Opinion: The capital structure solution hiding inside the housing crisis

On July 11, the 21st Century ROAD to Housing Act became law without President Trump’s signature. 

The legislation focuses on expanding supply, modernizing housing programs and reducing barriers that have historically slowed development. It’s an important move toward increasing the number of homes we build.

But as important as new construction is, another question deserves equal attention: What happens to the housing we already have?

Preservation is becoming as urgent as new construction

Across the country, much of the existing workforce housing stock is aging. Many of these communities were built decades ago and now require significant reinvestment to remain safe, efficient and financially viable. The nation’s rental housing is now older than at any point on record, with a median age of 45 years, according to Harvard’s Joint Center for Housing Studies. 

At the same time, owners face rising insurance costs, heavier regulatory requirements, higher borrowing costs and slowing rent growth in many markets. Building new housing is critical, but preservation is equally important.

From where I sit, working on transactions that routinely blend private capital with federal, state and local housing programs, I’ve come to believe that America faces not only a housing problem but a capital structure problem. 

The problem may be the model, not the asset

The multifamily industry has traditionally approached workforce housing through the lens of real estate cycles: acquire an asset, improve operations, create value then refinance or sell and return capital to investors within a defined holding period. Up until recently, that model has worked for many.

But workforce housing is beginning to reveal the limitations of that approach. The recent wind-down of S2 Capital’s inaugural investment fund offers a highly visible, shiver-down-the-spine example. The outcome should not be read as evidence that workforce housing is fundamentally flawed or uninvestable. 

Rather, it illustrates what can happen when aging housing assets are underwritten on assumptions that depend heavily on rent growth, favorable capital markets and a timely exit. When interest rates rose and rent growth moderated, combined with the rollback of many favorable local housing regulations, most of those assumptions became impossible to achieve.

The deeper lesson is that the value proposition in workforce housing is fundamentally different from what many investors initially assume. When I discuss multifamily performance, I’m often struck by how quickly the conversation centers on execution. Were rents overestimated? Was leverage too aggressive? Were expenses underestimated? Those questions matter, but they sidestep the larger question: What if the asset itself was never suited to the investment model being applied to it?

Preservation requires real capital, not cosmetic upgrades

A 60-year-old apartment community serving working families does not simply need cosmetic renovations and operational efficiencies. In most cases, it requires substantial investment in roofs, mechanical systems, electrical infrastructure, life-safety improvements, technological upgrades, energy efficiency, water systems and climate adaptation. Unlike many “upgrade” plays, these are not short-term tactics designed to maximize a sale price; they are long-term investments intended to extend the useful life of the property for decades.

According to Enterprise Community Partners, small and medium multifamily properties account for more than half of the nation’s affordable housing stock, and preserving these assets is often more cost-effective than replacing them through new construction. 

That efficiency matters more each year: Over the past decade, the number of units renting for less than $1,000 has fallen by roughly seven million. If preservation is both economically efficient and socially necessary to maintain affordability, the question becomes whether existing capital structures are adequately designed to support it.

The scale of the challenge becomes even clearer through the lens of public housing. In its 2023 Physical Needs Assessment, the New York City Housing Authority estimated roughly $78.3 billion in capital needs across more than 161,000 apartments over the next two decades. The underlying issue here is familiar throughout the housing ecosystem: Aging stock requires ongoing reinvestment in the systems that let communities function safely. 

And at some point, we must acknowledge an uncomfortable reality: Workforce housing is an asset class that more closely resembles traditional infrastructure, yet we still finance much of it like a real estate cycle. 

Build as real estate, then hold as infrastructure

We would never expect a bridge, a water system, an energy facility or a transportation network to justify its existence primarily through a five-year liquidation event. These assets are financed, maintained and evaluated on their ability to provide reliable service over long periods. The returns can often rival those of fixed-income equities, with significantly less volatility. Workforce housing shares many of those characteristics.

This is not merely an analogy. In a recent analysis, CBRE Investment Management argues that affordable and social housing has a “two-phase life”: development is a classic real estate exercise, lasting perhaps five years through site assembly, delivery and lease-up. 

But once stabilized, the asset’s core function becomes infrastructure: a 50-to-75-year service providing safe, affordable homes. Their prescription, “build as real estate; hold as infrastructure,” matches asset risk to the right investor profile and lowers the system’s weighted cost of capital. 

Policy is carving out a distinct channel for preservation

Private capital remains essential to solving the nation’s housing challenges. But preservation-oriented workforce housing increasingly requires a broader framework for capital formation. Every day, housing professionals assemble capital stacks that blend agency financing, tax credits, municipal incentives, state programs, private capital, community development funding and mission-oriented investment. 

These structures exist because no single source of capital can realistically address the preservation challenge alone. Policy is beginning to recognize the distinction: Since 2024, the Federal Housing Finance Agency has excluded workforce housing loans from Fannie Mae and Freddie Mac’s volume caps specifically to expand support for preservation—a tacit acknowledgment that this stock warrants its own financing channel.

The larger point is that workforce housing demands closer alignment of capital with clear expectations. Different sources of capital can pursue different objectives while still supporting the same long-term asset. The future of workforce housing may depend on recognizing that the preservation of housing has more in common with infrastructure than with many traditional real estate investments. These are essential assets, capable of generating long-term value for communities and investors alike.

Victoria Gousse is Principal and Chief Investment Officer at A. Walker & Co.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.