When economic downturns hit, many investors wonder how resilient workforce housing really is amidst recessions. Can it offer stable occupancy and cash flow even when other real estate sectors face steep drops?
For our purposes, “workforce housing” refers to multifamily housing that’s affordable to middle-income earners—those making ~60%–120% of Area Median Income, such as teachers, first responders, clerical workers, etc. Although the two overlap in dynamics, workforce housing is not the same as the lowest-income or subsidized housing.
Below is what historical data (from the Great Recession in 2007–2009 and the COVID-19 downturn in 2020) suggests about workforce housing’s resilience. Plus what owners and investors can do to improve resilience.
What “Recession-Proof” Would Mean
Before we dive into data, it helps to define what “recession-proof” means in this context. For workforce housing, being recession-proof doesn’t imply no negative effects ever. Rather:
- Relatively smaller drops in occupancy, rent increases, and cash flow compared to higher-end real estate (i.e., Class A, luxury, etc.).
- Faster recovery from downturns.
- Lower downside risk in net operating income (NOI) and value volatility.
- More stable occupancy even when tenants face financial stress.
Now, what does the data show?
Data from Past Recessions
The Great Recession (2007-2009)
The Great Recession is the gold standard for deep economic downturn in recent U.S. history.
According to the National Multifamily Housing Council, during the Great Recession, rent growth for the apartment sector changed from +4.5% in Q1 2007, down to −4.1% in Q4 2009. Vacancy rates rose from approximately 6.8% to 7.8%.1
However, not all parts of the multifamily sector were equally impacted. Lower-rent, more affordable units (i.e., workforce, subsidized, Class B-C) tended to see smaller vacancy increases and smaller rent declines than high-end Class A units. Data from RCLCO shows more affordable properties kept occupancy rates higher and more stable over cycles.2
For example, RCLCO’s “The Affordable Housing Asset Class” report shows that subsidized housing of all classes (A, B, and C) maintained higher average occupancy compared to market-rate housing in the same class throughout the recession and beyond.3
The COVID-19 Recession (2020)
While shorter and with somewhat different dynamics than the Great Recession, the COVID-19 economic shock also gives us some takeaways for real estate performance.
Vacancy rates in the multifamily sector increased, and effective rent growth dropped significantly during 2020. CBRE projected vacancies to rise from 4.1% in Q4 2019 to 7.2% by Q4 2020, with rents projected to drop 8.1% in 2020.4
But drops in rent growth and occupancy were less severe in more affordable properties. In many affordable areas, many workforce vacancy rates held relatively steady or even improved slightly. In contrast, high-cost, high-Class A units in expensive areas saw larger disruptions.5
The Fannie Mae data notes that average workforce vacancy nationwide had been hovering around 5% since the end of 2015, and in many areas fell in 2020, even as some Class A and Class B units saw greater vacancy deterioration.6
Why Workforce Housing Has Resilience
There are a few key reasons why workforce housing tends to do better (or at least hold its own) in recessions:
Affordability pressure:
When homeownership becomes harder (higher rates, tighter financing, and foreclosures), many households are pushed into rentals, especially mid- to low-income renters. This increases demand for affordable and workforce housing.
Tenant necessity:
Middle-income renters often can’t down-size drastically or move out of rentals entirely. Housing is a basic necessity, which makes them likely to cut other spending first.
Lower downside expectations in pricing:
Workforce housing tends to have less “luxury” features whose value premiums collapse in downturns. Unlike high-amenity Class A buildings, workforce housing brings less risk of an oversupply of luxury.
Slower supply growth in affordable classes
It is often harder to deliver new workforce housing. So when demand picks up, there’s less immediate supply to compete, helping occupancy.
What the Data Doesn’t Say: Limits & Risks
Although it has its fair share of upsides, workforce housing is not entirely recession-proof. Some of its vulnerabilities include:
- Job loss disproportionately impacts lower and middle income renters. If unemployment is very high and prolonged, rental income can suffer.
- In high-cost markets with volatile supply, even workforce housing may see negative impacts. We saw, for example in COVID, Class C in some expensive areas (i.e., San Francisco, New York, etc.) had vacancy rises.7
- Rent growth likely slows, maybe goes negative, especially on the margin. Losses may be modest but real.
- Operating costs (taxes, maintenance, insurance) may still rise or stay high even if revenues decline.
Is Workforce Housing Recession-Proof?
Workforce housing is not immune, but it is more resilient than many commercial real estate segments (luxury residential, retail, offices) during recessions.
For many markets, occupancy and cash flow in workforce housing drop less, recover faster, and remain more stable—as proven in both the Great Recession and COVID-19 economic downturn.
Whether a specific workforce housing investment is in fact “recession-proof” depends heavily on location, lease structure, tenant profile, supply dynamics, and financial structure.
Here at CEP Multifamily, we specialize in workforce and affordable multifamily housing. We structure our investments with long-term holds, modest leverage, and attention to both operating cost and tenant stability. This approach helps us maintain occupancy and cash flow even during downturn periods.
If you’re seeking a resilient multifamily investment, connect with CEP Multifamily to see our current workforce housing opportunities.