Rethinking the Suburbs
CCHO principal authors are Fernando Martí and Peter Cohen, with assistance from Maya Chupkov and Alexandra Goldman. Special thanks to UC Berkeley doctoral candidate Jessica Schirmer for research supporting this project.
This piece concludes the Council of Community Housing Organizations’ series of essays on California’s complex housing affordability crisis, and the need for regional, place-based solutions.
Previous essays in the series:
- Tackling Exclusionary Housing Policy in California
- The Missing Piece in the Housing Crisis: The Fall in Single-Family Homes
- Rethinking the Suburbs Is Integral to California’s Housing Solution
- How Do We Make Regional Housing Policy Equitable?
The dominant Bay Area housing narrative over the past decade has been the story of dramatically increasing housing costs and resident displacement. Changing patterns of development are resulting in new forms of racial and class segregation across the region. This story has been examined from many angles in an attempt to figure out what has gone wrong and what to do about it.
However, there is a part of this story that has been largely overlooked: since the Great Recession beginning 2007, California’s housing development has shifted away from predominantly suburban single-family development towards more urban high density multi-family development. A closer examination of the location and type of new housing built in the past decade can provide useful clues to how we can create a Bay Area region that is more affordable for all, supporting socio-economic and racial diversity.
The state government has in recent years begun to consider a variety of policies to address California’s housing affordability crisis, including improving tenant protections and foreclosure prevention, increasing rental subsidies and down-payment assistance, and accelerating the rate of new housing development. Of this panoply of strategies, increasing housing production has been the central focus of the last few state legislative sessions. These production strategies run the policy and political gamut: from direct funding subsidies to support affordable housing, to deregulation and value-conferring incentives to support market rate development.
In 2018, incoming California Governor Gavin Newsom set an ambitious political goal to stimulate the development of 3.5 million new housing units across the state by 2025. In order to reach this goal, developers statewide would have needed to build an unprecedented 500,000 new homes every year. For comparison, from the 1950s through the 1980s, during some of the most robust years of development, California averaged about 200,000 new homes per year, and, since the Great Recession of 2007, only about 100,000 homes per year.
Governor Newsom did not specify how many of the 3.5 million new units were expected to be affordable housing, nor did he specify where the development was envisioned to be located, whether in hot-market urban core cities, in historically exclusionary neighborhoods, or in soft-market suburbs. Nor did the Governor specify who would be primarily financing and building it — large investment firms, local banks and developers, or affordable housing nonprofits. There hasn’t been deeper analysis of how this policy would impact, positively or negatively, the emerging trend of racial re-segregation across the state, with lower income and communities of color being displaced from urban core “hot-market” cities and re-settling in outer suburbs of the region. Details like this require greater examination if we wish to build a more equitable California.
Other proposals to incentivize new development, such as Assembly Bill 1279 introduced in 2020 and returning to the State Legislature in 2021, begin with a racial equity framing, explicitly linking market-rate incentives to high-opportunity areas and avoiding concentrating high-income housing in gentrifying communities of color. That bill, supported by major affordable housing and housing justice groups across the state, aims to encourage and incentivize housing production in cities where development has been sluggish — whether because of “nimbyism” or just a cold local real estate market — and in “high resource” communities.
In this moment, as housing insecurity grows for a widening range of households, further exacerbated by the COVID-19 pandemic, and as government efforts to incentivize housing development continue to be the central focus of much of the housing policy discourse, it is important to examine historical development patterns and shifts in recent years, in order to better envision, propose, and assess impactful housing policy.
Since the Great Recession beginning in 2007, patterns in housing construction have dramatically changed: the Bay Area has seen both a huge decline in new single-family homes in the suburbs, and a commensurate boom and concentration of multi-family residential development in core urban neighborhoods. This essay, part of the Council of Community Housing Organizations’ Rethinking the Suburbs series, looks at these shifting development patterns in the Bay Area in order to better understand how we can move forward with well-informed housing development policy that will help us address the ongoing affordability crisis.
