Single-family–only zoning — where large shares of land are zoned exclusively for traditional single-family home development — contributes to housing supply scarcity nationwide and has a spillover effect on home sales and rent prices. Unlocking underutilized land zoned for single-family development by allowing low-density multifamily housing is a promising strategy to help cities and towns address the housing shortage impacting all parts of the country.
Since we released a paper on this strategy in 2022, several jurisdictions and private entities have taken steps to make it easier to build low-density multifamily (LDMF) housing, also called gentle density or missing middle housing. In a new issue brief — Making it Happen: Scaling Low-density Multifamily Housing — we discuss opportunities to scale affordable housing innovations, including regulatory reforms designed to facilitate the development of some forms of LDMF housing and recent lending products tailored to financing LDMF development. (Learn more about the definition of LDMF housing)
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MPHA Family Housing Expansion – Sixplex, Minneapolis, Minnesota (Photography: DJR)
Here are three ways to unlock the potential of LDMF housing to scale this housing strategy and ease supply and affordability challenges:
Adopt zoning reforms to allow for some form of LDMF development in single-family–only zoned areas.
The first step to facilitate LDMF housing is to adopt jurisdiction-wide land use and zoning reforms that allow for creating some forms of LDMF in areas zoned for single-family–only housing.A number of jurisdictions across the country have enacted zoning reforms to allow for some form of LDMF development in single-family–only zoned areas, acknowledging that this type of zoning contributes to a range of state and local housing challenges affecting affordability and supply. Since releasing our paper on this strategy in 2022, several states, including Arizona, Colorado, Montana, and Washington, have adopted state-wide zoning reforms intended to facilitate the development of some form of LDMF housing. Additionally, several local jurisdictions have adopted zoning reforms, including Arlington, Virginia; Burlington, Vermont; Knoxville, Tennessee; St. Paul, Minnesota, and New York City.
However, legal challenges filed by opposing groups have stalled some reform efforts. Additionally, since these regulatory efforts are recent and limited in geographic scope, they have yet to translate into an increased supply of LDMF nationwide. The adoption of similar reforms by other jurisdictions could lead to widespread state-level reforms intended to facilitate the development of LDMF housing, enabling the housing industry to scale the supply of LDMF housing.
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Jansen Court, Seattle, Washington (Photography: CAST Architecture)
Review underlying regulations to ensure they won’t inhibit or restrict the development of the desired types of LDMF housing.
Even when a municipality amends its land use and zoning regulations, there may be a set of underlying zoning regulations that could either inhibit or negatively impact the physical and financial feasibility of LDMF development. While local housing market conditions and zoning barriers to LDMF housing production vary from one jurisdiction to another, municipalities interested in addressing regulatory barriers can enact reforms that either eliminate or mitigate prominent regulatory and zoning provisions. These include:- Ensure that the underlying minimum lot size requirements allow for developing LDMF housing on parcels previously reserved for single-family development. Minimum lot size requirements are imposed by local zoning regulations to ensure that the parcels to be developed for a specific use meet or exceed size requirements (i.e., at least 5,000, 7,000, or 12,000 square feet).
- Provide a regulatory landscape that addresses development bulk requirements, i.e., maximum lot coverage, building height caps, and minimum setbacks from the lot’s four lines that allow for and do not negatively impact the development of LDMF housing on parcels previously reserved for single-family development.
- Ease minimum on-site parking requirements to ensure that underlying requirements allow for and do not negatively impact the development of LDMF housing on parcels previously reserved for single-family development.
The Englewood Passive House Duplex, Englewood, Colorado (Photography: Shape Architecture Studio)
- Create financing products tailored to the needs of LDMF housing development.
The scarcity of lending products tailored for LDMF housing development poses the most significant challenges to developing this type of housing. LDMF housing is likely to be developed by emerging small-scale developers, who often face barriers to accessing lending due to several factors. Small-scale developers pursuing LDMF development often find it difficult to meet underwriting requirements set by lenders and investors, including meeting thresholds for liquidity and net worth levels or track record requirements. Such developers could also be potentially perceived as risky by some investors due to the perception that they lack the financial and technical resources to successfully navigate and tackle unexpected challenges in housing development and operation.
Other barriers to accessing financing for LDMF housing development may stem from the scale of this type of development. A developer seeking capital to create LDMF housing may experience challenges in accessing a small-balance loan with terms that would allow the development to pencil out. Additionally, loan underwriters may deem it prohibitive to underwrite a loan for an LDMF development, especially when the cost of the fixed loan originating expenses, such as dedicated personnel and legal fees, outweighs the projected financial return.
To overcome these challenges, several private agencies have launched financing products for developers to construct LDMF housing. Such loans are designed specially to finance the construction of LDMF, offering small- to medium-sized loan balances (i.e. $3-5M loan in a market where a larger amount would be deemed a large-sized loan balance), as well as flexible terms that would enable proposed LDMF developments to pencil out, such as low-interest and low-cost small-balance loans that cover a larger share (80% or higher) of the total construction cost. Offering tools such as loan guarantees and pre-development grants could also help emerging small-scale developers access capital by mitigating perceived risks among lenders and investors.
This brief is the third in Enterprise’s Making It Happen series. Read the full brief, "Making It Happen: Scaling Low-density Multifamily Housing Construction."
This research was made possible through the generous support of JPMorgan Chase & Co. Unless otherwise specifically stated, the views and opinions expressed in the report are solely those of the report’s author and do not necessarily reflect the views and opinions of JPMorgan Chase & Co. or its affiliates.
What is LDMF Housing? There is no single, agreed upon definition of low-density multifamily (LDMF) housing, which varies across state and local housing markets largely depending on residential development patterns. These patterns have been significantly shaped by land use and zoning requirements — such as limits to the portion of a lot's area that is covered by buildings, distance between neighboring buildings, and building height — that enabled or precluded certain types of LDMF housing at the time of development. However, changes to these codes over time may have made it illegal to build similar homes today in many areas where they were once permitted. The effective definition of LDMF housing may also be influenced by what is allowable under current land use and zoning requirements, particularly in jurisdictions which have recently enacted zoning reforms that re-legalizes historic forms of LDMF housing. For example, Portland, Oregon’s 2020 zoning reform focused on allowing for LDMF with up to six units, while Minneapolis’ 2020 zoning reform focused on allowing for properties with up to three units. Our research describes LDMF development as housing with density that stands somewhere between traditional single-family development (a detached unit designed to be occupied by one household that sits on its own parcel of land) and high-density multifamily development (broadly defined as having a large number of housing units in relation to the construction site’s total area/size, maximizing land usage). Where it falls on the spectrum depends on the area’s residential development patterns. |