In this episode of The REconomy Podcast™ from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi continue the REconomy Summer School series with a discussion of a possible solution to the housing affordability crisis. From easing zoning restrictions and regulatory hurdles to addressing financing challenges and quelling NIMBY opposition, the episode unpacks how reviving construction of “missing middle” housing can help improve affordability.
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“We know why the missing middle disappeared—zoning restrictions, regulatory costs, and local opposition. And we know why it matters: fewer housing choices drive up prices and lock people out.” — Odeta Kushi, deputy chief economist at First American
Odeta Kushi - Hello and welcome to episode 121 of The REconomy Podcast, our fourth episode in this year’s Summer School Series, where we dive into economic issues shaping real estate, housing, and affordability. I’m Odeta Kushi, deputy chief economist at First American. And with me, as always, is Mark Fleming, chief economist at First American.
Hey Mark, we’ve had a great semester so far. We started our Summer School sessions focused on demand—covering headship rates and the factors driving or delaying homeownership. Then, in the last episode, we turned to supply—talking about how we measure housing shortages and surpluses.
Today’s class? It’s all about how we might be able to build our way to affordability.
Mark Fleming - Hi Odeta. We’ve definitely covered a lot of ground—no pun intended. Actually, pun absolutely intended. The last episode laid out the "what" and the "why" of our housing shortage. This episode focuses on the "how” – how we might actually start addressing it. We know there’s a chronic shortage, especially in places where people want to live, and we know underbuilding is at the heart of it.
Odeta Kushi - Yeah, yeah, we know you meant the pun. Let’s move on.
Mark Fleming - So today, we’ll explore the possible solutions.
Odeta Kushi - Right—missing middle, modular, maybe even micro housing. My.
Mark Fleming - Nice work with the alliteration! I’m ready to dig into the case of the missing middle.
Odeta Kushi - Just a heads-up—it’s not a Nancy Drew book from the '80s.
Mark Fleming - Ha—thankfully, because I’m not as familiar with that reference. But I see what you did there. And Odeta, I can’t promise we’ll get through this without a Huey Lewis reference. After all, it’s hip to be square. That might actually be our first Huey Lewis mention on the podcast.
Odeta Kushi - I have no idea what you’re talking about. Anyway—back to business. Throughout today’s episode, we’re also going to talk about the regulatory constraints that make it harder to build homes.
Mark Fleming - Absolutely. And we should probably begin with the missing middle—front and center.
Odeta Kushi - Great. Let’s start with a definition. “Missing middle” housing refers to housing types like duplexes, fourplexes, townhouses—basically, options that fall between a single-family detached home and a mid- to high-rise apartment building.
They literally fall in the middle of the density spectrum. They’re not full-blown apartment complexes, but they’re more than just standalone houses. And they can be a really effective infill development tool, helping communities add housing without needing new infrastructure or contributing to sprawl.
Mark Fleming - Sounds great—but it’s not easy to pull off. According to The New York Times, local governments restrict anything other than single-family detached homes on 75% of residential land in most U.S. cities.
Odeta Kushi - And that’s where denser housing becomes a clear cost-saving opportunity. If you can split one lot across multiple units, the land cost per unit drops significantly.
Mark Fleming - Exactly. But, even when zoning allows for higher density, you often run into other constraints—like height limits. Those are usually in place to preserve the “character” of a neighborhood or prevent overshadowing nearby homes. But they also cap the number of units you can build on a lot, making it harder for developers to justify the costs.
Take a three-story cap instead of five: the revenue from those extra two floors is gone, which can make the whole project less viable. And that’s just one of several zoning-related financial hurdles.
Odeta Kushi - Totally. And there are more regulatory headaches we’ll talk about in a bit. But let’s go back to this idea of “missing.” When did this kind of housing actually go missing? Let’s go full detective on this Nancy Drew mystery.
Mark Fleming - Great question. According to the National League of Cities, the shift away from middle housing started in the mid-1940s. That’s when zoning codes began to tighten up. Zoning codes began to clamp down, so a lot of the middle housing we see today was built in the 1920s and 30s.
