By Meghan Hall

The term “Missing Middle” has rapidly gained notoriety in recent years, especially in markets such as the San Francisco Bay Area, where housing affordability has widely decreased and the construction of luxury product has become the norm. Daniel Parolek, a founding partner of Berkeley-based architecture firm Opticos Design, coined the term back in 2010 and has seen its relevance rise and how increasing Missing Middle Housing can help metros such as the Bay Area address their regional housing crises. 

The “Missing Middle” is defined as development just larger than standalone single-family homes, but smaller than your average four to five-story mid-rise apartment complex and includes an array of product types including duplexes, triplexes and fourplexes, courtyard apartments, bungalow courts, townhomes, multiplexes and even live/work spaces. These types of homes, which are compatible in scale to single family, can help meet increasing demand for walkable, urban living as well as address issues of affordability by providing additional options for buyers and renters.

While in previous market cycles there has been enough product to meet market demand, there is now a dearth of such inventory.

I think one of the reasons the missing middle concept has caught on is because it’s given communities, it’s given builders, it’s given architects a way to talk about housing choices in a way that gets people up in arms.

“These housing types…have existed historically in neighborhoods, and we’ve stopped building them,” explained Parolek to Dean Wehrli on an episode of the John Burns Real Estate Consulting in May. “What we have found in our research and our work is that [these product types] do deliver many of the lifestyle amenities that you might get if you are living in a large condominium building, but with more of the quality and experience of living in a single-family home.”

Parolek continued, “I do want to emphasize that to us, first and foremost, the “middle” in the Missing Middle Housing concept relates to the scale, the form and the product type. And secondarily, what is still important is that these types are an effective way to deliver attainability to middle-income households.”

However, over the course of the last market cycle, property owners and developers have shifted away from building Middle Market housing. According to Parolek and a ULI Study by the Turner Foundation, fifty percent of all new homes built are four bedrooms or more, and less than seven percent of homes built are now less than 1,400 square feet.

“Trying to turn a big ship is hard,” said Parolek. “Builders are shifting, but not quickly enough.” He cites city regulations, liability and high development costs as just a few of the reasons why developers have not heavily pursued Missing Middle product types.

Additionally, changes in affordability and demographics are increasing demand for Middle Market housing. Buyers and renters at both ends of the age spectrum — millennials and baby boomers — are increasingly looking for Middle Market housing product because of the amenities and flexibility they can provide.

“You can immediately see the disconnect between where the household demographics are happening and what is being delivered to the market,” said Parolek. 

Both millennials and baby boomers are renting in higher numbers than ever before, drawn to the unique combination of community, amenities and urban living that multifamily developments — including Middle Market housing — can provide. The millennial generation is renting longer, and household formation is occurring later, meaning that many millennials are waiting longer to purchase a home, or do not need the four-plus bedroom single detached product type that developers so often pursue.

According to Parolek, thirty percent of households are single-person and 75 to 80 percent of those households will not have kids by 2035.

“There are two focus markets for Missing Middle housing: the millennials and the baby boomers. Research has shown these two market segments want this type of living,” stated Parolek. “They want it because of the walkability. They are discerning and looking for a unique product type and different living style…They’re open to ownership alternatives. They’re longing for community…[and] people are not having their needs met.”

Missing Middle properties can be beneficial for many metro markets, due to the flexibility of the product type. Their variance in size and scale can allow for different ownership opportunities and can allow builders to carve out a new niche within the housing market.

“What I like about the Missing Middle product type is that you can have even the same general unit layout, and you can simply modify [units] with more embellished architecture, higher quality finishes and maybe a little bit more square footage,” said Parolek. “You can hit an upper-end market with it, but you can also hit an entry-level, more attainable price point for entry-level buyers with just very minor changes.”

Parolek continued, adding that Missing Middle product is often easier for communities to digest, particularly those that have experienced an abundance of new, high-density development in recent years. 

“I think one of the reasons the Missing Middle concept has caught on is because it’s given communities, it’s given builders, it’s given architects a way to talk about housing choices in a way that gets people up in arms,” he said. And he anticipates that the conversation will only continue to grow and evolve as those within both the commercial and residential real estate industries discover the merits of Middle Market housing.

“I feel strongly that this conversation about this need of housing needs to shift away from this discussion about density,” said Parolek. “We need to change the messaging and the framing, and I think the Missing Middle is a really good way to do that…We are also finding that community members can easily understand this concept and are not afraid of the range of these Missing Middle types in the same way that they are of the concepts of density and multifamily. I think as a communication tool, it is pretty effective. I think our cities and towns across the country really need this.”

West Coast Commercial Real Estate News