The Missing Middle

On today’s show we’re talking about the missing middle.

Modern cities tend to get most new housing in either very low-density (usually suburban), or very high-density buildings. In many North American cities, most new units are either detached, semi-detached and townhouse units, or else condo apartments in high-density high-rise towers. The mid-density stuff in between tends to be harder to produce. Larger developers don’t want the hassle of these smaller projects. So the lowest cost developers won’t build these. It leaves the field wide open for the smaller developers to try their hand at developing these types of buildings. Frankly, this is precisely where I started my development career.

Which part of that middle is missing, depends on the city.

In some cities, the missing middle refers to the kind of small walk-up apartment buildings and stacked dwellings that can be built on urban infill lots. This range of mid-density infills, of up to three full storeys and containing perhaps eight or twelve apartments, can serve a wide range of household types. They are more cost-effective to build, and so can be made more affordable to residents, than both lower- and higher-density forms.

A generation ago, there was plenty of affordable housing in the city. Most people chose to move to the suburbs, leaving a large supply of old, pre-war housing behind.

But a lot has changed. People are coming back to the city, and that growing demand for urban housing has put relentless pressure on supply.

People want walkable communities. People want lower maintenance. They don’t want to mow the lawn or shovel the driveway, and they want affordability.

It has become clear that affordability and rental supply isn't just about building more housing: it's about enabling more of the right kind of housing.

In order to keep costs down, you need to create density. Density, means going vertical in order to reduce the land cost per unit.

The limiting factor in virtually any type of housing is not actually the housing. The limiting factor is parking. You might have a parcel of land of, say, 6,000 SF. The city might let you build, for example 16 units on that parcel. The problem is that the parking for 16 cars would consume almost the entire lot. So either you limit the parking, or you find a way to incorporate structured parking. But structured parking is incredibly expensive.

If you want parking, then each parking spot costs as much as a brand new car. Many developers opt to build without parking if there is adequate public transit. But here too, the market still demands some amount of parking.

If you want to build ground level structured parking, and elevate the building, then the height restriction becomes the constraint. If the city won’t let you build higher, then you can’t get the parking. Once you introduce the parking underneath the building, then you need to factor in an elevator to get up to the 4th floor.

The key to lowering housing costs when land is expensive is to allow greater density. If you can get more apartments on the same land surface, then you can lower the cost of housing for everyone. If the rents aren’t high enough to pay for the building, then that building won’t get built. When new buildings don’t get built, then rents go up because there is less supply in the market.