By Daniel Parolek with Karen Parolek
This guest blog is an excerpt from Chapter 3 of Missing Middle Housing: Thinking Big and Building Small to Respond to Today’s Housing Crisis by Daniel Parolek. Copyright © 2020 Daniel Parolek. Reproduced by permission of Island Press, Washington, D.C.
The lack of affordability of housing is an increasing problem in many places across the country — particularly in those that are walkable and have transit service. (Housing is generally defined as affordable when householders do not have to spend more than 30 percent of their income on housing.) While there is outsized media attention on the affordability woes of San Francisco, New York, and other high-cost cities, the reality is that a one-bedroom apartment in 99 percent of counties in the United States is not affordable for a full-time minimum wage worker. While the federal minimum wage has remained stuck at $7.25 since the aftermath of the financial crisis, rents have risen at a steady clip between 2.5 and 4 percent since 2012, according to Harvard’s Joint Center for Housing Studies.1 Solutions to the affordability crisis lie on a spectrum that includes subsidized housing on one end, an increase in supply on the other, and Missing Middle Housing in the middle.
““Since Missing Middle Housing types are typically affordable for households with incomes at 60 percent of the average median incomes or higher, we often call it attainable housing rather than affordable housing.””
At one end, it’s imperative we increase the supply of subsidized housing for households with lower incomes, particularly those that make at or below 60 percent of average median income (AMI). These households do not make enough to pay the true cost of building housing, so the market will not be able to meet the need for this sector without subsidy. For many families the availability of subsidized housing can be the only bulwark against being extremely housing-cost burdened or even homeless.
Barbell of affordable housing solutions showing subsidized housing on left, increasing supply on the right, and providing Missing Middle Housing in the middle.
However, absent a massive influx of government (likely federal) spending on housing subsidies, the market must be part of any realistic supply-side solution to the housing crisis, and the supply simply has not kept up with the growing demand. The reasons for this, as addressed elsewhere in this book, include a zoning paradigm that drastically limits where and what type of new housing can be built, and resistance from existing residents (known as NIMBYs, or, “not in my backyard”). Fortunately, a growing number of planners and policy makers at the local and state levels are recognizing the dire need for more housing supply, especially in jobs- and transit-rich areas, and are proposing policies to remove barriers to delivery.
Building parking is expensive, especially with the high cost of land in high-demand markets. The cost of building parking is passed on to the buyer or renter, thus increasing the cost of housing. By one estimate, parking costs the average renter $225 per month.2 Missing Middle Housing is inextricably tied to walkable places, so the need for parking is less, which can lower the cost per unit in multiple ways: 1. Decreasing the lot size and overall amount of land needed for each unit; 2. Increasing the number of potential units on a site; 3. Eliminating or reducing the cost of building garages. (For example, a small two-car garage is 625 sq. ft. At $75 per sq. ft., the cost for building this garage is almost $47,000. This additional cost can easily be the difference between a household being able to afford to buy or rent a unit or not); and, 4. Providing an option for households to live without a car, and thus eliminating the cost of car ownership. In the United States, the average annual cost of owning a car is nearly $10,000.3 Approaches to reducing parking requirements are summarized in chapter 7.
Sharing Land Costs and Building Smaller Units
Missing Middle Housing delivers multiple units on the same- size lot as a single-family home, therefore allowing distribution of land cost across multiple units, making them inherently more affordable. Even though they have multiple units, the scale of the buildings can be thoughtfully regulated with maximum widths, depths, and heights, or with floor-area-ratio standards. The units are often smaller than conventional single-family housing, thus making them less expensive to build.
The economic benefits of Missing Middle Housing are only possible in areas where land is not already zoned for large, multiunit buildings, which will drive land prices up to the point that Missing Middle Housing will not be economically viable regardless of how many units can be integrated into a Missing Middle type.
In every market, based on real estate values, the number of units in a building or project needed to deliver units that are affordable by design will be different and should be carefully considered. In some markets a fourplex may deliver the desired target of affordability, and in other markets it may take eight units on the same-size lot to effectively hit affordability targets.
The impact of parking on affordability is large. This illustration shows how much more space is required to fit a fourplex on a site when two parking spaces are required per unit versus one without parking. This additional cost of land is directly passed along to renters or buyers.
Opportunities for Additional Income, Ownership, and Building Equity
Missing Middle Housing has added bonuses. While it helps contribute affordable-housing solutions, it can also put ownership within reach of more households and provide local business opportunities. Federal home loans can be used for buildings up to four units, which means a homeowner can qualify to purchase a Missing Middle Housing building that could contain their own, more affordable unit, plus up to three additional units, which can provide additional rental income to help subsidize their housing cost.
