Do “Missing Middle” Policies Increase Housing Affordability?

May 2023 Study of Raleigh, NC is one of the most recent to show the price increases of housing due to MMH

Summary & author interviews:

The Raleigh City Council recently passed a “missing middle” plan that allows for denser housing — like townhouses and duplexes — to be built in single-family neighborhoods. It’s an effort to solve the shortage of affordable housing in the area. However, Poole College of Management’s Eileen Taylor, professor of accounting, and Steve Allen, professor of economics, say the solution won’t work.

“In theory … if you could build more housing units on the same space, that would seem to increase the supply of space and therefore lower land prices and make housing more affordable,” said Allen, “but it’s a bit more complicated than that.”

Taylor adds, “I think some things unique about Raleigh work against the missing middle working here.” She says for the most part, the city largely doesn’t have the infrastructure to support it.

Excerpt from study:

A .25 acre lot in a single-family zoned neighborhood may be worth $220,000, but if two homes can be built on the lot (in the form of a duplex), then the lot will likely increase in value, and a builder will pay more for it. In other words, by allowing denser housing, the land itself becomes worth more per acre. This effect works to raise the cost of land, and thus, the cost of building a house, rather than lower it.

You may be thinking, yes, the cost of the whole parcel is more, but it can now be divided into two houses, making the cost per lot lower. Even if the cost per lot is lower, that savings will not be passed on to the buyer, as the builder will price the home according to market demand, as noted above. If there is additional profit due to a lower land cost per unit, that profit will go to the builder.

Builders, like all other for-profit businesses, are likely to choose the highest rate of return on their investment. There is more profit to be made on a new home that has more bells and whistles than there is on a low cost affordable home. Given limited land on which to build, a builder will maximize their return by building the largest and fanciest house they can, as long as someone is willing and able to purchase it.

Attempts to increase housing density have proven to be politically divisive. Those who own homes in areas subject to increased zoning density fear the loss of neighborhood amenities due to overcrowding and increased traffic. In Raleigh this had led to contentious sessions at the City Council and an impending lawsuit.

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Upzoning and Single-Family Housing Prices

Daniel Kulmann

An early analysis of Minneaspolis 2040 Plan

The zoning ordinance approved by the city council would allow for a maximum of 3 residential units to be located on what was previously restricted to being a single-family lot. The regional body introduced additional restrictions not put forward in the city council’s original approval, such as “additional setback requirements”, making the plan that was put into action in 2020 more tempered than what was originally approved by the city council.

In the analysis of the years 2018-2019, Kuhlman’s model showed that houses within Minneapolis city limits overall had a 3%-5% increase in sales price when compared to the growth in value that was seen in houses outside of Minneapolis’ city limits. This comparison between homes in the city and just outside of the city controls for the increase in value that homes are expected to see each year.

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Housing Prices and the
Missing Middle

There is no reason to belive that MMH leads to affordable housing and instead priced may increase

Key points from the report:

New missing middle apartments have very small effects on rent and housing prices.
For each 10 new missing middle lots developed per year, existing detached single-family home prices may increase slightly (~0.5%) due to redevelopment potential.
Overall price declines are very small unless there is much larger supply (e.g., many more larger apartment units).

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