The missing middle

What type of “housing” does the country really need to put the trades back to work?

The following graph got my attention during a general session on the economy at the 2016 Uponor Connections Convention. This every-other-year networking event was attended this year on March 30-April 1 in Las Vegas by around 1,000 dedicated company customers. 

Note the two lines track what the National Association of Realtors calls “months of supply” for the housing market. In other words, the calculation shows how many months it would take to sell all the homes up for sale. The blue line shows year-over-year changes to that inventory at each January, while the red line shows the actual number of months of homes currently “in stock.” Both lines clearly show that the country’s housing inventory, after surging in the aftermath of the Great Recession, has fallen to its lowest levels in 12 years.

 


 

Good news?

Such good news should mean good times are here for new home construction. But, the interesting news is that it’s not really happening. Construction of new homes — while certainly showing signs of a comeback — remains way behind the pace we’ve come to expect post-recession. And looking deeper, the construction of homes that do show the best marks are for the sizable McMansion variety.

The graph I saw at the Uponor meeting came, in part, from an excellent blog called Calculated Risk (www.calculatedrisk.com). I did some more digging on the site and found this post made on March 22 that offers more details, “While single-family housing production has continued to recover, the overall level of production — in terms of units — has been well short of consensus forecasts from a few years ago,” wrote Bill McBride. “In looking at the production ‘shortfall,’ the one thing that is striking is that production of moderately sized homes has barely recovered from the cyclical lows, while production of big homes (3,000+ square feet) has been running at a higher pace than in all but one year of the 1990s.”

From the sound of it, some of us are back living in the high-flying days of the Clinton Administration. And, the return of the McMansion shouldn’t be too big of a surprise. After all, house size is about the only aspect of the real estate business you can count on to go up. According to McBride’s numbers, the overall median size for a "regular" single-family home has grown from under 1,400 square feet in 1971 to well over 2,400 square feet in 2015.

Also, consider this amazing statistic. According to McBride’s number-crunching, in the years between 2001-2008 the number of single-family homes measuring 3,000 or more square feet was 2.399 million — way more than the 1.962 million homes of equal size built in the 24 years between 1971-1995.

What type of ‘home?’

Of course, for a great deal of Americans, these days are not anything like the Clinton Administration. Plenty of stories I’ve read suggest that a lot of people can barely afford a starter home, let alone a McMansion. So, what type of housing should we be building, anyway? As it turns out, the type of housing may not be a house at all, and the roof over many of our heads should be a ceiling.

I’ve recently read about something urban planners like to speak of as “the missing middle.” Today’s urban and suburban developments tend to be stuck at two settings: single-family homes or very large apartment buildings. What exactly is the missing middle? In general, the phrase refers to any building larger than a duplex, but smaller than a mid-rise apartment building. A four-story building covering half a city block is typically the cut-off.

This middle wasn’t always missing, according to the following number from the U.S. Census Report, “2014 Characteristics of New Housing." Back in 1972, nearly a third of all multi-family homes were constructed in buildings with two to nine units, in other words, a typical size for a low-rise apartment building. Significantly fewer, about a fifth, were built to house 50 units or more. Small apartments peaked in 1981, with 46 percent of all new multi-family units.
Since then, however, the middle’s gone missing. In 2014, for example, just 7 percent of new multifamily homes were in buildings with fewer than 10 units. But, 48 percent were in buildings with 50 units or more.

What happened?

If one of the maxims of real estate is, “Location, location, location,” then another maxim must be, “Zoning, zoning, zoning.”

“Suburban counties are defined by exclusionary zoning rules that bar the construction of multi-family housing,” wrote Matthew Yglesias for online news site, Vox, recently, “and from Seattle to San Francisco to Washington and beyond, even in many central cities, vast tracts of land are set aside exclusively for the development of detached single-family homes.”

While the answer to allowing more multi-family housing doesn’t help the American dream of home ownership, construction of such housing certainly does help spur good-paying jobs for those building them across the country. I know that’s a bit of a one-sided answer to the state of our economic doldrums. And, I imagine the future of housing might look like the past for most of us, when homes weren’t sized with two-incomes in mind.

When I came home from the hospital, “home” for me was a two-bedroom apartment on the third floor of a “six-flat.” A six-flat is a Chicago cliché for a three-story apartment building with six apartments, two per floor. My parents moved in when they were first married, and my sister beat me to the extra bedroom by three years. In this part of Chicago, most of the housing was made of up six-flats, three-flats and two-flats. Life for me then probably wasn’t much different than life was for my mother, who grew up in a larger apartment building just a few blocks away. Meanwhile, my grandmother (my mother’s mother) owned the building and lived on the first floor for what amounted to the last 25 years of her life.

This type of apartment living was pretty much par for the course growing up in the city at the time. Most of my friends and relatives all lived in something other than a single-family home. Eventually, my parents did make the move to such a place when I turned 5 years old, and they purchased a brick bungalow on a street with nothing but; another Chicago housing cliché. It must have been a big move up, but my 83-year-old father always puts it in terms of modesty when he says we moved from one building built in the 1920s to another building built in the 1920s and less than a couple of miles apart.
Enough about me reminiscing about the past. I know it’s not always prologue. But one answer to building for the future and putting people to work right now is to consider more than just two settings.

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