Strategies For Producing More Housing

Federal encouragement and local action are needed to increase the housing stock.

In the years ahead, this pandemic era will no doubt come to be seen as in inflection point for life in American cities and towns in everything from commuting, to schooling to shopping and more. If recent activity is any indication, it might also be the period when localities, states and the federal government finally began to get serious about strategies to address the housing crisis facing working- and middle-class households.

The need for action, though previously glaring, has become blindingly clear since the pandemic exacerbated underlying trends: Housing prices, already astronomical, ballooned with shrinking inventory, shutting millions of young families and others out of homeownership. Fully half of renting American households are “cost burdened” where housing is concerned, meaning they are shelling out a share of their income that makes them economically vulnerable.

White one-story apartment buildings

Photo by Opticos Design, Inc.

“It’s most problematic for groups that have historically had less access to homeownership and to safe affordable housing, generally,” said David Bank, senior vice president for Rosen Consulting Group and a co-author of State and Local Policy Strategies to Advance Housing Affordability, a 2021 report prepared for the NATIONAL ASSOCIATION OF REALTORS®. “The affordability challenge is most severe for Black and Latinx people, and to those without college degrees. It has gotten much more extreme over the past decade because we’ve built so little housing in this country.”

Bank’s report estimated the United States is 5.5-6.8 million short of necessary housing units. “You need a federal role, a state role and a local role,” Bank said. “You’re not going to tackle that kind of problem without building all types: market-rate and affordable, smaller housing on smaller lots, small multifamily and a full range of larger multifamily.”

But how to spur production of more — and more attainable — housing options? It’s a gargantuan apple, but over the last couple of years some states and municipalities have begun taking bites of it. This August, California, facing a severe shortage of land for new homes, adopted a law allowing duplexes on nearly all lots, with streamlined ability within city limits to create two separate lots. That followed a similar move in Oregon in 2019, when the legislature directed the state’s largest cities to begin to remove obstacles to creating the smaller multifamily homes that some call the “missing middle”: duplexes, triplexes, fourplexes, townhomes, and cottage clusters. With new rules that took effect August 1, Portland, Ore., went farther still, legalizing up to four units on most residential lots — with up to six if affordable units are included — for the first time since one-unit-per-lot restrictions were imposed in 1959. Hot-market cities such as Minneapolis, Seattle and Austin, Texas, are making similar moves, while at least a dozen other cities of varying sizes were debating them as of this writing.

Now the federal government is beginning to act: In early September, the Biden Administration announced a set of initiatives to increase the supply of homes available and affordable to Americans in need of housing options. Some measures are aimed at increasing financing for a wider range of housing types and addressing construction labor shortages. But perhaps the largest number of the federal actions to address a nationwide crisis are aimed at encouraging local jurisdictions to legalize more housing in more places, and to address regulatory snags that add delays and costs. “There are many strategies for increasing affordability, and our membership recognizes that increasing housing supply and building a greater mix of housing types will help with this effort,” said Devala Janardan, senior counsel at the National Association of Homebuilders (NAHB). However, he added, “Many local zoning ordinances don’t allow for variety in housing types … Costly, lengthy and unpredictable development processes add huge costs to housing development and hurt affordability.”

In searching for ways to produce that “greater mix,” NAHB commissioned a research report called Diversifying Housing Options with Smaller Lots and Smaller Homes from Opticos Design. That firm’s principal and CEO, Daniel Parolek, coined the term “missing middle” a decade ago to refer to multifamily buildings that are the size of houses, ranging from duplexes to triplexes and fourplexes, and mansion apartment houses and courtyard apartments with 5 to 10 units. The idea arose from an examination that he and others in the new urbanist movement had been making of traditional, pre-auto-oriented neighborhoods, he said. Prior to the 1940s, these street-car-era neighborhoods — considered highly desirable in most cities today — all had smaller multifamily buildings mixed in with single-house lots. “Starting in the 1920s when cities began rapidly adopting modern, Euclidean zoning, it made it harder and harder and even impossible to build these neighborhoods anymore,” Parolek said. Accompanying regulations such as specifying a minimum lot size per housing unit, requiring space to park a car and restricting the portion of a lot available for building made such housing infeasible even when zoning might allow it, he added.