In the first two sections of this essay we briefly review the Bay Area’s regional development patterns from the 1950s to the Great Recession in 2007, and the changes over the decade since that financial crisis and economic downturn. Then we explore what this shift in housing typology and development geography since 2007 tells us about who is able to find and afford housing in the Bay Area, and how it is affecting the stability of communities across the region. The fourth section revisits the potential of suburban infill housing to tackle housing affordability at a broad scale, and reverse current trends of regional racial re-segregation.
The final part of this essay looks at policy areas to better understand the kind of comprehensive approach needed to tackle “the problem,” and importantly, recognizing its complexities and nuances. In broad strokes we address questions of a.) geography and construction types; b.) zoning and regulations; c.) construction and labor trends, d.) affordability incentives, and e.) housing production subsidies.
Ending California’s housing affordability crisis is top of mind for most policymakers today. And yet it is not as simple as it is often made out to be. “Build, build, build” may sound appealing, but that is not policy nor will simply building anything anywhere result in the socio-economic and racial diversity of communities that we all aspire toward. This essay on Rethinking the Suburbs offers an analysis of the problem statement, and a framework for tackling the vexing housing policy challenges of our time.
1. A (very) brief history of single-family suburban development in the Bay Area
Before World War II, many neighborhoods in inner ring suburbs across the country included not just single-family homes, but also duplexes, triplexes and fourplexes, courtyard apartments, and other housing forms now collectively called “missing middle” housing. These are housing types worth revisiting, though it is important to remember that many of these simple “walkup” apartments were lacking in the elevators, accessibility, and fire safety and existing building code standards of today. Multi-family housing construction persisted in many areas through the 1980s — think of all the older stock of garden apartments as one drives through certain suburbs, like the Monument Corridor in Concord.
Federal policies that affect investors’ demand for real estate had profound implications for housing production. Starting in 1974, the federal government began turning away from production-oriented housing assistance policy. In the 1980s, major federal supports started being directed toward the mortgage market. Tax reform in 1986 changed the profile of investment in multi-family housing, shifting from many small investors to large institutional players seeking tax shelters, reducing the players in competition in the multifamily market.
During the decades of postWar suburban expansion, development across the region shifted primarily to single-family homes. These single-family tracts were supported by hefty government subsidies: Federal Housing Administration loans, government-funded highway construction to make suburbs accessible, income tax subsidies through Federal mortgage interest deductions, and eventually, in California, property tax limits through Prop 13.
Some suburbs developed as “starter homes.” These relatively inexpensive homes provided an entry for working-class and middle-class couples and young families as first-time homebuyers, and as these families moved on, opened inventory to new working-class buyers. Over time, new single-family home development typologies gradually got larger even as household sizes got smaller and two-worker families spent less time at home — with new “master” bedrooms and en-suite bathrooms, entertainment rooms and “bonus” rooms. Houses today are on average over 1,000 square feet larger than in 1975. Similarly, evolving housing code standards added cost to these relatively simple wood-frame houses, especially in California with its stringent energy efficiency codes and seismic safety rules.
In those early decades, developers, realtors and lenders designed many of these new single-family neighborhoods as segregated suburbs with racial covenants and lending practices that provided low-cost mortgages only to whites. After the Supreme Court struck down racially explicit covenants in 1948, real estate interests increasingly resorted to economic barriers to continue to exclude people of color, using zoning to require, for example, minimum lot sizes or unit sizes or prohibitions on multi-family apartments to restrict housing typologies that lower income and communities of color could afford. Many of these post-war suburbs continue to operate as relatively segregated enclaves today.
