Paths of Greater Resistance
This article is part two in a five-part series on small-scale, incremental development. You can read part one here, and sign up here to receive the e-book for this series when it’s available.
What does it take to do small-scale development successfully today? Words like “grit” and “hustle” are clichés, but you’ll hear them when you start to ask this question. The main reason for the scarcity of these developers, and projects, is that incremental development today is far from the path of least resistance if you’re looking to build things or to make money in real estate. You have to really want to do it, and even then, you’re going to find it a challenge to make it work, a puzzle you must solve.
To do this work, you need three things:
The ability to navigate regulatory barriers.
Access to knowledge and a supportive network of people.
Access to capital.
We’ll discuss points two and three in the next installments of this series, but for now, let’s talk about regulation. Many of the small developers I’ve spoken with view their work as a sort of “hacking”: navigating around obstacles put in front of them by a system not designed to make the kind of work they do easy.
Image via Mike Keen / Thrive Michiana.
I indict “the system” because there isn’t a single culprit. If there were only one or two pervasive policies or practices standing in the way of good development projects, the call to action would be easy: repeal them. Eliminate them. But often, there are dozens of regulatory barriers—and they interact to cause problems in ways that aren’t obvious until a project idea runs into a particular jumble of thorns.
Zoning, Land-Use, and Parking Rules
Take the experience of Minneapolis with zoning reform. The city drew plaudits from urbanists and the national media in 2018 for passing a comprehensive plan that eliminated single-family zoning—in theory, allowing a duplex or triplex on any residential lot citywide. Yet since then, there has been very little indication of developers’ willingness to build triplexes in Minneapolis: only a handful have been approved. And when I spoke to developer Bruce Brunner, who teaches “house hacking” there, it became obvious why. The city’s built form requirements governing the physical shape and size of homes weren’t updated alongside the zoning in a way that made sense for triplexes. The Floor Area Ratio (FAR) requirements were the most obvious culprit: Being limited to a total floor area 50% the size of the lot, in practice, rules out the possibility of larger, family-sized apartments, and makes most triplex designs uneconomical or too physically awkward to build.
A single regulatory requirement can set off snowballing changes to the ultimate form and cost of a project. Parking is perhaps the most dramatic example of this. Seattle-area developer Cary Westerbeck has shared his parking headaches with Strong Towns in a case study you can read here. Long story short, parking requirements in his city of Bothell, Washington, reduced the maximum viable project on his 2,500-square-foot lot from 16 units to four. This kind of thing happens not only because of the cost of constructing parking itself, but because of the geometric constraints parking creates for fitting a building on a site (and in a way that conforms to other requirements about height, FAR, or setbacks). In Westerbeck’s case, accommodating parking would have meant an underground garage, and would have pushed his rents up by $500 a month, beyond the realm of market viability.
Cary Westerbeck's fourplex in Bothell, Washington. (Credit: Westerbeck Architects, LLC.)
A 2019 study in Portland, Oregon, found that parking requirements would be the determining factor in whether the most profitable thing to develop on a piece of land was 32 relatively affordable apartments or 10 far more expensive townhomes.
Building Codes
When I began interviewing small developers for this series, I expected to hear about the above issues, as zoning and parking requirements are familiar to me. I did not expect some of the stories I heard about building code requirements, stormwater, fire sprinklers, and financial hurdles. Individually well-intended rules can interact with each other with a sort of Rube Goldberg complexity. Mostly, this happens when you’re trying to build something the rules weren’t really written for.
Every small developer has their resulting “war stories.” Lucas Lindsey is a development manager with Venue Projects, an eight-person firm which specializes in small-scale adaptive reuse of older buildings, mainly in the Phoenix area. Venue recently built a fourplex on land owned by one of their principals, structuring each unit as a detached casita in order to apply the residential, rather than commercial, building code. But the city imposed commercial site development standards, resulting in unexpected costs. The project required close to $60,000 in stormwater retention technology, including underground tanks and a dry well—but a civil engineer told Lindsey that had they built the exact same project in the neighboring city, the cost would have been only a $6,000 payment into a regional infrastructure fund.
4Square detached fourplex under construction in Phoenix, Arizona. (Credit: Venue Projects.)
Fire suppression requirements are another area where regulations tend to impose a “one size fits all” layer of cost that might be scaled to larger projects but unreasonable for small ones. When I interviewed Monte Anderson, the prolific South Dallas developer and co-founder of the Incremental Development Alliance, he slyly rotated his camera to the left to show me the gargantuan fire suppression apparatus sitting next to him in his office. “This is a $75,000 system,” he told me, “the same one that would be in a five-story office building. I don’t need this in my one-story, mixed-use building.”