Making the “Missing Middle” Legal Again

Housing advocates have no shortage of arguments for adding missing middle options in urban areas currently restricted to one house per lot. Single-family houses in city neighborhoods are increasingly out of reach for all but the highest incomes, with the land cost alone accounting for a huge share of that price. Multiple, smaller units spread the cost of the underlying land and require less in materials per unit, allowing for a lower price point, whether for sale or rent. Increasing supply of available units reduces the scarcity that drives up prices. At the same time, many cities have policy goals of making it possible for the teachers, firefighters and others who work in the city to actually live there. In some cities, there is a desire to take active steps to counter the legacy of a zoning regime that too often was employed as a means of excluding families of color. Many also have climate-friendly intentions of reducing the need for vehicle travel and creating walkable, “15-minute” neighborhoods. Having more customers in a smaller footprint can allow for more local-serving business and better transit service in city neighborhoods that today depend on driving for daily needs.

Front yard of a new two-story yellow home

Photo by Opticos Design, Inc.

The homeowners in areas that have been zoned only for stand-alone houses for several decades don’t always recognize those advantages, however, said Lynn Richards, former president and CEO of the Congress for the New Urbanism. “Everything is so politicized now,” she added. “In my neighborhood, we are all tied up in conflict about replacing a single-family house with a building the same size that houses more people. But no one blinks when a smaller house is replaced with a McMansion housing fewer people.”

Thanks to those tricky politics, it took Portland six years to work through the adoption of its rules to legalize missing middle housing, two years after Minneapolis became the first big city to allow duplexes and triplexes in every neighborhood. But Portland went one better. The package of reforms, dubbed the Residential Infill Project (RIP), began as a proposal from affordable- and small-housing advocates including Eli Spevak, who now chairs Portland’s Planning and Sustainability Commission. In addition to allowing up to four-plexes on most lots, the proposal sought to address homeowners’ concerns about the proliferation of extra-large houses on lots previously occupied by more modest-sized homes by capping allowable square footage. “The idea is to keep the scale of a neighborhood while allowing more people to live there,” Spevak said. “A few angry residents can foil these efforts at the local level, so you have to organize the groups and individuals who support them.”

The coalition that came together and supported the initiative in public meetings and myriad other forums — often outnumbering opponents in attendance — included affordable- and small-housing developers, homeless service providers and stable-housing advocates, the AARP, environmental and transportation reform organizations, supportive neighborhood groups and others.

As adopted, the RIP caps interior square footage of a one-unit house at half the square footage of the lot (a floor-area ratio of .5), while allowing duplexes to go up to three-fifths of the lot area and triplexes and fourplexes to more than two-thirds (.7 floor-area ratio). It also allows up to six homes on a lot if at least half are maintained at regulated, affordable prices for low-income residents. The sliding scale is intended to tilt the playing field away from high-end remodels and trophy houses toward more affordable units. RIP also removed requirements for providing on-site parking for residential units.

The effects are likely to materialize slowly over time; no one expects a sudden, rapid transformation of current low-density neighborhoods. Outside economists estimated that annual housing production could rise by up to 1,200 additional units per year, amounting to perhaps a 20-percent increase over what would otherwise be expected. Another analysis projected that rents would be about 12 percent lower, saving the typical tenant an average of $260 a month.

While Portland’s reforms go farther to promote the “missing middle” than other big cities, it is getting company from mid-sized cities in the region. Olympia, Wash., adopted similar rules in 2020 and Tacoma, Wash., — where house prices rose 26 percent in the last year — is holding hearings on a plan to make multi-unit buildings legal on the 75 percent of residential land now zoned exclusive for one-unit houses.

