Don't Worry, We'll Be Gentle (Densification)

💼 Missing Middle

briefcase | invest smarter | Issue #116

🏘️ Be Gentle (Densification)

*Clears Throat* ...... Missing middle housing is the silver bullet to solving our affordability and supply challenges.

Let's catch you up by playing a quick game. What do you see in this picture of beautiful Vancouver?

✅ Condos (bottom right).

✅ Low-rise single-family homes (top left).

❌ Nothing in between.

Something is missing, and all North American cities face this problem. Europe on the other hand doesn't, but we will get to that later.

What's missing is something we call the missing middle.

Missing Middle — Describes the pre-WWII type of housing that includes duplexes, triplexes, rowhomes, courtyard apartments, small multi-family, and denser types of housing that fit within a low-rise community. These housing units are compatible in scale with single-family neighbourhoods, but are multi-plexes that allow for modest densification, greater affordability, and more housing supply.

This housing type is the opposite of the car-centric single-family housing policies that have plagued North America since the 1940s.

And we simply aren't building enough of it.

So why are we not building more missing middle housing? Because affordable and ample housing has been made illegal by governments across North America. Read more here, but know that single-family zoning is terrible for housing supply, affordability, and our climate. It also has racist origins.

And, over 80% of what is legal to build is limited to single-family homes, and building anything else requires costly rezoning processes and ongoing fights with NIMBYs.

Just look at Arlington, VA, where the municipality put forward a proposal to end single-family zoning to allow for more missing middle multifamily. According to reports:

Some jurisdictions, however, are moving ahead with gentle densification policies. California passed SB9, which virtually eliminated single-family zoning, so too did Ontario. And Arizona. And Montana.

Also, California made it legal to build apartments on properties zoned retail, commercial, and office.

All of these advances should be applauded, but we need a lot more, quickly. Why quickly?

Time is not on our side. Let's do a quick analysis of where we are heading.

• 🌎 We are adding another 3 billion people to the world by 2100.

• 🏠 To house them, we need about 2.4 trillion more square feet built.

• 🤯 That's the equivalent of adding 1 NYC worth of space each month for the next 40 years.

So What? Where will we get all that space? Gentle densification and missing middle housing, or more urban sprawl and concrete towers?

Let's aim for the former, and anyone looking to invest in or build missing middle assets will have a hot commodity over the coming decades.

Weekly Real Estate News

👏 Speaking of...: Zillow’s panel of experts call to fix zoning to improve housing affordability — Zillow

🛑 HOOOOLD: In a braveheart move, the Bank of Canada paused interest rate increases on Wednesday — WSJ

📈 Equity: Homeowner equity increased 7% YoY in Q4 2022, with the highest ($49K) seen in Florida — CoreLogic

📉 Supply Snag: Still isn't keeping up with demand, with householder formation outpacing new housing supply — Realtor.com

🏢 Flat Rent: One and two-bedroom rentals remained unchanged in January at $1,492 and $1,824, respectively — Zumper

😨 California Nightmaring: According to data, California is the most vulnerable to ongoing housing price declines — ATTOM

👨‍💼 (Less) Office Space: Commercial real estate has a shock coming as return-to-office plans fall short — CNBC