In Denver, a major employer is transforming a parking lot near the city's downtown into apartments for those who can't afford market-rate rents and don't qualify for traditional affordable housing subsidies. And with rents surging, that group struggling to pay now can include families of four with a household income of up to $156,000.

In the small city of White Cloud, Michigan, a state law provides an incentive for developer Allen Edwin Homes to build a house with affordable rent for a family with three young children and an income too high to qualify for low-income aid — so they had lived in a relative's basement for years. In this case, rent is so high the household could qualify with earnings as high as $103,000.

As housing costs surge across the United States, more state and local officials are adopting policies and programs to address the needs of those who can't afford rents — even though they make what some have traditionally considered a middle-class income in a profession often requiring a post-graduate degree. The number of middle-income renters unable to afford a place to live is at a record high, according to a report from the Harvard Joint Center for Housing Studies.

A national housing deficit of 1.5 million to 7 million residences has led to skyrocketing housing costs, prompting some nonprofit housing organizations and elected officials that CoStar News interviewed to say more people across the country need more financial help. Even those making upward of $100,000 a year — such as lawyers, pharmacists and civil engineers — can’t afford to buy a house with a 3% down payment or rent an apartment with more than one bedroom in major urban areas, according to the National Housing Conference's June 2024 Paycheck to Paycheck report.

“These programs show the most promise when they encourage housing development in markets or contexts where building at that price point is impossible, or middle-income affordability challenges are especially pronounced,” Alexander Hermann, a co-author of the report from the Harvard Joint Center for Housing Studies, told CoStar News.

The policies have their critics. As officials increasingly spend money to help those earning up to 120% of the area's median income, some are concerned the programs might divert resources from vulnerable families who earn as little as 30% of the area's median income.

The Harvard report also criticized how some states to use the term “workforce housing” for funds aimed at middle-income families. That’s a misnomer that unfairly stigmatizes lower-income people who are usually in the workforce as well, Harvard said.

Some of the middle-income housing assistance for people typically earning between 80% and 120% of the area's median income comes in the form of grants or loans to developers, while other programs involve offering property tax credits.

The Colorado Middle Income Housing Authority launched a program in 2023 to support up to 3,500 proposed middle-income houses or apartments through bond financing, including for families with incomes up to 140% of the area's median in some mountain resort communities. In Denver, the state capital, 120% of the area's median income is $156,000 for a family of four, according to the city, while 30% is $39,000.

Denver-based kidney dialysis care provider DaVita is partnering with two local developers on what CoStar reported is likely to be the first project to receive funding assistance from the Colorado middle-income bond program. As the company deals with recruitment and retention challenges because of rapidly rising housing costs, DaVita plans to build a multifamily building near downtown Denver to provide much-needed workforce housing for its employees and others.

“We worked hard to make sure it wouldn’t be a competitor with existing programs and that we wouldn’t take our eye off the ball of addressing the needs of low-income households," Brian Rossbert, director of Housing Colorado, a nonprofit housing advocacy group, told CoStar News about the state program.

Colorado is trying to balance the needs of middle-income and low-income households. For example, the state legislature approved a new tax credit this year for middle-income households and also expanded the existing low-income credit, Rossbert said.

"What we’re trying to do in Colorado is to expand the pie rather than slice it up,” Rossbert said.

In Michigan, where 60% of the jobs pay less than $50,000 annually, there are several new and proposed housing programs and policies meant to help middle-class families. That's because many middle-income families can’t afford what developers are willing to build without state assistance, said Sen. Kristen McDonald Rivet, a Bay City Democrat.

McDonald Rivet is sponsoring a bill that would finance developers building houses or apartments they plan to sell or rent to middle-income buyers. Currently, the state finance agency's housing fund mostly focuses on low-income development. A bill pending in the state’s House of Representatives would allow the Michigan State Housing Development Authority to support developers building middle-income rentals or for-sale homes, including outside downtown areas where the state has traditionally put its resources.

McDonald Rivet told CoStar News that her legislation has support from Michigan organizations that tend to focus on low-income households’ needs, suggesting they don’t see it as diverting funds or attention. She is hopeful the bill will pass the House when it’s back in session this fall.

During the COVID-19 pandemic, Michigan launched its Missing Middle Housing Program, which provides grants to developers of middle-income housing to help with construction costs, materials and wages. The $110 million program recently gave about $1.7 million to a developer building new apartments for households earning between 60% and 120% of the area's median income in Lansing, the state capital.

“The cost of housing has really outpaced the increase in incomes over the last decade,” Amy Hovey, executive director and CEO of the Michigan State Housing Development Authority, told CoStar News. “Our job is to make sure everyone has a place to call home.”

In 2022, legislation was passed allowing developers to pay the city 10% of a project’s total annual rent instead of local property taxes if they keep rent attainable for middle-income families at the property.

Allen Edwin Homes, a Michigan-based company, has used the incentive in several cities to build rental houses priced as low as $1,700 per month in some markets. Without the aid, the same houses would go for at least $2,500, said Brian Farkas, director of workforce housing at Allen Edwin Homes, in an interview with CoStar News.

“Some of these communities haven’t had new homes built in 20 or 30 years” despite the demand for middle-income housing, Farkas said.

Instead of subsidizing developers to build middle-income housing, Michigan could focus on removing zoning and other barriers that make it difficult to build, the Citizens Research Council of Michigan said in a 2023 post on its website. The organization added that low-income residents need the limited state resources available more than those with higher salaries.

“Allocating state resources to subsidize middle-income housing when local policy choices make it more difficult to build that type of housing is a poor use of state resources and serves to reward parochial local government decisions,” said Citizens Research Council of Michigan, a nonprofit public affairs organization that advocates for sound policy in the state.

Eric Lupher, the council’s president, said in an interview with CoStar News that it’s a question of what the government’s role should be.

“Yes, there hasn’t been much housing built, but does that mean government should get involved, and if they do, can they do it in a strategic way so walkable neighborhoods get built rather than contributing to sprawl?” he said.

Across the nation, middle-income families tend to be less vulnerable economically than their low-income counterparts, with higher education levels and more potential income earners in the household, the Harvard report said.

Ideally, a program to help middle-income families would free up existing housing stock for those with lower incomes as middle-income people move into new houses through a process known as “filtering,” according to Harvard's report. However, filtering doesn’t necessarily work that well because it can take decades and the housing is often located far from job opportunities, according to the Citizens Research Council.

Still, some middle-income aid programs could have an outsized effect compared to what states spend on them, the Harvard authors said.

“Because the affordability needs of middle-income households tend to be smaller, it is possible that these benefits could be accrued with a relatively small investment,” according to the report. “The same amount of public investment could serve a larger number of households or produce a greater number of homes.”

Story updated Aug. 27 to clarify Michigan's housing finance agency currently mostly funds low-income development.