Missing Middle Multifamily Sector Experiences Modest Growth in Q3 of 2022

The missing middle construction sector is made up of a range of house-scale building with multiple units – compatible in scale and form with detached single-family homes-located in a walkable neighborhood.

According to analysis provided by the National Association of Home Builders (NAHB) the missing middle construction sector includes development of medium-density housing, including townhouses, duplexes, and other small multifamily properties.

The NAHB notes that while townhouses construction has moved higher in recent quarters, the multifamily segment of the missing middle (apartments in 2-to-4-unit properties) have been disappointing. In 2021, there were only 12,000 starts of such residence. This is relatively unchanged from 2020, when most other construction sectors were expanding.

In Q3 of 2022, the NAHB is reporting that there were just 5,000, 2-to-4-unit housing unit construction starts. If accurate after revisions, that would make the best quarter this market segment has seen since the middle of 2008. The gain, however, is small, and not particularly statistically significant. It does, however, match a pickup in permits for 2 to 4 units production registered in previous quarters of 2022.

As a share of the multifamily sector production, the 2 to 4-unit development is only 3.4% of the total. In contrast, from 2000 to 2010, such home construction made up less than 11% of total multifamily construction.