The surprising reason we can’t build the missing middle

For decades, major cities worldwide have embraced medium-density housing as a way to strengthen urban areas, allowing more people to live in vibrant and livable neighbourhoods affordably and sustainably.

Not so in Australia’s capital cities.

And the reason why might surprise you.

Sydney's housing market has long been dominated by two extremes: expansive suburban homes and towering high-rise apartments.

This stark dichotomy has created a critical gap in the city's housing supply, known as the "missing middle."

The missing middle encompasses medium-density housing typologies such as duplexes, terraces, townhouses, and low-rise apartment buildings.

Addressing this gap is essential to solving Sydney's severe housing affordability crisis while maintaining the city’s livability.

The urgency of the missing middle issue is underscored by new housing starts at an 11-year low.

Australia will fall short of 2024’s national target of 240,000 new homes by 90,000.

In response, the federal and state governments have launched initiatives to incentivise infill development and dismantle regulatory barriers that hinder the growth of medium-density housing.

In NSW, these policies aim to deliver up to 112,000 additional homes over the next five years, a goal that hinges on the success of building in the missing middle.

One aspect of housing reforms in NSW has commenced, with duplexes and semi-detached homes added to the housing mixes of 124 of the state’s council areas.

Another aspect — Transport Oriented Development (TOD) reforms, which will see planning controls optimised to build new homes around train stations — is facing delays in certain council areas.

The postponement and deferred transport-oriented development sites pose significant challenges in meeting housing targets.

Considering the loud voices of NIMBY groups in desirable locations across the state — and their power as a voting bloc — it’s possible that these policies may never again see the light of day.

Planning policy is not, however, the thing that most developers of medium-density housing say is holding them back.

Research by CrowdProperty into the concerns of small-scale developers showed that 56% consider raising project finance the most prohibitive factor in their attempts to build new homes.

Only 13% of developers identified the planning system as the most restrictive factor.

Due to regulatory complexities and capital requirements, traditional banks often view missing middle projects as high-risk and therefore high in capital costs.

While innovative financing options are stepping in to fill the void, whether the government will find policy mechanisms to ease financing constraints remains to be seen.

Collaboration between the government, developers, and the community is crucial to realising more medium-density housing in Australian cities.

Governments must continue refining policies and providing incentives, while developers need to adopt creative approaches to design and financing.

Community members, in turn, should be encouraged to participate in the planning process, ensuring that their voices are heard and their concerns addressed — without cynically blocking much-needed projects.

Ultimately, the "missing middle" housing strategy represents a shift towards a more inclusive, economically sensible, and diversified housing market.

Australian cities can create vibrant, sustainable neighbourhoods without homeowners suffering a loss of value in their properties due to over-densification.

Guest author is David Ingram, CEO of CrowdProperty Australia

About Guest Expert Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.