Greater Ottawa County United Way | 115 Clover Street | Suite 300 | Holland | MI | 49423


Middle-income Housing Solutions

November 1, 2019

As you may recall, I have previously defined Housing Choice as the ability of any individual to make rational choices in the housing market as it relates to the type, size and location of their home. Most communities put significant limits on the number of choices available in the market and this funnels all of the competition into a couple of very narrow bands of the market. Namely, single family homes greater than 1,000 square feet, garden style apartments on the periphery of town, or mobile home communities (also on the periphery of town). In our more urban communities, we're beginning to see more choices become available (i.e. mixed-use buildings with apartments or condominiums), yet we still have a significant lack of housing product that is commonly becoming known as the Missing Middle. 


Several organizations have done great work over the last few years defining the missing middle as a type of housing, so I'll spend very little space discussing it here. In short, Missing Middle housing includes most of the building types that were very common in pre-WWII neighborhoods -  town homes, brownstones, two-unit, three-unit, four-unit and small walk-up apartment buildings. 


This is the point in the conversation when many of my friends might argue, 'If the market wanted those housing types, it would be producing them. The fact that no one is building those kinds of buildings must mean that the market doesn't want them.' However, there is pretty clear evidence that at least 40% of today's housing market is looking for more urban, walkable neighborhoods with a variety of building types. We simply aren't creating the appropriate regulatory environments to allow these building types to be built, let alone at prices that make sense. And this is the critical element to pay attention to.


If a large segment of the population desires a 2-bed, 2-bath town house, but the local units of government either restrict that building type entirely or make the building type highly cost inefficient, it doesn't really matter what the market wants. The product cannot be built in an over-regulated market. To illustrate what this over regulation often looks like, let's walk through an example.





The plan above illustrates a series of three town homes, each with a footprint of 800 square feet. These are 2-bed, 2 1/2 bath units with a two-stall garage. That's 1,200 square feet of living space that, depending on the location and level of finish, could sell for anywhere from $189,900 to $450,000. As long as the cost of land and utilities on a per unit basis are reasonable, this should be a product that is easily built and sold at price points that are affordable to households earning 80% of the area median income (about $48,000 per year for a single adult or around $54,000 per year for a dual earner household).


However, despite the fact that the town house style of building is an efficient product to build because of the fact that it allows for a much smaller footprint (800 sq ft in this example), most municipalities still have a minimum lot size requirement of between 5,000 and 8,000 square feet per dwelling unit. So, in order to build the three town homes pictured above, with a total combined building footprint of 2,400 square feet, a builder must have at least 15,000 to 24,000 square feet of land. Even if each unit were intended to have a reasonable front yard of 25 feet and backyard of 50 feet (both generous dimensions for this type of product), the maximum amount of land area per unit needed should only be 2,500 square feet. Yet, this would be at least 50% smaller than the smallest lot size allowable across most of West Michigan.


This means there are no efficiencies to be gained on the smaller footprint of a town house, because the land costs are weighing down the project. And, as a result of those higher land costs that must be absorbed by the end buyer, the only way to make that higher purchase cost palatable, is to separate the units and build traditional, detached single family homes. This one regulatory standard is single-handedly pricing this product type out of existence.



Some of our most urbanized communities are beginning to clear away some of the most obvious regulatory hurdles that have been in the way of Missing Middle housing types for the last several decades. In some districts, they now allow for town houses, two-family dwelling units and small multi-family units. However, the process by which a developer gets to an approval can sometimes strain all of the economic rationale out of the equation.


First, let's explore the two-family building type. This is one of the simplest opportunities for communities to allow for slightly greater density in traditional single-family neighborhoods without sacrificing character or changing the feel of the neighborhood.




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