintains high occupancy, even in downturns. People always need a place to live, and the middle-income renter base is far more stable than luxury renters.
- Massive supply constraints – Unlike luxury apartments, where developers keep adding new supply, workforce housing is shrinking because older buildings are either being demolished or converted into luxury units.
- Consistent rent growth – While Class A properties may struggle to push rents in a recession, workforce housing rents have risen steadily for the past 20+ years.
The Bottom Line
Workforce housing isn’t just an impact investment—it’s a high-yield, recession-resistant asset class that too many investors have overlooked for too long. With supply tightening and demand increasing, now is the time to move into this space. Forget luxury high-rises with infinity pools; the real money is in workforce housing.