Creating "Missing Middle" housing: financial strategies & resources

Missing middle housing is broadly defined as medium-density housing that has historically been “missing” because it occupies a space between low-density single-family houses and high-density large apartment complexes.   

In Vermont, “missing middle housing” typically refers to a type of home design that includes accessory dwelling units (ADUs), duplexes, small-scale multi-household buildings, and neighborhood-scale mixed-use/live-work buildings – common before local zoning codes began to separate different kinds of uses and building types. [1]

Developers of missing middle housing may face greater hurdles securing funding sources sufficient to cover the costs of building or renovating existing buildings to produce these homes. Challenges include elevated costs of materials, labor and land for small scale projects.  Furthermore, financing options may also be limited or come with higher interest rates because traditional lenders value the standardization and predictability of larger scale projects. [2] 

Potential solutions 

In light of the widespread need for more middle housing, state and local policymakers in Vermont and across the country have explored financial strategies to help.  A Council of Development Finance Agencies toolkit released in November describes how a range of strategies, from zoning reform to public-private partnerships, can leverage resources to support missing middle housing. This toolkit provides information and examples for developers in the following areas: 

  • Bedrock Tools (such as municipal bonds)
  • Targeted Tools (such as Tax Increment Financing)
  • Investment Tools (such as housing tax credits)
  • Access to Capital Tools (such as revolving loan funds)
  • State and Local Support Tools

To learn more, the Incremental Development Alliance offers a host of workshops and services to aspiring developers, communities and neighborhood organizations such as free webinars called “Are You Ready for Capital? How to Work with a Community Development Loan Fund.”  Vermont has five Community Development Financial Institutions, such as Opportunities Credit Union. 

Vermont statewide programs

State policy makers in Vermont have launched several recent initiatives to help missing middle housing, including:   

Local community levers 

Vermont communities also control levers that can greatly support the development of middle housing by reducing regulatory barriers and development costs for these types of projects. 

Sample financial tools for communities to promote middle housing 

Examples of municipal lever benefits on affordability of middle housing in California are described in this comprehensive series on “Making Middle Housing Affordable.” 

Reduce regulatory barriers to developing middle housing

Reduce development costs for middle housing projects

Remove zoning restrictions to allow for a variety of housing types and densities in different neighborhoods 

Support providing housing trust fund grants, low-interest loans, and other financial incentives 

Simplify and accelerate the permitting process 

Donate municipally-owned land 

Support density initially proposed by developers 

Provide municipally-funded infrastructure such as water, sewer and roads

Implement pre-approved housing plans and designs

Reduce permitting fees 

Allow single-family home conversion to duplex or triplex by right

Reduce impact fees

Private market strategies for homeowners 

Homeowners interested in creating additional housing in their existing home may find that a private financial institution or partner organization can provide the option they need to move forward.  In a 2022 study of homeowners who built ADUs in California, where ADUs have increased dramatically in recent years, 62 percent used liquid assets such as personal savings.  Others used mortgage products such as a home equity line of credit. A small portion used construction or renovation financing, such as the Federal Housing Administration’s 203 (k) program.