Along with that, is the reality that as a result of fair housing struggles, today some of the only areas in the Bay Area with real racial diversity are those zoned for single-family homes. This is true, for example, in San Francisco’s Bayview and Excelsior, or San Jose’s Mayfair, as it is in huge parts of Oakland, and in cities like Richmond, Antioch, Pittsburgh, Pinole, Concord, Vallejo, American Canyon, Rodeo, or San Leandro. Some suburbs, like East Palo Alto, have become strongholds for communities of color, but now find themselves ripe for gentrification due to their proximity to Silicon Valley. Single-family housing neighborhoods are not a monolithic place-typology as those many communities have evolved in a variety of ways over the past several decades.
Access to these suburban communities was often hard-fought and remains precarious even today, subject to predatory lending, disinvested city governments, and lack of access to transit or services. But these neighborhoods are also places where working-class and middle-class communities of color have been able to gain a foothold, create community, and attain the possibility of winning some of that generational wealth through homeownership that has been denied them for so long.
2. Bay Area Development Since the Great Recession
The Great Recession beginning in 2007 rattled the Bay Area’s housing market, stifling new development and throwing many homes and small apartment properties into financial distress, affecting both homeowners and renters.
Since the 1950s, the rate of population growth in the Bay Area has slowed down, from a 4.5% annual growth rate in the 1940s during the war boom, to a current growth rate of less than 1% per year. Housing development has generally tracked these variations, with some outliers. The 1970s and 2000s were boom years for construction, building around one-and-a-half units for each new resident. The 1990s and again the 2010s, on the other hand, saw housing starts tank, reflecting the recessions that marked the beginning of each of those decades. In this essay, we’ll look more in-depth at the consequences of the 2007 Recession.
Even though for decades single-family housing development comprised two-thirds or more of California’s housing production, after 2007 it plummeted to less than half its pre-Recession peak and currently makes up only half of the total housing production across the state. Development of multi-family housing such as apartment buildings and condos, after decades as a limited secondary development market, finally passed its pre-Recession peak in 2017. Multi-family development is now at the highest level in three decades, and now comprises more than half of all homes built in California. The ongoing COVID-19 pandemic will certainly impact this recovery in ways we don’t yet fully understand. Regardless, it is clear that since the Great Recession the type of housing development and the location of this development within the region has dramatically shifted.
A shift away from sprawling single-family suburbs is important for a number of crucial environmental, economic, and social reasons. In an age of climate change, we need to confront the end of urban sprawl and exurban expansion. State and regional policies since the late 1990s, informed by the emerging consensus around climate change and shaped by the ideologies of New Urbanism, Transit-Oriented Development, and Smart Growth, began to cast doubt on the viability of suburban sprawl as the dominant land use development pattern in California for the past half century. These trends culminated in 2008’s Senate Bill 375, requiring, among other things, that each region create a “Sustainable Communities Strategy” setting targets for reducing greenhouse gas emissions.
At the same time, growing numbers of middle-class renters and homebuyers have shown a renewed preference for urban living, a rejection of the older generation’s suburban American Dream. “Walkability” and proximity to schools have become determining factors in the real estate industry’s lexicon. This concentrated market-rate development in “smart” growth locations also tends to be in and near older lower-income neighborhoods near city centers, those abandoned by the middle-class “white flight” of the 1950s and 60s, making them ripe for gentrification.
These efforts have resulted in concentrating housing growth along transportation corridors and around key transportation and commercial “nodes.” These have now also become areas with fierce competition for land, compelling more expensive high-density building types. This, among other reasons, means that much of the new housing being developed in today’s real estate market is very expensive and out of reach to lower-income and even middle-income households. Ironically, much of the new housing affordable to middle-income families is now found further out in the suburban periphery, as far away as the Central Valley, unfortunately leading to increased transportation emissions due to lengthy “mega commutes” these worker households must make to get back into the core urban areas for jobs. A paradox of smart growth is creating new sources of greenhouse gas emissions.
