The Missing Middle Housing in the Midwest

Affordable housing has always been a concern across the country, but multiple factors over the past decade have raised more specific concerns for housing our workforce. The discussion in recent months has expanded to include not just the need for housing, but the type of housing units these particular households need, including rowhouses, duplexes, apartment courts, townhomes, live/work units, and smaller midsized houses. These affordable units have almost been non-existent in our local markets, yet many communities are feeling the growing need for them. The national discussion on these “Missing Middle Housing” units (www.missingmiddlehousing.com) has been focused on the nation’s large markets, often leaving Midwestern smaller markets wondering how they fit into the conversation. While it can be argued that the need for the Missing Middle Housing exists in both large and small markets, the causes and solutions have both commonalities and differences.

A recent Lincoln Institute of Land Policy article, “Gentle Infill”, focuses on the issue, its causes, and the solutions that some of the nation’s largest markets are exploring. The article notes a job/housing imbalance that exists in some of the nation’s hottest markets, including Portland, San Francisco, Boston, Boulder, and Seattle. However this same imbalance and lack of housing variety exists in such markets as Carroll, Iowa; York, Nebraska; and the Lake of the Ozarks region. So what are some of the causes of this issue and what are the commonalities between the nation’s larger and smaller markets?

Rendering of affordable “Missing Middle” housing units.

The Road to the “Missing Middle”
For larger markets, numerous factors have come together to create the current housing dilemma. These include:

  • Rapid Growth. Over the past 15 years hot markets have been growing at a rapid rate, faster than building has occurred. While this growth slowed some during the recession, the amenities these markets offer to millennials has continued to attract and retain the nation’s largest generation.
  • Well-paying Jobs. The “hot markets” across the country are not just driven by quality of life amenities but also well-paying jobs, often in the tech industry, that are driving up housing costs and putting housing out of reach for many locals and service-oriented employees.
  • Impacts of the Great Recession. During the Great Recession, housing construction slowed to record low rates, especially in markets where housing prices were being driven to record heights. Pent-up demand coming out of the recession combined with growth rates that are still exceeding building activity are driving up costs across housing types and price points.
  • Tighter Mortgage Credit. Following the 2008 housing crisis, mortgage lending practices changed dramatically. Lending became much tighter, and households that only a few years ago would have qualified for homeownership were finding themselves living in rental housing longer. This, along with the large millennial generation entering the housing market for the first time, created an overwhelming demand for housing units that are not the traditional single-family owner-occupied unit.
  • Construction Costs. Basic economics says that demand drives costs. In markets with skyrocketing demand, the cost of construction services is following suit. Prime locations also demand higher prices, driving up the cost of land for new development.
  • Zoning. For many cities, zoning has favored single-family homes resulting in little variety and housing within very narrow, often expensive price points.

Many of these factors are also impacting communities in Nebraska, Iowa, Kansas, and Missouri, with a growing demand created by strong job markets and pent-up demand. Common factors between the large coastal markets and our smaller local Midwestern markets include tighter mortgage credit, little construction activity during the Great Recession, and zoning practices that favor single family homes. However, there are also a set of factors that are slightly different in the Midwest. These include:

  • Builder Capacity. During the recession the construction market slowed even in our strongest communities. Builders left the business while others neared retirement age and transitioned out of the business. In areas with already record low unemployment rates, the demand for contractors is greater than the capacity of skilled tradespeople to complete the work.
  • Specialized Builders. Much like the zoning issue noted above, the emphasis has historically been on single-family detached housing. This highlights two important issues. First, the ideal housing and the definition of success for many of our community leaders is that of single-family owner-occupied housing. Second, this emphasis resulted in building patterns, and therefore builders, that have focused exclusively on this type of housing since almost World War II. Few builders in smaller communities are familiar or comfortable with doing other housing types and view the risk in an untested market as too great.
  • Smaller Profit Margins. Building on the last point, these same builders have been very successful in building the custom single-family home with comfortable profit margins. Housing styles including infill smaller lot residential, townhomes, and live/work units are viewed as riskier with smaller profit margins.
  • Wage Stagnation. For many in the Midwest, construction and land costs have not skyrocketed at the rates that have been experienced on the coast. In the Midwestern region there are markets where more affordable housing can be constructed without significant incentives or tax credits. However, the income of many households stagnated during the Great Recession and have only begun to rebound with recent reports indicating the first rises in real median family income. This appears to have resulted in inflation rates for construction rising at rates greater than incomes. This combined with tighter lending practices is leaving many in the rental market longer than they were just a decade ago.

Street view of an affordable housing neighborhood.

Where do we go?

Every community has its own special set of circumstances, and the need to address these issues varies; however, there are a few common elements that our communities need to begin thinking about and discussing.

  • Remove the Hurdles. What hurdles have our communities put in place that limit the variety of housing that can be constructed? This may include zoning districts that do not allow for smaller lot residential; limiting the ability to do more mixed use projects; blanketing our communities in traditional single-family larger lot districts; or housing incentive programs that favor single-family, owner-occupied housing. Identification and removal of these hurdles is a good first step.
  • Share the Risk. While the demographics in our communities indicated a growing demand for more diverse housing options, the market is often untested and perceived to be riskier. Additionally, we can no longer (if we ever could) assume that state or federal aid will help address the issue. Local strategies will have to be developed that can fill the gap, share the risk, and strengthen local economies.
  • Develop the Workforce. In the coming years, workforce development will need to broaden its focus to include building and specialty trades. The average age of these workers is growing and during the recession few young people entered the trades at numbers necessary to replace their ranks.
  • Educate Decision-makers. Over the past decade the connection between housing and economic development has grown in awareness. But the connection has focused mostly on the economic benefits of single-family owner-occupied houses. The need to educate our community leaders on the benefits of mixed housing that meets the needs of all generations still exists.

Changing demographics and economics are creating markets that are demanding more housing variety. Missing Middle Housing is clearly being felt in many communities and the solutions to meeting that demand may come from multiple sources, including lessons learned from some of our nation’s largest markets.

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