A Starter Kit: The Accessory Dwelling Unit

Not every city is ready to have the conversation about moving away from one-unit-per-lot zoning. But a number are moving ahead on liberalizing restrictions on so-called accessory dwelling units, or ADUs for short. ADUs are independent units on the same lot as a single-family house. They can be garage apartments, converted or add-on portions of the original building — sometimes called granny flats or in-law suites — or stand-alone backyard cottages, sometimes called detached ADUs, or DADUs.

Facing one of the most intense housing shortages in the country, California in 2019 adopted a suite of new rules requiring localities to lift restrictions that have stifled the creation of ADUs and to accelerate the approval process. Key provisions prohibit municipalities from restrictions on lot coverage or minimum lot size that are stricter than statewide standards. “I’ve always believed in the potential of ADUs, but I didn’t expect it to spread as much as it has in the Bay Area,” said Parolek, who lives in a small-lot bungalow in Berkeley, Calif. “There are five going up right around me.”

Colorful two-story homes

Photo by Opticos Design, Inc.

Homeowners are using the new flexibility to make creative use of their property according to their needs. “A family with young kids near me lives in a 900-square-foot house and was planning an addition. But instead of building a second story, they built an ADU so that when the kids move away, they’ll have an appropriately sized house for them to live in and a place to rent,” Parolek added.

Not all states have the purview over local land-use regulation that California does, and some municipalities aren’t waiting on state action. Among them is Seattle, which in 2019 adopted the most liberal ADU rules among big U.S. cities as one action to help ease a tech-fueled leap in housing prices over the last several years. Like Tacoma, Seattle has 75 percent of its residential zoned as “single-family.” The new rules now allow property owners in those zones to add up to two ADUs, whether attached or stand-alone. At the same time, the legislation sets a limit for new houses of 2,500 square feet, hoping to make it more attractive to add ADUs to existing houses instead of continuing the trend of tearing down those houses for much larger ones. Seattle also got rid of the two most prohibitive ADU strictures: mandated on-site parking for each unit and a requirement that property owners must live there. For detached ADUs, the new rules bumped up limits on size, height, and backyard coverage, while lowering the required minimum lot size for a DADU to 3,200 square feet. The legislation also raised the limit on unrelated residents per lot from eight to 12. To make it easier for property owners of all incomes to take advantage of the changes, the city has since created a web portal just for ADU information and is developing a program of financial assistance. On the web site, dubbed ADUniverse, property owners can find a step-by-step guide, learn what they can build on their property, get pre-approved cottage plans, and see what others are doing. Early indications are that the changes are helping: In 2018-19, the two years before the new rules took effect, Seattle issued permits for 531 units, while 931 had been issued from the start of 2020 through August, 2021.

“It’s not a panacea, but it’s an important step toward freeing up the potential for more housing,” said Rick Mohler, an architecture professor and member of the Seattle Planning Commission, who helped the city with creating the web resource. “And we now have more examples of what can reasonably fit into neighborhoods without dramatically changing their appearance. We were seeing big houses being built anyway. Now it’s one house but three living units.” In an interesting twist, a number of the new detached cottages can be found in the for-sale listings on real estate web sites; some owners are creating condominium associations on their lots in order to sell the units, at prices well below those of surrounding houses, if still not exactly cheap by the standards of most markets.

Reducing Off-Street Parking to Reduce Land and Other Costs

While it’s still unusual, a growing number of cities are reducing or eliminating the minimum amount of off-street parking required for housing — and sometimes for businesses as well — to reduce land and other costs. In August 2021, St. Paul, Minn., joined the short list of cities that have struck parking minimums from their code, citing the move not only as a way to help make new housing affordable but also to support their goals of reducing climate-harming emissions.

Many other cities had cut or eliminated parking minimums in their downtowns or other dense areas, or relaxed them for affordable housing, but only a few had preceded St. Paul in lifting them entirely: Buffalo, N.Y., in 2017; San Francisco in 2018; and Minneapolis, Sacramento and Berkeley in 2021.

