This story was originally published in Builder.
Search "missing middle" on Google, and 760 million results on countless pages surface.
After more than a year of talking about the term among leading investors, developers, builders, architects, planners, and others in the residential real estate business community we've found this:
Put a hundred of those professional folks in a room and say the term "missing middle" to them, and it's likely you'll hear 100 different interpretations of what the expression is all about and what it means to each. To some, it means a housing type. To others, a sociological phenomenon. For still others, the expression ties to a policy tundra.
In fact, good number of those 100 executives might reflexively tune out and start checking their personal devices. "It's not my market," they quickly conclude. They may hear the term and, involuntarily, sense that people are discussing a topic with no relevance to their business and investment model. "That's for low income tax credit developers, subsidized housing investors, and local and national politicians to figure out. We're in the profit-making, market-rate business."
Yes, because, it's true, today's rules of engagement for market-rate, private sector players in residential real estate and construction--costs, policies, borrowing expense, tax laws, labor capacity, rates of return, etc.--essentially consign housing's "missing middle" to being regarded as a strategic sinkhole.
From this standpoint, no smart, successful profit-making venture knowingly would dare to commit all-too scarce resources of time, talent, and capital to the "missing middle." Especially when focus on the "non-missing upper income household,"--the ones who can walk into a bank and qualify for a $300,000 or more loan, or prove income for new apartment lease in the downtown urban corridor of one of the nation's economic hotbed cities--comes with its own set of business and cost challenges.
Today, an already addressable market creates ample opportunity--and, increasingly, growing barriers--for business success. So, who in their right mind would guide strategy where valuable resources, worthy plans, and needed solutions would meet almost certain doom: unwelcoming elected officials, hostile local community activists, unsupportive government tax structures, and, in the end, a customer pool of moderate income earners whose means and wherewithal are questionable in today's income and financing environment?
So, there's that.
So, let's play this out.
If government--local, regional, and national--doesn't solve for its rat's nest of regulations, and doesn't instead create government-sponsored tax and capital investment incentives and, what's more, practically force localities to welcome new market-rate development, then housing's missing middle, however one might define it, will remain and grow as a "dead zone" for market players.
That's unacceptable, and ultimately, such a conclusion signals an endgame for a prized, foundational principle in the United States, that hardworking people of moderate means could and would be able to climb a social and economic ladder upward.
This is where we say "no" to a widely-held conclusion that housing's "missing middle" represents zero business opportunity for market-rate players. Under today's rules of engagement, that's correct. But who says today's rules of engagement can't be broken? Who says that "the way we do things because that works" is the only way, or even the best way to do them? Who says that the complex of assumptions and practices--even the external forces of political will and capital yield trends--that have formed around real estate investment, design, and construction--is not flawed, in need of transformation, and susceptible to disruption?
Who says that the "missing middle" in housing is and will forever be beyond the bounds of a successful, highly profitable business and operational strategy?
You might--because you're an architect, or an urban planner, or a smart city designer--define housing's missing middle as did the man who's credited with having coined the term in 2010, Daniel Parolek, a Berkeley, Calif.-based architect:
"... urban planners, developers and architects are reviving the kinds of homes that might be more familiar to millennials' great-grandparents: duplexes, triplexes, bungalows, rowhouses with multiple units, and small buildings with four to six apartments or condos.
"It's the kind of housing that fell out of fashion after World War II, when young families and others fled cities for the houses, driveways and ample yards of the burgeoning suburbs. Planners and architects refer to it as the "missing middle." It hits the middle in scale — larger than a typical detached single-family home but smaller than a mid- or high-rise — and typically serves people with middle-class incomes.
"Daniel Parolek, an architect based in Berkeley, Calif., who coined the term in 2010, said the need for more missing middle housing is hardly limited to millennials. But as they grow older, he said, questions have been raised about how cities will continue to evolve if many of the generation are priced out once they want to put down roots.
"In particular with this generation, that played an important role in revitalizing cities," Parolek said, "I think keeping them in cities is a major conversation."
Another way to consider housing's missing middle is to picture people. They work. They earn moderate incomes--say, between 60% and 120% of area median incomes. Whatever their ages, they're less and less able to participate in what's being developed and built today, whether for rent or for sale. At best, what's available, accessible, attainable, affordable to these people with moderate wages are 30- or 40-year-old places that lock them in where they are in America's social mobility continuum.
So, we think and believe and are committed to working around the notion that housing's missing middle is not only a big and growing risk for market rate players serving all but the highest-end customer segments, but, in fact, a vast, untapped opportunity.
Unmet need is where innovation--in building technology, capital investment strategy, business model mission and purpose, consumer intelligence, and architectural and urban design--come into play. It's where Hive is fanatically focused, on change, on action, on improving people's lives as well as housing market players' performance. Part of the answer, certainly, is construction productivity. But it's so much more than that. It's every bit about political will as it is about productivity. It's every bit about investment and lending and finance as it is about political will and productivity.
In no other place, no other conversation, no other initiative will you find the blend of investors and venture capitalists, technology and data leaders, developers, policy-makers, and builders, and other real estate and construction stakeholders, aimed at filling the large and rapidly expanding hole that is housing's missing middle.
In no other place is the singular focus on sending meeting participants back to their organizations with a set of specific and tangible action items--both individual and collective--to cause change and improve our business community's outcomes on this front.
Should you be there with us at Hive, in Austin at the J.W. Marriott, Nov. 28-29? If you want that person, that household, that community of essential workers who bring home moderate incomes to be part of the present and future you shape for your organization and team, you should be there with us. Register now, here.
This story was originally published in Builder.