This complex of both “good” outcomes from the trend away from suburban sprawl development and also perverse unintended consequences to housing affordability has led to the accelerating race and class “re-segregation” of the Bay Area landscape, and is the great conundrum of current housing policy. Understanding this component of the current housing development landscape has implications for policies needed particularly to address “middle-income” housing affordability, which has captured both public interest and much of the current political agenda, as it is important to consider who this strategy is intended to serve in addressing our overall housing affordability needs. Here we use the term “middle-income” loosely to refer to households at or slightly above or below the area’s median income.
Does multi-family development necessarily mean greater affordability? Drawing on data from the Building Permits Survey and the American Community Survey, we’ll examine housing development trends in the Bay Area to answer this question.
The number of new building permits filed by developers throughout Bay Area cities didn’t recuperate and achieve pre-Recession rates until 2017, ten years after the recession began. However single-family housing starts remained at only half their pre-Recession levels. In place of single family homes, multi-family housing development has risen to 61% of the Bay Area’s total development from 41% in the early 2000s.
This shift to multi-family housing as the dominant real estate development typology did not occur evenly across the Bay Area counties. In all counties, single-family housing declined precipitously after the Recession. But in the outlying suburban and rural counties, multi-family development has not substituted for the reduction in single-family development market. The four core urban counties now account for 78% of all housing construction, up from 54% before the Recession, while the five outlying counties went from 46% of housing production to only 22%.
In Solano and Sonoma counties, for example, the share of multi-family development actually declined six percentage points between 2000 and 2018. On the other hand, Silicon Valley cities saw significant increases in multi-family housing. Multi-family housing development has become highly concentrated in the inner counties and specifically in the “Big Three” core cities (San Francisco, Oakland, and San Jose) and in “hot” real-estate market neighborhoods. he share of region-wide multi-family permits issued in San Francisco, San Jose, and Oakland increased from 47% to 54% in the decade after the Great Recession (2007–2018); and the share of total permits issued by the Big Three cities increased from 26% to 37%. San Francisco’s share of total Bay Area building permits issued doubled from 8% to 16% over the ten year period since the 2007 Recession began, while San Jose’s increased from 13% to 14%, and Oakland from 5% to 7%. There is an increasing pattern of concentrated real estate development in the last decade.
Does the statewide collapse of the single-family housing production market over the past decade indicate that a larger share of lower income and middle-income housing demand is being met through multi-family construction? Or is this new shift to multi-family development primarily concentrated in core urban areas mostly serving another, wealthier demographic?
3. The Limits of Density: Increasingly Expensive Multi-Family Housing
All of the new multi-family market rate development in core cities is unfortunately not necessarily affordable to middle-income households, and most certainly isn’t affordable for lower income households. The cost of land and construction in the Bay Area’s core cities render most private housing developments far too expensive to be “naturally” affordable to median-income renters or buyers without subsidy.
These larger buildings are usually more expensive mid-rise and high-rise construction typologies. Structures over five stories in height require more expensive construction techniques to provide earthquake and fire safety, usually concrete and steel as opposed to more inexpensive wood-frame construction. Even though higher density allows more units per square foot, the per-unit price is still often much higher than in low-scale suburban wood-frame construction. The significant density requirements needed to develop such large projects are typically only found on the very expensive land closer to the urban core. According to the San Francisco Planning Department’s Annual Housing Inventory, 67% of units added in 2017 were in the South of Market (SOMA) district adjacent to the downtown or in downtown proper.
As many affordable housing advocates have pointed out, intense concentration of new housing development in core urban communities can also destabilize neighborhoods. Lower-income residents and communities of color can be displaced from their transit accessible urban neighborhoods to outlying suburbs and forced into longer commutes back to cities for their jobs. There is a growing body of research identifying this pattern of “the suburbanization of poverty” as lower income communities are pushed to less-expensive, outlying suburbs, reversing the geography of race and class from much of the 20th century. This perverse outcome of increasingly concentrated “high density” market rate housing development in and near vulnerable urban communities is arguably the biggest and most troublesome housing policy problem of our current times.