Building codes are an interesting can of worms. They were widely created around the early 20th century for an obviously good reason: to prevent deadly disasters from unsafe construction. The adoption of standardized model codes has been an ongoing process. For a while, these were regional. The first edition of the International Building Code (IBC), published by a non-profit consortium, was not completed until 1997. Although it has no force of law, most cities have voluntarily adopted some version of it and its counterpart, the International Residential Code, as their own requirements. We’re now at a point where virtually every city uses the same model codes—which means flaws in the code, where something reasonable to do becomes disallowed or prohibitively complicated, can now take a particular building and render it functionally illegal almost everywhere.
We’re not going back to not having a model code. But small developers would benefit from a more reasonable sliding scale of code requirements accommodating of small projects and diverse needs.
Optimized for Monocultures
The problems I’ve described above sound like a lot of separate issue. To summarize them in a sentence: The regulatory and financial system we have today is optimized for development monocultures. At this point, for most of a century almost all of the rules around development have been written in ways that entrench the dominance of a few styles of development, and in turn that has favored continuing to write the rules that way. Organizations like the National Association of Home Builders, for example, have a heavy hand in influencing the IBC’s content.
In residential development, monoculture means single-family homes, built to a production builder’s cookie-cutter template. In commercial real estate, it means the auto-oriented strip mall, the power center, the chain restaurant or pharmacy: cheap one-story buildings with surface parking. We built a system that was really good at delivering those things at scale, but by extension we’ve created huge scale diseconomies for anyone who wants to deliver something else. Loans are less forthcoming and the terms are worse. Code requirements that don’t hurt the financial feasibility of those suburban forms become brutally costly when applied to a different type of building on an urban infill site.
Larger-scale urban builders have figured out their “hacks” by now. (They have good attorneys to help them do it.) This is the reason those “beige box revival” apartment buildings look the same in every city: they’re designed to meet the pervasive requirements of local regulation and, more importantly, building codes and lenders’ expectations, in a way that is replicable. But this requires a ton of overhead and a certain minimum scale to pull off. It’s not a path available to incremental developers, where every building is going to encounter unique challenges due to its location or situation.
Applying the “Code Hacker” Mindset
Salvation from a thicket of counterproductive rules isn’t forthcoming. So the advice that nearly every incremental developer gets is to work around the rules rather than bash your head against them. In a memorable formulation, R. John Anderson calls this the process of evaluating your “return on brain damage”: if you’re going to go through a painfully confusing and ill-defined process to get your project approved and built, it had better be worth the pain.
This means look for what you can do as of right—avoid needing a variance if you can help it. Do something that works with a standard loan product available with favorable terms. Do something legible to appraisers, and that allows for approaches to plumbing, HVAC, and so forth that are simple enough that local contractors used to smaller projects can handle the work.
Eric Kronberg of KUA in Atlanta provided me with a vivid example. Despite the hype around triplexes and the popularity of older building forms such as the triple-decker, he says, “a triplex is the least efficient building you can do” in Atlanta and many other cities. Why?
A federally-insured FHA mortgage can apply to a building of up to four units and up to 49% commercial space. You can build something at this scale using the same techniques and materials as a single-family house, which is about as affordable as construction gets. The building code, however, has a different cutoff. While one- and two-family residences fall under the International Residential Code, anything triplex or larger, in most places, requires you to build under the commercial building code. “Don’t ask your small builder to learn the commercial code,” says Kronberg.
(One of the commercial code’s requirements, naturally, is fire suppression. In many states, only one- and two-family homes and townhouses are exempt from extremely costly sprinkler requirements.)
In light of this, the approach that Kronberg advocates for his Atlanta context—and far more of the U.S. looks like Atlanta than not in this respect—is to use detached accessory dwelling units. “A 30-plex or a triplex, it’s the same amount of engineering,” he says. “We’d rather do a really nice duplex and an ADU behind it. That gives us a 20–40% savings on the cost of delivering the housing.”
At the top of Kronberg’s policy wish list for Atlanta is the legalization of fee-simple ADUs, meaning that an accessory dwelling unit and the land it’s on could be bought and sold separately from the main house, without a complicated condo arrangement. This would allow infill developers to “feed banks what they eat,” Kronberg says. Major banks know how to issue a mortgage for a standalone structure which will have one owner. They can do that all day. Appraisers also know how to value such a structure for financing. Their lack of familiarity with missing-middle housing forms that are scarce in a mostly-suburban city like Atlanta is a huge obstacle in Kronberg’s view. “I don’t know how to fix appraisers. I know how to feed them what they eat.”
Kronberg’s path of marginally less bureaucratic resistance is also a path of greater political acceptance. The public is far less wary of ADUs, which have a wholesome image (think “granny flats”), and thus ADUs become a backdoor to a conversation about lot sizes or duplexes.
