Why Aren't We Building Middle Income Housing?

For low-income residents in high-cost areas, there's no substitute for the public sector to provide below-market rate housing. But for middle-income households, the market should be able to produce housing without subsidy. So why doesn't this happen?

3 minute read

February 28, 2017, 6:00 AM PST

By Keli_NHI


In a previous Shelterforce blog post, I argued that we cannot give up hope that the market will build middle-income housing. Granted, over the past decade, most new housing has been built in the luxury segment of the market, yet some argue that this isn’t a problem because the luxury housing naturally "filters" down and eventually offers everyone the benefit of lower rents and prices. I agree that refusing to build luxury housing (in the face of rising demand from wealthy households) will only make the housing problem worse for everyone else, but exclusively building luxury housing is no strategy for addressing the housing problems of low-income or even middle-income people.

For low-income residents in high cost areas, there is no substitute for public sector action to provide below-market rate housing, but for middle-income households, the market really should be able to provide appropriate housing without government subsidy. It is not doing that now, but we shouldn’t give up on the idea because ultimately it will bring more benefit to a wider segment of the population than luxury housing can.

So why doesn’t this happen?

This is a surprisingly complex problem that is made all the worse by the fact that everyone seems to expect it to have a very simple answer. In local policy discussions, I hear two grossly simplistic answers that I believe do more harm than good. Some people seem predisposed to conclude that we don’t build more moderate-income housing because of developer greed. Another group of people want the culprit to be unnecessary government regulation. Both explanations stand in the way of really understanding the problem and doing something effective to solve it.

Do Developers Focus on Luxury Housing Because They’re Greedy? 

Of course developers are motivated by profit, but I don’t think there is any reason to believe that real estate developers are any more (or less) greedy than producers in any other industry. Yet when you look at most other consumer goods, the market provides options at a range of price, and quality, points. In the auto market, working class and middle-income people don’t all drive 40-year-old BMWs and Mercedes, many buy brand new Ford Focuses and Honda Civics.

While some of the most profitable cars on the road are luxury cars, the Ford F-150 pickup truck and the Toyota Camry are also at the top of the list, and it’s not hard to see why. In 2016, Toyota sold almost 400,000 new Camrys and nearly as many new Corollas. Their best selling luxury car, the Lexus EX, sold only 50,000 units. Even assuming they earn a much higher margin per car, luxury models are not better investments because the volume is so much lower. 

It is pretty clear that the real estate industry would make vastly more money if it were to build more housing for middle-income households, even if the profit per unit were lower on those projects. So the problem can’t be as simple as greed.

Monday, February 27, 2017 in Shelterforce/Rooflines

portrait of professional woman

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching. Mary G., Urban Planner

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching.

Mary G., Urban Planner

Get top-rated, practical training

Logo for Planetizen Federal Action Tracker with black and white image of U.S. Capitol with water ripple overlay.

Planetizen Federal Action Tracker

A weekly monitor of how Trump’s orders and actions are impacting planners and planning in America.

April 30, 2025 - Diana Ionescu

Close-up on Canadian flag with Canada Parliament building blurred in background.

Canada vs. Kamala: Whose Liberal Housing Platform Comes Out on Top?

As Canada votes for a new Prime Minister, what can America learn from the leading liberal candidate of its neighbor to the north?

April 28, 2025 - Benjamin Schneider

Hot air balloons rise over Downtown Boise with the State Capitol building visible amidst the high rises.

The Five Most-Changed American Cities

A ranking of population change, home values, and jobs highlights the nation’s most dynamic and most stagnant regions.

April 23, 2025 - GoodMigrations

Aerial view of flooding during Hurricane Helene in North Carolina.

‘Quality Work, Fast’: NC Gears up for Homebuilding After Helene, Trying to Avoid Past Pitfalls

The state will field bids to demolish, repair and rebuild homes in the mountains. After struggles in eastern NC, officials aim to chart a different course.

47 seconds ago - NC Newsline

Washington

Washington State’s Parking Reform Law Could Unlock ‘Countless’ Acres for New Housing

A law that limits how much parking cities can require for residential amd commercial developments could lead to a construction boom.

May 1 - Streetsblog USA

Bluebird sitting on branch of green bush.

Wildlife Rebounds After the Eaton Fire

Following the devastation of the Eaton Fire, the return of wildlife and the regrowth of native plants are offering powerful signs of resilience and renewal.

May 1 - AP News

Urban Design for Planners 1: Software Tools

This six-course series explores essential urban design concepts using open source software and equips planners with the tools they need to participate fully in the urban design process.

Planning for Universal Design

Learn the tools for implementing Universal Design in planning regulations.