Finding Affordability in the Missing Middle
Earlier this month, Cady Chintis (the ‘C’ in WC STUDIO) took to the mic at Conversations Regarding Tacoma’s annual 10X10 event. The 10X10 format allows for several speakers to share different perspectives on a theme in quick 10-minute presentations with 10 slides each. This year’s theme—Affordability—was clearly on a lot of minds as demonstrated by the packed house at the new RAIN Incubator venue. Cady was asked to bring a developer’s point of view to the conversation. Her talk focused on the affordability potential of the Missing Middle, which is specifically mentioned in Tacoma’s Affordable Housing Action Strategy. Scroll down to see the full presentation.
Here is a photo of our office the corner of 6th Ave and Ainsworth. We live there too, and we rent out the other three units. In addition to designing the building, we planned the project, got a loan from a bank to build it, and mananged the construction…so that makes us the developers. (Yay, no one booed!)
This size of building, say with 4 or 3 or 12 apartments, townhouses, or condos is often referred to as the Missing Middle in real estate development. This is because most new housing, no matter where it lies on the affordability spectrum, takes the form of either stand alone homes or large multi-unit mid- to highrise buildings.
This has a lot to do with zoning, which has historically protected “single-family” zones and limited multi-family development into small corridors of the city. It also reflects the low risk and reward potential of a building with just a handful of units. But, we believe the Missing Middle represents a sweet spot for neighborhood scale development with great affordability potential. Here’s why:
First, let’s talk about money. Most of the total development cost is the COST OF LAND (dirt) and the COST OF CONSTRUCTION (materials + labor). When the land cost can be split between multiple units of housing, that lowers development cost per unit.
Very simply, wood is less expensive to build with than other building materials like concrete and steel. To support the weight of their additional stories, and to build elevators and parking garages, midrise and highrise buildings require a lot more of those pricier building materials and more skilled labor to install them.
Missing Middle homes are more similar in construction to standalone homes and benefit from shared land costs in addition to lower construction cost. However SOFT COSTS like permit fees, paying the architects, engineers and other consultants can take a larger share of the budget for Missing Middle projects.
This is why it can be a challenge to make Missing Middle projects “pencil” meaning the sale price would cover the investment plus profit, or the rental income would cover the ongoing loan payments and operating expenses. To determine whether a project is a good investment, developers use a spreadsheet called a PROFORMA. Recently we used a proforma to find out that if we built 4 townhouses on a site, we would need to sell them for close to $450K just to cover the development cost, but if we built 20 small apartments—including 4 of those set aside for households below 80% Area Median Income—the project could be profitable within 3 years.
As that example illustrates, making a project pencil often means building more smaller homes than fewer larger homes in order to achieve any level of affordability. Missing Middle housing types are generally smaller than the average standalone home. To compensate for having less square footage, design becomes really important. This not only means efficient floor plans and creative use of space, but creating indoor and outdoor environments that feel special and are lovely to live in. Quick to lease and slow to turn-over, it is possible to have near zero vacancy without paying for professional property management—a savings that can be passed on to renters. Smaller homes are also more affordable to maintain and operate, but we’ll get to that in a few slides.
Where Missing Middle housing is located is also important. Ideal for infill sites, Missing Middle development is incremental, meaning neighborhood change occurs more gradually. Over the last 5 years, this block in the 6th Avenue Mixed Use Center has gained 20 new homes without the removal or demolition of a single existing home. Missing Middle projects fit into existing neighborhoods, creating a healthy mix of building vintages and character, as well as the density needed to support transit and local businesses.
Because it takes more than sidewalks to make a neighborhood walkable. Walkability depends on having DESTINATIONS (services, amenities, jobs) and CONNECTIONS (transit to other neighborhoods and job centers).The walkability of a neighborhood impacts affordability because families who are car dependent spend 25% of their income on TRANSPORTATION compared to 9% for those living in walkable, urban places. When HOUSING + TRANSPORTATION costs added together should not exceed 45% of household income, we can see that car-dependent folks only have 20% leftover for housing. If we’re going to continue use 30% of one’s income as our standard for housing affordability, we need to increase density, prioritize walkability and access to transit.
Utilities are another part of a household budget so the ENERGY EFFICIENCY of a home impacts affordability too. Without getting too technical about ratio of surface area to conditioned volume (heating and cooling), Missing Middle homes are also in a sweet spot for energy efficiency just by sharing some—but not too much—of their enclosure (walls, floors, ceilings) with neighbors. Less exterior surface area reduces ENERGY LOSS but can still take full advantage of natural light and cross-ventilation through windows and skylights to reduce ENERGY USE, more so than an apartment in a large building with only one exposure could.
Which brings us back to the Tacoma Affordable Housing Action Strategy Action 1.8 mentioned on the first slide. From our experience developing and owning the Prospect and Wedgeview, we know that the feasibility of Missing Middle projects rests on razor thin margins. Financial incentives like fee waivers and construction grants could move the needle from infeasible to successful. Especially if linked to energy-efficient design & construction, these financial incentives will not only help Missing Middle developers but also support affordability for all future residents of those buildings. Next we suggest expanding Multi Family Tax Exemption eligibility to all Missing Middle projects whether or not they are located in a Mixed Use Center. Ultimately, allowing compatible Missing Middle housing in any residential zone and removing minimum parking requirements are necessary steps to correct course on past land use policy that has resulted in sprawl, and set us up for the affordability, climate, and congestion crises we face today.
So that was our call to action for the planners and policy makers. But what I want to end on applies to everyone in this room. At first, the decision to become architect-developers was more about getting a few built works in our portfolio to kick start our new design practice. But as a result of learning the development side of making buildings, we are now able to coach and mentor clients who may have no previous development experience. It’s exciting to see Tacomans from a variety of backgrounds with a property or an idea stepping up to invest in their neighborhoods and our city.
Let’s start reimagining who a developer is and what their motives are. Let’s make developer a profession to aspire to in Tacoma. Let’s see the power to make change is in our hands.
Video link coming soon…