AEI’s research shows that the share of attached single-family homes and two-, three-, and four-family units in the total housing stock has shrunk over time—from nearly 27% in 1940 to just 18% by 2019.
And two-unit dwellings were hit hardest. Back in 1940, they made up 11% of all one-to-four-unit homes. By 2019? That number dropped to just 4.7%.
Odeta Kushi - That’s a pretty big shift. And it’s not just regulatory challenges that made it harder to build this kind of housing—there are also financial ones.
But here’s the thing: those two are connected. Regulatory barriers drive up the cost of construction. So developers are forced to go big—either build large apartment complexes where economies of scale help offset those costs, or build expensive single-family homes where the price tag justifies the regulatory burden.
The math just doesn’t work out for middle housing. The costs don’t pencil, and sometimes, frankly, it’s just not popular.
Mark Fleming - Yep—cue the NIMBYs. That’s “Not In My Backyard” for anyone new to the term.
Odeta Kushi - Exactly. If you’re a single-family homeowner, you might not love the idea of a duplex or triplex popping up next door. People argue it “ruins the aesthetic,” as the youth say.
Mark Fleming - So true. But the team at the AEI Housing Center has a really thoughtful proposal that tries to balance the concerns of homeowners with the need for more housing.
Odeta Kushi - Yes—and I love the name: light-touch density.
Mark Fleming - Right? AEI’s light-touch density approach is all about modest increases in housing density—think duplexes, triplexes, or ADUs—accessory dwelling units—in areas that are currently zoned just for single-family homes. It’s designed to increase supply without dramatically changing the feel of a neighborhood.
Odeta Kushi - Exactly. In fact, their proposal even highlights how you can design townhomes to look like single-family homes. That way, you maintain the neighborhood character, while still getting more housing options into the mix.
Mark Fleming - So, yes, missing middle housing could absolutely help increase supply—but it has to be done in a way that fits into existing neighborhoods. That’s key.
Odeta Kushi - And, if you’re curious to learn more, definitely check out AEI’s work. We’ll include a link in the show notes. Now, earlier we mentioned zoning and height restrictions, but let’s bring up another overlooked barrier: parking minimums. These can require two or more off-street parking spots per unit, which drives up costs and reduces how much land you can actually build on.
Mark Fleming - Or how about setback requirements—those rules that force your building to sit a certain distance away from the street or property line? Another big constraint on buildable area.
Odeta Kushi - Totally. And then add in long permitting processes and NIMBY-driven lawsuits, and suddenly it’s a lot more predictable—and often easier—for a builder to just go with a big apartment building where zoning allows, or a single McMansion, than to try squeezing in a duplex in a single-family zone.
Mark Fleming - The good news is that we’re starting to see some movement. No one’s found a magic solution yet, but at least denser housing is part of the conversation now. For example, states like Oregon and California have passed laws that effectively legalize duplexes and triplexes in areas that used to be zoned only for single-family homes. And Minneapolis famously eliminated single-family zoning altogether—though it hasn’t been without its challenges. The zoning’s changed, but actually delivering more supply? That’s a harder step.
Odeta Kushi - Exactly. Just because you change the rules doesn’t mean developers can—or will—build. They’re still dealing with high construction costs, financing hurdles, and yes, lingering local resistance.
Not to mention, many areas simply weren’t built for higher density—narrow streets, septic systems, limited public transit. You name it.
Mark Fleming - That’s right. So zoning reform is necessary, but not sufficient. It’s like opening a gate—you still need people willing and able to walk through it.
Odeta Kushi - Ooh, love that metaphor. That’s a good one. So, in addition to missing middle housing, what else is out there? What are some of the other ideas on the table to help us build our way to affordability?
Mark Fleming - There are quite a few ideas out there. We already mentioned accessory dwelling units—those backyard cottages or garage apartments. A lot of states are moving to make it easier to build them. According to a 2024 report from HousingWire, states like Colorado, Arizona, Massachusetts, Hawaii, and California have all passed ADU legislation. But passing a law is one thing. Actually getting local governments to implement it? That’s a whole other challenge.
Odeta Kushi - Right. That’s what makes this so complex—it’s not just about national or even state-level changes. Most of this stuff happens at the hyper-local level.