4. The Promise of Density Done Right: Shifting regional housing strategies
It is important to consider this history of Bay Area housing, as we think of ways of bringing back a real estate development market that is more broadly distributed and can better serve the Bay Area’s multiracial working and middle class. Geography matters!
Finding alternatives to expensive mid-rise and high-rise development on the most expensive urban lands, while encouraging density in suburban infill, will be a necessary pathway for increasing affordability. Such an approach may open opportunities to further fair housing in more exclusionary areas, and may provide new economic options for communities of color who have been able to gain a foothold in homeownership. But it could also pave the way for displacement in some areas, potentially rebranding existing working-class communities as new “investments” for a wealthy few with access to intergenerational wealth. Threading that needle is our collective challenge in crafting effective housing policy for Rethinking the Suburbs.
Some suburbs historically provided for a greater variety of diversity of construction, through duplexes to the courtyard apartments of the 1920–30s, to the more car-oriented “motel-style” garden apartments of the 1950s-70s. Opportunities exist today in rethinking not only single-family areas, but also suburban arterials and strategic transportation and commercial “nodes,” and re-imagining how to densify suburban areas through incremental infill projects to create walkable new town models. Suburban infill housing could refuel a development market that could be broadly affordable to middle-income households, without displacing existing urban communities.
Responding to the rise of suburban sprawl and of expensive high-rise housing, architects and developers in the 1960s and 70s began looking at “high-density low-rise” models of housing. In the 1990s, the Congress for the New Urbanism promoted moderate-density housing based on traditional small town development patterns. More recently, in 2015, architect Dan Parolek coined the term “missing middle housing” to capture the concept of moderate-density housing at a scale somewhere between single-family homes and mid-rise multi-family housing, specifically looking at the potential for infill housing. Others have talked about “gentle infill.” There has been a groundswell of interest in these building typologies because it satisfies shifting consumer preferences for more urban (or at least urbanesque) living, facilitates walkable and transit-accessible neighborhoods, and addresses projected demographic shifts including the rise in single-person households and households without children.
These housing types typically cost much less to build than high-density midrise and highrise housing. They are built mostly of wood with simple and replicable techniques and don’t require complex construction like concrete parking podiums, fire/life safety systems, and back-up generators. Missing middle construction typologies include smaller 2–4 unit buildings that can fit on smaller lots and blend well in existing lower density residential areas, including accessory dwelling units (ADUs), zero-lot line narrow houses, attached townhouses, duplexes, triplexes, fourplexes, and smaller walkup buildings with some units accessible at the ground floor. They could also be mid-scale apartment buildings of 4 to 5 stories in height, primarily wood-framed with surface or “tuck-under” parking, that could be part of redeveloping suburban commercial/retail strips and malls.
The “missing middle” term has also resonated with media interest in the “disappearing” American middle-class, growing income inequality, and the barbell-shaped demographic growth at both lower wages and higher incomes. These national trends are reflected (or exacerbated) locally. In the Bay Area, the gap between the income of a household in the top 20% and a household in the middle had widened, in actual income-adjusted dollars, from around $57,000 in 1970, to around $92,000 in 2017. It is little wonder that market-rate developers have primarily concentrated on this high-end market rather than building for the middle-income bracket.
Moreover, middle-wage workers increasingly become susceptible to displacement as higher-income households push them out of desirable homes in the urban core. This is who the “starter homes” of the past were originally marketed to, and insofar as suburban “filtering” of housing prices worked, these middle-wage working households are who bought “used” homes as other folks “moved up” to keep up with the Joneses.
This is not just a housing problem, but a problem of income inequality and concentration of wealth, not just among a few but among a large enough segment that it skews market demand away from the traditional “middle-income” traditionally served by the private real estate development market in previous decades.