The state of California has caught on to this. The most noteworthy aspect of the recently passed statewide abolition of single-family zoning, Senate Bill 9, is its lot-split provisions, which allow a small developer to divide virtually any single-family lot into two, and put two homes on each.
Will it be a game changer? That remains to be seen, but refreshingly, this is a regulatory reform aimed at enabling something the “hacker” developers have already figured out.
Where Do We Start with Reform?
So many different policies conspire to raise the cost and difficulty of small development that we’re unlikely to cut this Gordian knot any time soon. But we can and must make meaningful improvements from the policy side.
The “hacking” approach to small-scale development will likely never scale to a large number of builders, and it has massive costs. It deters many people from attempting incremental development at all, adds cost, and causes projects to never see the light of day. Or, as with Westerbeck’s fourplex that could have been a 16-plex, it causes them to be deeply compromised, ultimately delivering less benefit to the community. Less affordability, less compatibility, a less ideal space or worse urban design—any or all of these things can be casualties.
I asked every developer I interviewed for their policy reform “wish list,” and the lifting of parking requirements was almost universally mentioned. Beyond that, many cited reforms to single-family zoning, allowing more density appropriate for an urban context. Others mentioned flexibility on issues such as setbacks that can make or break the geometry of fitting a project on a lot. The overall recurring theme was that small developers want simplicity, and they want flexibility. Each site is unique, each project is unique, and it should be legal without so much red tape to design a project around those hyper-specific, local requirements.
(Every developer I spoke with also cited financing barriers, and wanted greater flexibility from banks with loan products for creative projects or unorthodox building types. We’ll talk more about banks in Part 4.)
With certain building code features and with municipal requirements such as stormwater, the best way forward might be strategic relaxation of some requirements tied to project size, to let small things go forward with less red tape than big things.
When it comes to zoning codes, there are two “big bads” that stand out in their ubiquitous, destructive impact on the viability of incremental development. They are exclusive single-family zoning (i.e., apartment bans), and mandatory parking minimums. These should go away. Everywhere. Yet we must recognize that that is a start, not an end goal. Those two policies are the most sound-bite-able, but the other factors that continue to cause headaches are more obscure and hard to mobilize political activism around. They will require really motivated people inside the system to push to fix. The Floor Area Ratio (FAR) requirements in Minneapolis are a good example.
For advocates outside of local government, the near-term work is partially in showing the regulators where the problems lie. The Incremental Development Alliance (IDA) has begun to do this work with city planning staffs, consulting with them on “stress tests.” These are day-long workshops that aim to discover and highlight the specific problems local regulations are creating for small developers.
In South Bend, Indiana, developer Mike Keen brought in the IDA for one of these stress tests. In the morning, they taught city planning and zoning staff some of the basics of small-scale development. In the afternoon, they applied the city’s own rules to a development proposal and catalogued the sticking points. As a case study, the South Bend stress test looked at Shetterley Triangle—an unusual half block which had once held 13 houses, but by this time was down to six homes and seven vacant lots. Keen and his partners proposed to build seven new energy-efficient houses on the same block where homes had once stood.
The problem? Try thirty-six problems. “It turned out we needed 36 variances, at a total cost of $12,000, to put those seven houses back where they used to be,” Keen told me.
This was eye-opening for the city staff. South Bend has since worked extensively to reform its zoning code to make it more legible and simpler for small-scale development. I interviewed planning director Tim Corcoran about these efforts in 2019, when he told me that the city’s goal was a code that could be understood with “a high-school education and an hour of your time.”
These efforts are paying off. In 2021, South Bend eliminated its parking minimums. This and other reforms won it the 15th annual award from the Form-Based Codes Institute for the best municipal zoning code.
“The Artists,” a pair of completed 460-square-foot small homes in South Bend. (Source: Mike Keen / Thrive Michiana.)
If You Want People to Do It, Smooth the Path
If you want more small-scale development in your city, you need to make it attractive. Not the path of absolute least resistance. But a path of lesser resistance, so that those with some gumption will try it.
Even with regulatory reform, development is not going to be a cakewalk. We’re talking about idiosyncratic projects in locations where the market isn’t a slam-dunk—if it were, the big developers would already have found a way to be there. And so most people aren’t going to find this accessible if they have to go it alone.
Every bit as important as the regulatory piece, if not more so, is the cultural piece. This means building a community of incremental developers and development-adjacent professionals who can all help each other. And I’ve encountered no better model for what that looks like than what’s happening in South Bend right now. The next installment of this series will pick up there.
Read part three of this series here, or click below to get a free copy of the full series in e-book form!
Who is actually going to do the work of incremental development, and what will their motivations be?