In a statement supporting the move, St. Paul Mayor Melvin Carter noted that roughly 36 percent of the city’s land mass was dedicated to moving or storing cars. “This simple step will help add much needed housing and jobs as we seek to maximize this period of historic economic expansion in St. Paul,” he said.

Beyond Market-Rate: Boosting Affordable Housing

As Bank noted, increasing the diversity of market-rate housing alone won’t be enough to address the affordability crisis for those making the median income or less — and in some hot-market cities even for those making 20 percent or more above median. “In terms of below market-rate, it’s obviously more complicated because those deals typically require a range of funding sources,” Bank said.

African American woman in front of her front yard

Photo courtesy of

At the local level, efforts to boost the creation of below-market housing usually take the form of fees assessed on development and “inclusionary housing” approaches that incentivize or require a certain share of affordable units for projects over a certain size. “One of the best opportunities we identified was the ability to use density bonuses to increase the number of affordable units that are built,” Bank said. The idea is that developers can get an increase in allowed development capacity — and often, reduced fees — when they meet or exceed targets for units at a regulated, affordable price for low-income residents.

Austin, Texas, allows developers to earn incentives — such as fee waivers, density bonuses, tax incentives, and development agreements — to create long-term, affordable apartments and for-sale housing for low- and moderate-income households. The city ups the ante for developers within a half mile of rail and bus routes in order to ensure that the people most likely to rely on transit can live in those high-demand areas. That program, dubbed SMART — for Safe, Mixed-Income, Accessible, Reasonably Priced, and Transit-Oriented — grants special density bonuses and waives some development, permitting and impact fees if at least 10 percent of units in the project are set aside for those with 80 percent or less of the area median family income.

African American man standing in front of apartment building complex

Photo courtesy of USDA; Photo by Lance Cheung

Seattle, too, has used voluntary measures to encourage contributions toward affordable housing. However, in the face of soaring rents and home prices and the rapid displacement of less-than-affluent families, the city in 2019 shifted to a mandatory program. Seattle continues to offer a substantial property tax credit as incentive for multifamily developments offering 20-25 percent of units as rent- or income-restricted, a program known as MFTE. But the city’s voluntary Incentive Zoning program has transitioned to an approach known as Mandatory Housing Affordability, or MHA.

MHA is based on what the previous mayor referred to as a “grand bargain”: The city requires new multifamily and commercial development to include affordable homes or contribute to a city fund used for the preservation and production of low-income housing. In exchange for that mandatory requirement, the city increased allowable development — typically by a story or two — in all areas zoned for multifamily, and in cases expanded those areas. Developers contribute the equivalent of 5 to 11 percent of units, depending on the intensity of the “upzone.”

While getting the plan adopted was a four-year political slog, initial results are impressive, Mohler said. A report earlier this year showed that since the last of the upzones went into place in April 2019, the program has brought in payments of more than $96 million and has yielded 7,088 units either open or in the pipeline, significantly higher than the city had projected. The vast majority of developers have opted to pay into the housing fund. “A lot of people were wary of allowing developers to pay a fee versus requiring units to be on-site,” Mohler said. “But the city can leverage those dollars with other programs to build more housing, and so far, appear to be locating or preserving their low-income units in high-opportunity areas with good transit.”

In terms of producing more housing, MHA is a qualified success so far, Mohler said. “Some for-profit developers fought it because it’s mandatory, and some homeowners were concerned about too much development. But it is producing more housing, both because there is more development capacity by virtue of the upzones and because it is funding additional affordable housing.”

Bank said he finds the Seattle approach “interesting because it provides value through the upzoning and helps offset the added cost.” He cautioned that other, less-overheated markets might not be able to require a meaningful contribution without shutting down development. “The real trick is finding the balance where the deals are still profitable,” Bank added.

“If you set the requirement too high, you get to where deals no longer pencil.” Mohler agreed. “There’s no question that MHA is leveraging the strength of our real estate market. The city revisits the contribution rates on an annual basis. If it starts to slow production, you have to drop the fees, and quickly. There are limits to what you can extract, and it does make privately produced units more expensive.”

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