And personally, I really like ADUs. They’re a great option for multi-generational living, especially as more baby boomers age out of their homes and move in with their adult children.
Plus, ADUs can serve as an income stream—you might rent it out and use that money to help cover your mortgage.
Mark Fleming - Everything’s local.
And those are all great points about ADUs. Now, another idea that’s been gaining attention is manufactured housing—a topic we actually covered in detail in REconomy episode 88.
Odeta Kushi - That was such a fun episode. Remember the part about Sears Roebuck Homes? That was like the original manufactured housing—you could literally order a home kit from a catalog.
Manufactured housing is generally much less expensive to build than site-built homes. But there are still financing barriers that limit access and availability.
Mark Fleming - Yep. Sears Roebuck. And of course, that’s the episode where we got to say one of my favorite words—chattel loans. I just love that we snuck that into a podcast.
Odeta Kushi - It’s definitely one of the lesser-known types of financing. Everyone’s familiar with the 30-year fixed-rate mortgage, but not so much with chattel loans. Now let’s shift to another category: tiny homes or micro units. You’ve probably seen headlines about them. They’re still niche, but they’re certainly more affordable and gaining attention.
Mark Fleming - So true. And there’s one more solution floating around—not about what kind of homes we build, but where we build them. There’s been growing talk about using federally owned land for new housing—especially in high-cost cities where land is incredibly scarce.
Odeta Kushi - Right. And the AEI team has written a lot about this idea. In a Wall Street Journal op-ed, Ed Pinto and Arthur Gailes argued that if the federal government were to sell just 0.05% of its land and earmark it for starter homes, we could build around one million homes over the next decade—and at a much lower price point than typical new construction.
Mark Fleming - And I believe some version of that proposal actually made it into what was dubbed the “big, beautiful bill.” Ultimately, it didn’t make the final cut—but it’s a great example of the kinds of creative solutions we should be talking about. Now, Odeta, I’ve got one last question. Maybe we’ll call it today’s final exam: Can we build our way out of the affordability crisis?
Odeta Kushi - Ah, trick question. The short answer is: yes. But the long answer? It depends.
Mark Fleming - Can it ever just be a clear yes or no?
Odeta Kushi - Not in our line of work! Here’s what we do know: Building more homes can help slow down rent growth and house price appreciation—especially by easing competition. And we’ve seen that play out. In places like Florida and Texas, where a lot of new apartments have come online, rents have grown much more slowly than in high-barrier markets like San Francisco.
Mark Fleming - Exactly. But let’s be real—even with more construction, home prices might still stay out of reach in high-demand areas with strong amenities—like coastal cities. So building more isn’t a guaranteed fix for everyone.
Odeta Kushi - That’s why many experts argue we need a both–and approach. Yes—reduce regulatory barriers and encourage more types of housing: missing middle, ADUs, manufactured homes, and more. But we also need targeted support—like housing vouchers, subsidies, or even public housing—to help lower-income households access safe, affordable housing.
Mark Fleming - So... did we solve the case of the missing middle?
Odeta Kushi - Nope. There’s your definitive “no,” Mark. But we’ve definitely uncovered some clues. We know why missing middle housing disappeared—zoning restrictions, regulatory costs, and local opposition. We know why it matters—because fewer housing choices drives up prices and shuts people out of opportunity. And we’ve talked about how we might bring it back—by rethinking zoning, financing models, parking requirements, and even infrastructure investments.
Mark Fleming - Exactly. That was a pretty solid summary. Now, time for a reward—maybe I’ll put on some Huey Lewis and the News greatest hits.
Odeta Kushi - Wow. Sometimes I wonder how I ended up doing this podcast with you.
Mark Fleming - Wait... so you do know who Huey Lewis is?
Odeta Kushi - I just play dumb sometimes. I’ve been around you long enough—I know more ’80s songs than I care to admit. Well, that’s a wrap on this Summer School session. Thanks for joining us for another episode of the REconomy Podcast. If you have an economics question you'd like us to feature in a future episode, you can always email us at economics@firstam.com. And, if you can’t wait for the next episode, be sure to follow us on X—I'm @OdetaKushi, and he’s @MFlemingEcon. Until next time.
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