The prospect of re-sparking a construction market for smaller residential buildings also offers an opportunity to diversify the types of development companies, construction contractors, and sources of finance capital beyond those associated with the larger development investors and builders. These missing middle housing models do not require the same institutional capital to construct large mid-rise and high-rise development, allowing builders to better meter production over time with the ebbs and flows of market demand. This could have the additional benefit of expanding pipelines for the labor force in the construction industry.
While the large multi-family projects actually being built in the Bay Area’s cities today are likely to be out of reach for middle-income households, moderate-density multi-family housing in suburban areas where land costs are generally cheaper could be a promising and affordable alternative. So, what are the challenges to confront?
But this smaller “missing middle” multi-family suburban infill development is not occurring at the scale needed. Here we use IPUMS data to look at residential structures by decade, defining “missing middle” as smaller 2–19 multifamily buildings.
The trend in suburban multi-family development when and where it does happen is increasingly of buildings with 50 units or more, probably larger mid-rise construction. As mentioned above, when residential buildings exceed 5 stories, construction types and additional regulations related to earthquake and fire safety increase development costs, which in turn drives up the housing price to the eventual residents. While the multi-family housing development industry is set to surpass production rates at any time in the past 20 years, it still has not been able to meet the need for housing that is affordable to middle-income households.
Many housing industry interests and advocates see moderate-density “infill” housing as a promising avenue to “rethink the suburbs” and potentially refuel a robust statewide housing market, but an aspirational vision without practical consideration for its implementation is not in itself a solution. Incrementally adding density to existing communities will require new economic and planning models that facilitate it and guarantee affordability. Scaling up suburban infill housing development would represent a major shift in regional housing development practices.
5. Rethinking the Suburbs — Encouraging the Missing Middle
Commercial/high-rise and residential subdivision developers occupy distinct niches in housing production, and serve different submarkets. Reviving a missing middle suburban infill development market requires its own skills, construction capacities, government supports and regulatory frameworks.
Policy discussions about housing production have often focused primarily on zoning and building form, without addressing the full range of interventions necessary to make this a reality. Often the discussions seem to exist in a vacuum, without an understanding of the critical role of different geographies and markets needed to shape a targeted approach that truly builds a new development market in suburban infill situations.
To reboot the middle-income housing industry and increase the supply of affordable housing at the broad scale at which it is needed, we would need to ensure construction industry capacity, both in contractors and in labor; create incentives and tools for local officials and local stakeholders to address housing affordability challenges; update zoning and building regulations in a carefully planned way that results in greater production and avoids fueling land speculation; and, if this is not sufficient, expand production subsidies and financial incentives.
In short, solutions to California’s macro-level housing affordability issues will require a greater degree of state-local and public-private cooperation — not the blunt instruments of deregulation and tax expenditures which policymakers have relied on for the last forty years. In the following, we will briefly touch upon some ways to envision the tools necessary to Rethink the Suburbs.
Policy Area 1 — Geography Matters
Recent Bay Area housing strategies have tended to prioritize locating housing near public transportation, with the laudable and crucial goal of decreasing greenhouse gas emissions. However, as argued earlier in this essay, transit-adjacent sites tend to be more expensive, so if we only explore these sites we may only build more expensive housing and inadvertently continue pushing lower-income and middle-income households out to the periphery and into mega-commutes. Realistically the only way that transit-oriented smart growth will be in any way significantly affordable is through public subsidy at a scale that matches the regional housing needs goals.
Other, less expensive areas should be explored that may not be immediately transit-adjacent but still benefit from clustering within transportation corridors and near nodes of commercial and retail activities to maximize the potential affordability of missing middle infill housing development. These production interventions can be directed to a broader range of suburban areas in either transit or automobile proximity to job centers. A 10-minute commute by car is far better than a 90 minute commute by car. Areas identified as “high-opportunity” or “high-resource” areas should be especially (though perhaps not exclusively) prioritized.
