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February 2021

The Missing Middle: A Solution for Adding More Housing

February 4, 2021

Duplexes, fourplexes, plus 2-to-4-unit townhomes, courtyard buildings, and cottages could provide much needed entry-level housing and/or more affordable housing for certain homebuyers. The National Association of Home Builders (NAHB) believes such structures offer viable solutions to the housing shortage and would help meet the needs of many first-time buyers as well as those who find single-family homes out of reach.

"These types of houses have smaller footprints than single-family detached homes but lower density than larger apartment buildings. This can be ideal for single-person households, for baby boomers, and for other households choosing to downsize," stated Danushka Nanayakkara-Skillington, NAHB's assistant vice president for forecasting and analysis.

NAHB's permit data shows activity for 2-to-4-unit structures was volatile during 2020 due to uncertainty surrounding the COVID-19 pandemic. Permit activity was lowest in April, at only 33,000 units (seasonally adjusted annualized rate) when economic shutdowns were widespread. October had the highest activity with 57,000 units.

Quarterly averages reflected considerable variation:

1st quarter:        45,000 units per month

2nd quarter:       38,000 units per month

3rd quarter:        47,000 units per month

4th quarter:        52,000 units per month

Nanayakkara-Skilling said the gains were consistent with a suburban shift reported in the association's third quarter Homebuilding Geography Index (HBGI). It showed housing demand moved to lower cost, more affordable markets. The shift occurred in all forms of residential real estate and was believed to be in response to increased telecommuting and other virus crisis impacts.

Its monthly tabulation of residential building permits for Washington covering the period January 2019 through November 2020, NAHB found a range, (measured in 1,000s) from 2.57 in April 2020 to 5.18 in November 2019.

NAHB expects multifamily construction to decline this year as weakness continues in the densest market areas. Builders forecast localized gains in areas of lower density and lower construction cost, with market stabilization anticipated in in 2022.