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  • Missing Middle…by the numbers


    Gene Miller
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    The basic math of Missing Middle housing makes it an unsafe bet for most developers.

     

    ASH. THAT’S WHAT I CALL IT. Stands for Affordable Sustainable Homes. The idea is pretty simple: a two-and-a-half-storey ‘houseplex’ of between eight and twelve suites, each of which has its own front door. Less apartment-y feel and no wasted square footage ($$) on common areas or internal circulation.

    Okay, the “Affordable” bit’s a complete joke in today’s market. ASH isn’t affordable, nothing’s affordable, new or existing. Everything’s “market” which among other things means that folks owning conventional properties that proliferate in Fairfield and other established neighbourhoods are sitting on roughly $1.5 in value. That number bears repeating: one million five hundred thousand dollars. Million, with an ‘m.’ If you sell and you’re not carrying too much mortgage debt, that makes you an instant millionaire. Did you ever think you would live in such times?

    Of course, the market’s softening a bit. So maybe that’s down to $1.3 million. Pass the tissues, please.

    What conditions, exactly, have lofted prices throughout Victoria to the stratosphere? I don’t know. Macroeconomics was never my strong suit. Closest I can come is: everyone wants to live here so there’s over-demand and under-supply. Profound, huh?

    While that might explain why land/property costs have laddered, consultant costs, fees, the cost of borrowing money and the cost of a 2x4 and everything else required for building a house have gone sky-high, too. You may have noticed, as you go past construction sites, “We’re Hiring” signs on every hoarding.

    Which brings us around to so-called Missing Middle housing. Given my increasingly porous memory, I can’t recall if the phrase was meant to address housing typology, the scale of buildings, housing costs, housing availability or, depending on circumstance, all of these. 

    It’s not in my memory that former Mayor Lisa Helps, the City’s Missing Middle champion, or any of her council members thundered that success with the Missing Middle initiative would create a new era of housing affordability. My take, for reasons you may by now well understand, was that Missing Middle—permitting mid-block houseplexes of up to six suites and street-corner townhouses as-of-right, without onerous and costly rezoning (though still subject to various performance conditions)—simply made ASH-type and -scale developments quicker and easier. 

     

    47576302_MissingMiddlehousing.jpg.d3eb3ed86eed19bebfc926a05d901cd9.jpg.73be50332747f2ea4c368d76972ffe49.jpg

    Examples of  Missing Middle-type housing from the City of Victoria's design guidelines.

     

    My initial reaction was enthusiastic, tempered only by rue for the staggering amount of time it had taken me to complete the development approval process  (more than three years) on my own current project during which direct costs—all pass-alongs to the housing consumer—leapt by a third…not exactly a blow in support of affordability.

    But then I did some of the Missing Middle math. Story-telling style, it goes roughly like this. So, I find a mid-block property for sale in Fairfield. Price: $1.4 million, let’s say. You mean, the property owner doesn’t understand that Missing Middle is intended to deliver housing affordability, and won’t sell for $800,000?

    Let’s continue.

    So, my land or property cost (my ”dirt cost” in developer-ese) per door—remember, six is the permitted maximum—is about $235,000. 

    I plan six, roughly 850 sq. ft. two-bedroom units. Hard costs (everything related to construction ) are not less than $400/sq. ft. or $340,000 per suite. Soft costs (architect, consultants, interest cost of borrowing the working capital, various fees, real estate commissions, etc.) are likely to come in at $250/sq. ft., or about $210,000 per unit.

    So, where are we now? $785,000/door, by my reckoning.

    Then there’s developer profit. As everyone knows, almost all developers make 500 percent profit—or a gazillion—on their projects; but because I am the living incarnation of Jesus Christ, I will settle for a mere 20 percent, or $157,000/door, assuming my project lender, from whom I’m borrowing millions, feels that this is a sufficient (and credible) margin, just in case. This brings the total purchaser cost to $942,000, or about $1,100/sq. ft.

    In fact, stuff in Fairfield and other “prestige” neighbourhoods has been selling for upwards of a thousand a foot (prices are softening a bit right now, but not much).