A closer examination of the particular characteristics of the Bay Area’s suburbs should reveal both single-family zones and commercial corridors and other nodes where it might be affordable and desirable to build missing middle housing. The areas along the El Camino Real corridor for example offers particular opportunities, with its high number of parking lots and proximity to jobs nodes. But this is also where the more expensive land costs are often found. Areas beyond the Peninsula, with auto-proximity as well as bike-transit proximity to jobs, could include the 580 and 680 Corridors.
Policy interventions, whatever their form, should not be directed at those areas considered “hot-markets” that already exceed their market-rate production targets. In these areas, incentives are unlikely to result in any increase in affordability, as land and construction costs already dictate price, and meter production to the absorption capacity of the high-end market. Policy interventions should avoid concentrating any additional high-end housing in any areas identified as “at-risk” or “sensitive communities,” meaning areas that are at risk of displacement of lower income households and households of color, or which have seen significant displacement of lower income households and households of color within the 10 years.
Policy Area 2 — Zoning and Regulations
In certain single-family areas, zoning changes could increase density, decrease minimum housing unit sizes or parking standards, reduce lot coverage maximums, change setbacks or allow zero-lot-line development, or increase allowable construction heights to 3–4 stories; or look specifically at larger corner lots to increase density. Many Washington cities, for example, have recently passed Cottage Housing codes.
Further, in commercial and mixed-use zoning areas adjacent to arterial roads or in central business districts, including parking lots and retail sites, zoning could allow residential uses up to 4–5 stories — always with the intent to stay within the relative affordability of wood-frame construction. Development fees could also be reformed to reflect gross square footage of a project, rather than per-unit fees, removing this disincentive to increased density within a development project.
Beyond zoning, there is a whole world of subdivision rules and liability standards that could be reformed to encourage this kind of smaller-scale missing middle density. For example, rules should be reviewed to encourage small lot subdivisions, shared driveways, and clarify vertical condo subdivisions.
Regulatory incentives such as these should protect existing residents, by prohibiting their use on sites that have rental housing currently or occupied by tenants within the past 10 years, or where the Ellis Act has been used in the past 15 years. To ensure affordability, zoning allowances for additional density or for ADUs should prohibit use as short-term rentals, and, in cities where rent stabilization applies, extend rent stabilization to unit additions.
Policy Area 3 — Rebuilding Construction Capacity
The Great Recession a decade ago wreaked havoc on the construction industry. Construction industry capacity declined significantly after the recession. The residential industry saw the most declines among construction, as the number of firms has shrunk by more than 20% between 2016 and 2006, while employment in residential construction fell by more than 60% of what it was just a decade earlier. Particularly significant is to see how many of the smaller firms have disappeared, especially those under 50 employees. The construction firms best prepared to weather the storm were very large. These bigger construction firms still standing today are far more interested in large, multi-family, even multi-building contracts, than smaller missing middle infill type projects. Many of the smaller firms that would bid on more modest sized contracts have disappeared.
The period of the recovery after the Recession was accompanied by a reinvigoration of commercial office construction in the Bay Area not seen since the 1980s. Differences between commercial construction and residential construction may mean that limited sub-contractors are taking higher-paid jobs, whether in heavy office or midrise/highrise residential. Additionally, during the 5-year recession beginning in 2007, many construction workers switched industries, unable to find work in building, leading to an overall shortage in available construction labor.
At the moment there is a shortage of construction firms willing to take on missing middle type projects. The state needs to get serious about tackling these deep problems within the construction industry in order to enable the broad production of a diverse variety of smaller-scale middle-class housing.
Policy Area 4 — Incentives and Tools for Officials
Value capture is an important way to ensure any upzoning policy will maximize affordability (upzoning is essentially permitting taller or higher-density buildings in areas where they were previously not permitted). Cities like San Francisco have had success incentivizing not only higher-density development but higher-density affordable housing through value capture and density bonus programs such as HOME-SF. This local density bonus program enables developers to build larger projects in certain zoning districts in exchange for an increasing percentage of affordable units within the building.
