Question: In the six months since Arlington passed Missing Middle, what have you seen and what do you think of it?
Answer: It’s been about six months since Arlington passed the Expanded Housing Options (EHO) aka Missing Middle (MM) zoning changes, allowing the construction of 2-6 unit properties on lots that were previously zoned exclusively for single-family homes. There has been much excitement and angst about it changing the fabric of our community, but it seems to me that the outcome will be much milder than many people expect. Unfortunately (or not?), it seems like it won’t go far enough to make the proponents happy but goes far enough to make the opponents angry.
For those who want more of an introduction to Missing Middle, you can read my initial thoughts on MM from March. This week, I’ll share an assortment of thoughts and observations I’ve gathered over the last few months while I try to better understand what MM means for Arlington. I’ll caveat the entire column saying that MM is all very new, very much undeveloped, and we probably won’t understand where and how it will be most utilized for another 4-5 years.
Don’t Expect Floodgates to Open
More than a dozen Missing Middle applications were submitted during the first week the County opened applications (on July 1), but according to Arlington’s application tracker, there are currently 22 applications submitted and under review and 5 applications approved. I consider this to be a modest pace of applications, suggesting there’s not a huge appetite yet to build Missing Middle. I’ve run at least a dozen scenarios with builders and architects and have mostly found that the numbers don’t make sense or that the margins are too tight to justify given the risk of the unknowns (outsale prices/demand, permits, lawsuit, etc).
Initially, I expected MM to add significant value to many older, smaller Arlington homes right away and cause a bit of a frenzy in the marketplace. The limitations of the new zoning code coupled with uncertainties about market demand for MM products and the County’s permit process seem to have kept, from my observations, developers and investors from paying a premium for tear-down homes intended for Missing Middle development (the pending lawsuit is also a significant factor).
Based on my conversations, it seems that the approach many are taking is to apply a similar valuation to an acquisition as they would for single-family development so there’s a safe exit if the Missing Middle project doesn’t work out or the lawsuit prevents further development. Each investor will evaluate potential MM deals differently, but it seems unlikely, for now, that we’ll see a frenzy of buying at a premium over previous tear-down valuations. There will of course be exceptions for certain lots that set-up perfectly for MM.
Applications Don’t Mean Much
So far, all we’ve seen are applications for Missing Middle construction not actual construction, but it’s important to understand that applications, even the five approved applications, are a small first step towards delivering a Missing Middle project. The County does not charge an application fee and the requirements for an application are simple:
- Floor plans
- Building elevations
- Existing property plat and building location survey
- Proposed property plat and building location survey
- Landscaping and/or tree preservation plans
I think that many approved applications won’t get any further, especially after going through Arlington’s ever-changing Land Disturbance Activity (LDA) and Stormwater requirements (this comes after the MM application gets approved), which adds a lot of cost and complexity to construction projects in Arlington and hamper profitability.
I also wouldn’t be surprised if a lot of the owners are hoping to sell their home with an approved Missing Middle application and set of plans, but don’t intend on actually building it themselves. That means they may not have done a true cost/profit analysis to determine if MM is financially viable or more profitable that a single-family development, so they might not get built.
One question I have for the County is that, given the limits on the number of applications they’ll allow each year, how will they clean out the application pool of applicants who decide not to build, sit on their application, or get stuck in the application process?
Large Lots, Largely Untouched
Of the 27 properties listed on the County’s application review tracker (as of this writing), none are located in R-8, R-10, or R-20 zones, which are home to most of the larger lots (“large” is relative) in the County and mostly located north of Langston Blvd. Note: the higher the number after the “R” generally the larger the lots are in that area/neighborhood.
I think this is mostly because the County, intentionally or not, made MM development unappealing for developers, compared to building single-family homes, on large lots by limiting number of townhouses that can be built to three modestly sized units. A developer must go with a multi-family/apartment-style product if they want to build more than three units and it’s hard to imagine demand being too strong for mid-sized condos without amenities, that are located away from the commercial/Metro corridors, where most of these larger lots are located.
I believe this trend will hold unless changes are made to allow 4+ townhouses to be built on a lot or there’s a significant increase in how large the building envelope (gross floor area) can be for developments on larger lots.
Creative Opportunities for Aging in Place, Families, Singles
One of the ways I can see Missing Middle being utilized is allowing homeowners to partner with a builder on the redevelopment of their property to create multiple units, one or two of which would be designed to their own specificationsn/eeds, with the cost of their new unit being reduced through the sale of the other units. For example:
- Aging in Place: a homeowner who requires care could build themselves a first-floor condo and a separate studio for a caretaker, then sell the other units
- Families: a family might build out the entire top floor for themselves, buildout a separate unit for their parents (a truly separate and self-sufficient in-law suite), and sell the rest
- Savvy Singles: a savvy single might build a small 1BR or studio for themselves to maximize the value and size of the rest of the units to earn themselves a free or very inexpensive home
Classic Cottages Leading the Way
Classic Cottages, a well-recognized custom homebuilder in Arlington (and surrounding Northern VA communities) seems to be taking the lead in Missing Middle development projects, with a handful of applications in across the County. They will likely be one of the first to give us a glimpse of what early Missing Middle will be, and can be.
None of their projects will be rentals, a fear many Arlingtonians have that neighborhoods will fill up with small rental buildings, and they intend to build to a similar design aesthetic and quality standard as they do in their $2M+ homes. They’re one of many local builders who will likely dabble in Missing Middle construction who don’t want to spoil their custom-home brand by building a weak product that reflects poorly on them.
I think we’ll see a high-quality product that is meant for sale, not rental, from most other developers too. The Arlington consumer rewards builders with high price premiums for higher-end construction, so the margins and incentives exist to deliver quality. I’m also convinced that in most cases, the cost of acquisition and construction are too high for rentals to pencil out and most MM construction will be sold to homeowners, not investors.
Lawsuit Won’t Change the Long-Term Path
The current lawsuit filed against the County may slow down the implementation of Missing Middle, but I see that as only a short-term victory for MM opponents, not something that will prevent upzoning from being established to Arlington in the long-run. Variations of Missing Middle are picking up momentum all over the region (City of Alexandria, Fairfax Co, Montgomery Co) and increased zoning flexibility seems to be the only way to feed a starving housing market. Even if the lawsuit is successful, it should only be bump in the road to more housing density.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.