Where does the infill housing go? Addition versus division

Jurisdictions across Canada and the U.S. have recently allowed “missing-middle” infill housing, such as accessory dwelling units and multiplexes, in residential zones formerly restricted to single-family use. Some studies have documented that infill housing is less prevalent in more expensive neighbourhoods. This is puzzling in that the right to add density should be more valuable in neighbourhoods where land prices are higher. To resolve this seeming contradiction, we develop a parsimonious model emphasising that different implementations of missing middle zoning feature different mixes of “addition” (adding to allowable square footage) and “division” (permitting the subdivision of a fixed amount of square footage into multiple units). In the model, addition is more valuable where price per square foot of built space is greatest, while division is more valuable where the elasticity of price in square footage is less positive.

If wealthier households have a greater willingness to pay for space, then infill housing will be less prevalent in pricier neighbourhoods when the upzoning features relatively little addition and more division. We test this with housing transactions and permitting data in upzoned neighbourhoods of Vancouver, Portland, and Minneapolis. The empirical results indicate that the location of missing-middle redevelopment with division-only policies is negatively correlated with price per square foot. Policies that mix addition and division show less of this pattern.