Breaking Middle Ground: How Small-Scale Developers Play Part In City Zoning Push

The nationwide housing shortage has spurred political action in every corner of the country. And developers, never strangers to efforts to shape building codes and regulations, find themselves even more engaged in struggles to make development easier, especially those focused on smaller apartment buildings. 

“Increasingly, developers, multifamily and missing-middle alike, are understanding that if they're not engaged, if they don't seek out a seat at the table, they’re ‘on the menu,’” said Mike Kingsella, CEO of Up for Growth, a member network dedicated to pushing pro-housing policy nationwide.

“The de facto trade associations for missing-middle builders really get engaged on these issues. Anything from funding advocacy organizations to participating in that direct advocacy, like signing letters of support, testifying and attending hearings,” he said.

Developers have become more interested in upzoning and missing-middle policy fights because of the increasing challenge of their work, the rising demand for new housing and, of course, self-interest in doing more development.

There is significant demand for more affordable living options. Up for Growth’s housing underproduction report for 2023 found the nation is short 3.9 million homes.  

“The code restricts you as a developer and tries to prevent you from building more dwellings,” said Austin Stowell, an Austin pharmacist-turned-real estate broker, developer and owner of Keep Real Estate, which focuses on small homes and townhomes. 

Stowell and his colleagues in the Austin Infill Coalition became supporters of a local initiative aimed at changing city regulations around permitting more affordable housing options. Known as the Home Options for Middle-Income Empowerment, or HOME Initiative, the effort seeks to ease the path for smaller multifamily projects that tend to be more attainable for average earners but have fallen out of favor in urban America due to changes in zoning and building codes. 

Phase 1 of the HOME Initiative passed in December. 

Stowell fell into small-scale real estate development in 2016, working on small homes and townhome projects. He had known a lot about the booming city’s real estate market, but the reality of building, not just selling, property was a wake-up call. He found the city’s development code was as thick as the U.S. tax code and required just as much time and as many costly experts to sift through.

In many ways, the push Stowell and fellow infill developers are making is singular. Austin’s HOME Initiative, a multipart effort to update the city’s zoning codes and create more opportunities for homebuilding and smaller multifamily projects, is the first such reworking since 1984. But it is also a common story in cities and municipalities across the country. 

Many urban infill developers can trace a straight line between their advocacy and their work. Linda Pruitt of the Cottage Co. in Seattle helped promote ordinances that allowed for pocket neighborhoods 25 years ago. Eli Spevak, a developer with Portland, Oregon’s Orange Splot, works for the city’s Planning Commission. Jim Kumon, who along with his wife, Faith, runs Heirloom Properties in Minneapolis, also ran the Incremental Development Alliance, a national coalition that advocates for zoning changes and training small-scale developers.

Businesses, whether small-scale builders or Fortune 500 companies, have become more engaged in housing policy in recent years. The housing shortage began driving interest from large organizations and big business, Kingsella said, including groups ranging from the AARP and National Urban League to the Ohio Chamber of Commerce. Equity, business competition and economic growth were all seen as connected to housing production.

The “Yes In My Backyard” belief that localities need to streamline housing production, which originated in California and has become a national force in local politics, has also pushed for housing abundance and policies that make it easier and faster to build. Young activists are making donations, supporting pro-housing candidates and volunteering to build a broad base of grassroots support. 

But YIMBYs have always been sensitive to opposing political forces that want to paint them as fronts for developers, so they have traditionally rejected developer engagement and campaign contributions. 

Stowell said antipathy toward developers and the way it has become a bad word in some circles is “kind of laughable.” 

“The developers that a lot of people are thinking about, the big players, they could give a rat’s ass about the HOME Initiative,” he said. 

But there are signs that advocates are becoming open to different perspectives. 

California YIMBY CEO Brian Hanlon, whose group has seen progress in recent years with slates of bills passing the California Legislature to reduce regulatory hurdles, said he has found that one of the main barriers left for building more housing is the cost and challenges faced by developers like Stowell. California YIMBY has started an informal infill developers network to take suggestions and gain insight from missing-middle developers about the best policy levers to pull.

The real estate industry has always been deeply involved in housing policy, Kingsella said. But what has changed, along with the concern over the housing crisis, is the type of advocacy these groups have engaged in. He has found that groups advocating on the local and state levels have “widened their aperture,” going beyond funding issues like Low-Income Housing Tax Credits and community development block grants. Instead, they are looking more at what he calls the “pro-housing agenda” of zoning reform and breaking down barriers to quickly building more homes.

Housing production fell off a cliff after 2008, dropping by 75% nationally, said Justin de Benedictis-Kessner, a Harvard University professor of public policy. Housing was a little-discussed issue in city government until the last decade, de Benedictis-Kessner said. But with the private sector’s ability to build limited, the public sector has been pushed to figure out how to cover that gap.

Observers of city politics in the U.S. have seen housing, specifically the shortage of affordable housing options and zoning bureaucracy, become a bigger issue.

In Austin, like so many other cities, changing regulations and new ordinances like the wildfire control zone ordinance have made building more complex. In recent years, the supply chain and labor challenges of the pandemic, coupled with rising interest rates and increased material costs, have made building a challenge, especially for smaller players.  

When the HOME Initiative debate began, members of the Austin real estate industry got behind the proposal. The Real Estate Council of Austin has made it a priority to foster partnership between policymakers, advocates and the development sector, according to RECA CEO Dianne Bangle. 

RECA’s support of pro-housing policy includes lobbying and advocating in the Texas Legislature and bringing expertise to policy discussions and debates. With HOME Initiative reforms under consideration in the Austin City Council this year, Bangle said RECA will be deeply involved in 2024, when numerous land use policies will be in play. 

This year will be a big one nationwide for housing policy, said Kingsella, who sees big pushes in Colorado and New York potentially making a big difference.

Stowell said developers will continue to play a key role in further debate around additional parts of the HOME Initiative.

“Policy initiatives like this wouldn't happen if developers hadn't lobbied for change,” he said. “[HOME] is a pro-freedom move for Austinites to allow them the choice to build something different than what's been allowed.”