Historically, Missing Middle types provided lower-income households an opportunity to attain higher-quality living, to build equity, and to move up the social ladder. One such example was in Chicago in the early 1900s, where many two-flat and three-flat building types were built that provided Bohemian immigrants, with some diligent saving and hard work, to earn enough money to buy one of these two-flat buildings and move out of the crowded tenements. This was a great step up from the tenements. The primary reason this was possible for them was that the rent generated from the second and sometimes third units helped them pay their mortgage. Often times, after having spent time in the two flat and saved even more money, many of these households then moved onto Chicago’s highly desirable bungalow neighborhoods.
““Small, incremental Missing Middle infill is also an excellent business opportunity for a small local business, and I often recommend that community-development corporations or local banks consider supporting or even incubating these small businesses.””
The biggest challenge with this opportunity is the potential buyer or builder having or finding the capital to fund the construction loan for a new building or for a down payment to purchase an existing building. But much can be learned from these examples about how Missing Middle types can be used today to creatively deliver attainable housing options.
Small, incremental Missing Middle infill is also an excellent business opportunity for a small local business, and I often recommend that community-development corporations or local banks consider supporting or even incubating these small businesses. This could lead to a groundswell of incremental Missing Middle Housing development, contributing large numbers of affordable, locally owned housing units. It’s the development version of a successful fundraising strategy: making big change through lots of small contributions. It also puts the power to make that change in the hands of the many rather than only a few. Finally, it empowers locals to build equity and benefit from improvements to a neighborhood and broader community.
The two flat provided opportunities for hardworking immigrants in Chicago in the early 1900s to purchase a home and move up the social ladder. The rent from the second unit was critical in helping them pay their mortgage. Similar strategies to utilize Missing Middle Housing to make homeownership accessible to more households should be created.
Community Land Trusts
Creative approaches can be used to limit the impact of the cost of land on the short- and long-term affordability of a unit. A community land trust (CLT) is one approach. A community land trust is a nonprofit organization formed to hold title to land to preserve its long-term availability for affordable housing and other community uses. A land trust typically receives public or private donations of land or uses government subsidies to purchase land and develop housing. They are often used for single-family homes but can be a great tool to deliver a broad range of Missing Middle types at even more affordable price points than single-family homes while providing a similar quality of living experience. The homes/units are sold to moderate-to-lower-income families, but the CLT retains ownership of the underlying land and provides long-term ground leases to homebuyers. The CLT typically limits the price homeowners can sell the homes for and also retains a long-term option to repurchase the homes at a formula-driven price when homeowners later decide to move.4
CLTs are particularly efficient with the use of public funds. For example, if a home-buyer assistance program subsidizes the purchase of a home for a low-income person, and that person then owns the home outright, he or she could theoretically sell it a few years later and retain the full value of the subsidy while terminating any long-term affordability of the home itself. Thus, home-buyer subsidy programs are efficient at building wealth in individual homeowners but are very inefficient at creating and preserving affordable-housing supply in a geographic area. In this sense, traditional individual homeowner subsidies are more people-based, and they create an ongoing need for subsidies to deliver the same number of affordable units in a community. On the other hand, the CLT is a place-based alternative that creates permanent affordable-housing stock for generations to come through a one-time subsidy at the outset.5
A Powerful Affordability Housing Solution To Have In Your Toolbox
Missing Middle Housing is a proven, affordable-by-design housing solution that meets the growing demand for walkable neighborhood living and the need for housing choices at a broad range of price points. It provides a “missing middle” option between subsidized housing at one end and market-rate mid-to-high-rise housing at the other, but does so at a small, neighborhood scale or within house form. The Missing Middle types can also be utilized creatively in subsidized projects to deliver neighborhood-focused affordable-housing options. Therefore, Missing Middle should be a tool in every city’s affordable-housing toolbox.
Notes
National Low Income Housing Coalition, “Out of Reach 2019,” https://reports.nlihc.org/oor.
Angie Schmitt, “How Much of Your Rent Covers the Hidden Cost of Parking?” Streetsblog USA, June 2, 2015, https://usa.streetsblog.org/2015/06/02/how-much-of-your-rent-covers-the-hidden-cost-of-parking/
News Release from the Bureau of Labor Statistics, “Consumer Expenditures 2018,” September 10, 2019, https://www.bls.gov/news.release/pdf/cesan.pdf.
City of Decatur, Georgia, “Decatur Affordable Housing Policy Feasibility Analysis,” http://www.decaturhousing.org/City%20of%20Decatur-Affordable%20Housing%20Policy%20Analysis%205-26-16.pdf.
Emmeus Davis, John and Rick Jacobus, The City-CLT Partnership: Municipal Support for Community Land Trusts (Lincoln Institute of Land Policy, 2008).
Dan Whisenhunt, “Decatur Considering Lottery for Affordable Housing Project,” Decaturish.com, Oct 19, 2016, https://decaturish.com/2016/10/decatur-considering-lottery-for-affordable-housing-project/