Media and industry conversations are ripe with talk about the vast and rising need for middle-income and workforce housing.
Our declaration, in opposition to the common narrative of middle-income housing projects, is that it can and does make economic sense to build this type of housing.
Housing development markets are bifurcated. On one end of the spectrum is market-rate or luxury housing built in urban and suburban areas in high-density walkup, podium or high-rise configurations, where the marketplace needs to charge maximum market rents to afford high-density build costs. On the other end of the spectrum is what we call “true” affordable housing, units with rents at or below 60 percent of median area income, and which can only be built to the level of available soft subsidies: tax credits, housing trust funds and other finite sources of affordable housing capital. The bottom line: There will never be enough capital to meet the demand for housing at these income levels. In Southern California, for example, there is a 1.13 million-unit shortfall in housing production for families at or below 50 percent of MAI, according to a report released by the California Housing Partnership Corp.
Southern California has some of the highest housing costs in the nation, and a vast undersupply of all types of housing development. On a statewide basis, housing constraints and lack of workforce middle-income housing is at a crisis level. On a western regional and even nationwide basis, middle-income housing is a rapidly rising need in almost all major metro markets, even those that are traditionally thought of as “affordable.”
In between these two ends of the spectrum is the vast “missing middle.” We define “middle” in the following ways.
Middle income: representing families that make between 60 percent and 140 percent of median income, who are gainfully employed, but find their incomes are not growing at the rate of rising rents, and who do not qualify for true affordable housing
Middle density: housing projects that are built at densities between low-density homes and apartments and high-density podium and high-rise projects (We say this “middle” density is around 25 dwelling units per acre and historically developed in small and midsize unit count projects. In the past, when the U.S. produced significantly higher levels of housing, most housing was produced in these small and mid-size project sizes.)
Middle lifestyle: housing that is purpose-built to rent, but lives like a house (The new trend of single-family rental development exists in this space. We also see attached row home rental housing as a solution in urbanized metro markets such as we see in our home market of Southern California.)
The question is this: Does the development marketplace have a solution for the middle-income housing model? Our answer is an emphatic “yes.”