    So, now we’re at the most interesting and subjective feature in the development process: developer appetite for risk.

    And you want to know something? As I do a risk assessment, from the gut and on paper, reviewing the numbers and trying to measure the future of an uncertain market (from development property purchase to the end of the sales process will be 18-24 months), I don’t like it. Too many things could shift. Costs could jump. Sales values could soften. The amount of capital (equity) my project lender requires me to put into the deal could increase. If all of that happens and my margins are too thin, I’ll be selling pencils on the streetcorner.

    Nope, I’m not going to buy the property, I’m not going to do the development. I’m outta here. Goodbye, Missing Middle. Maybe if I could do eight or ten units…maybe if land costs…maybe, maybe, maybe.

    The City’s own commissioned financial analysis of Missing Middle Housing appears to agree with my own. Coriolis Consulting Corp’s April 2022 report states: “The financial viability of missing middle housing development is likely marginal in most locations in the City, so if permitted, the pace of missing middle development will likely be modest for the foreseeable future.” And also: “Because the financial viability of missing middle housing is marginal, there is little room for missing middle projects to provide amenity contributions or below market housing.” (The word “marginal” appears frequently in the report.)

    Luckily, this doesn’t put the entire Missing Middle initiative at risk. I mean, I’m the only prudent developer in Victoria. All the others are testicular, high on pills or Chivas and well into their fifth marriage.

    So, given my tale above, and the City’s plan for the diffusion and placement of Missing Middle projects, and the fact that suite-ed homes already proliferate throughout Victoria and the world does not appear to have ended for nearby single-family values or quality-of-life, why has there been so much fear and hysteria directed at the prospect of Missing Middle housing? Why the fierce opposition when the basic message of Missing Middle is: more of what already exists? Why all the hand-wringing letters (in this magazine and elsewhere) about Missing Middle as the end of the tree canopy—prompting my nasty quip about a new species of Fairfield tree: the NIMBY Oak? Why has no one figured out that the City, comfortable with policy, not market risk, has placed limits on Missing Middle that under current market conditions, guarantee no projects will be undertaken?

    The idea, the principle, of Missing Middle was and remains so rational: distributed density throughout the city in familiar and traditional building forms that will have minimal impact upon the character of Victoria’s neighbourhoods. 

    Brilliant!

    Everything works but the math.

    I can only conclude that communities were poorly equipped with the facts, and the Missing Middle conversation jumped the tracks fairly early on. Hysteria is often an expression of worst fears, and it appears the City was never in a position to resolve those fears. Hysteria, as you likely know may author or influence civic policy, but not good civic policy. 

    So, a new City leadership is about to reconsider Missing Middle, and may well approve it—either as conceived by the last administration, or with some new twists.

    Assuming that the City’s goals have not changed and that, with now-Premier David Eby’s eye on the City’s performance (he was Housing Minister when he first made clear his expectations of Victoria), I would encourage mayor, councillors and relevant planning staff to sit down with developers, commercial lenders and project marketers to have them either echo or repudiate my concerns about project viability—assuming it’s in no one’s interest to initiate a plan that will have little or no take-up or, even worse, an early failure or two. Such a sit-down may well alter Missing Middle development characteristics, which would then justify a fresh public information and review process.

    Let me know how it all works out. I’ll be in my office counting my zillions.

    Founder of Open Space, founding publisher of Monday Magazine, originator of the seven Gaining Ground urban sustainability conferences, Gene Miller is currently writing “Futurecide,” a book that argues that catastrophe is ecological, writing “Houseplex—Density Without Damage,” presenting and editing the website “Shit Sandwich—the Best of the Bad News,” and initiating the Centre for the Design of the Future, a Victoria-based host for social innovation.

     

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    So my thought is we do something really simple. Just enable single or multi-family units in R1-A, B, G & S. Keep the setbacks, the height, the density/FSR. Just allow houseplexs. The market will figure it out.

    If you want to make it more complex, a bad idea,  consider a common FSR. The OCP says up to 1:1. That may be a little dense. I am for simplicity. Just allow multiple home owners on a single lot without the need to rezone.

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