Jurisdictions can look at similar programs, tailored to the zoning districts where higher density housing would be the most feasible and yield the greatest affordability. Cities could establish a density bonus for missing middle housing (for example, housing rented or sold between 80% AMI for smaller units or up to 140% AMI for larger units). Or they could give fee waivers to small projects that provide similar affordability. Cities could also grant streamlining or “by right” approvals, meaning that the local government’s review will not require a conditional use, planned unit development, or other discretionary review or approval, for projects providing certain and significant levels of guaranteed affordability.
Upzoning with value capture policies in place could be a successful way to incentivize affordable missing middle housing. As stated above, it is important to consider carefully the most strategic locations for upzoning to maximize potential affordability: single family areas with potential for densification, infill sites along arterials and commercial corridors in auto proximity to jobs, underutilized malls, and high resource / high opportunity suburbs.
Policy Area 5 — The Continuing Need for Production Subsidies
Some questions still remain: even if moderate density, missing middle housing is permitted through zoning, will the real estate development market produce housing that is actually affordable to middle-income households? The challenges associated with linking mid-sized multifamily structures with desirable transit-oriented land use patterns and housing affordability need to be better understood. Duplexes and garden apartments may imply affordability, but they do not guarantee it.
Further, if developers can earn a greater profit by building in areas which command high rents, where is the incentive to develop in suburban areas which would deliver lower rents?
These thorny questions might point to the need for some form of subsidies to ensure new missing middle housing is truly affordable to middle-income households. If this housing is built in the right locations with the right construction types, we can certainly minimize the amount of subsidy needed. For example, as discussed earlier in this essay, building 4–5 story housing on the site of an old suburban shopping mall is likely to be less expensive than building high-rise housing in the downtown urban core of the Bay Area. However, given the private real estate market has effectively failed to provide housing for the ever-widening range of households in need of affordable/modest-cost housing, we should remain vigilant of the possibility that some subsidy may still be required to achieve actual middle-class affordability.
The state could expand its tax credit allocations through further “income averaging” to assist middle-income renters, typically in the 60–80% AMI range for studios and one-bedrooms, and up to 120% AMI for two-income households — with incentives to support smaller missing middle developments that could fit well in suburban infill sites, or by bundling “scattered site” applications.
Ultimately, changes in the federal tax system could reform the mortgage interest deduction, possibly converting it to a credit to make it more accessible to moderate income owners.
Suburban subdivisions have historically been the major source of relatively affordable middle-income housing in California, but that single-family development market has not recovered since the Great Recession in 2007. Arguably the “demise” of the suburban sprawl development model is a good trend change. But neither has the private multi-family housing development sector stepped in to produce housing for this middle-income demographic. This is the new reality the Bay Area faces.
The suburban landscape that dominated California growth for over half a century is no longer “the norm” — people want a different experience, something more urbanesque, but not necessarily San Francisco or Oakland or central San Jose. From an environmental vantage point, that is a promising shift, giving an opportunity for more efficient use of land and geography across the region as the Bay Area population grows. After nearly thirty years of advocacy by environmental and affordable housing advocates, “smart growth” has finally become normalized.
But how do we take advantage of these enlightened aspirations to live a different lifestyle than the conventional single-family suburban-sprawl “ideal” that real estate developers and public policy stewards pedaled to Californians for five generations? And how can a new enlightened suburban-infill model also truly be affordable for middle-income and even working class households? Rethinking the Suburbs is a search for a new model, re-imagining opportunities in underutilized single-family lots and suburban arterials and nodes, reinvigorating communities and creating new walkable towns.
To make this a reality, we need to move beyond political rhetoric and focus instead on pragmatic policy interventions, even if they are novel and have some uncertainty. And we need to realize that it will take a lot more than removing some “regulatory barriers” to make it happen. We hope that this Rethinking the Suburbs series stimulates policymakers to consider the pragmatic measures that could be taken to unlock and guide this potential.