The Missing Middle and How Modular Construction Can Help Bridge the Gap in North America

Understanding the Missing Middle Housing Crisis

The "missing middle" refers to a range of multi-unit housing types such as duplexes, triplexes, fourplexes, townhomes, and small apartment buildings that fall between single-family homes and high-rise developments. These housing options have been largely absent from new developments across North America, hindered by restrictive zoning laws, financial barriers, and outdated planning policies.

For decades, urban development favoured either sprawling single-family homes or dense high-rise towers, creating a significant gap in housing options for middle-income households. With skyrocketing home prices and increasing affordability challenges, the demand for diversified housing options has never been greater.

Affordable vs. Attainable Housing: Key Differences

While often used interchangeably, "affordable housing" and "attainable housing" represent different segments of the housing crisis. Affordable housing typically refers to units that cost no more than 30% of a household’s income, often requiring government subsidies. Conversely, attainable housing refers to market-rate housing that is affordable to middle-income earners without subsidies. Missing middle housing primarily falls into the attainable category, providing essential solutions for professionals, young families, and aging populations who are priced out of single-family homes but do not qualify for subsidized housing.

The Potential for Missing Middle Housing Development in North America

Across Canada and the United States, significant untapped potential exists for developing missing middle housing. Many urban and suburban areas remain dominated by land zoned exclusively for single-family homes, yet momentum for zoning reforms is growing.

In Canada, over 67% of residential land in major cities such as Toronto, Vancouver, and Ottawa is zoned exclusively for single-family homes. However, recent zoning reforms, including changes in Toronto and Edmonton, aim to introduce gentle density by allowing multiplex developments on previously restricted lots.

In the United States, cities like Minneapolis and Portland have taken the lead in eliminating single-family zoning restrictions, opening the door for more missing middle housing development. The Urban Land Institute has highlighted how zoning reform—paired with innovative local and state-level policies—can help increase housing supply and affordability by enabling the construction of duplexes, triplexes, and other small-scale multifamily housing. According to recent estimates from Freddie Mac and the National Association of Realtors, the U.S. is currently facing a housing shortfall of approximately 3.8 to 4 million units. Expanding the availability of missing middle housing is increasingly viewed as a practical solution to close this gap while enhancing urban density and livability.

Why Modular Construction is the Perfect Solution for the Missing Middle

Modular construction, encompassing both volumetric (fully prefabricated units) and panelized construction methods (pre-cut panels assembled on-site), offers scalable and cost-effective solutions to rapidly address the missing middle housing gap. Key benefits include speed, cost efficiency, sustainability, design flexibility, and alignment with zoning reforms.

Speed of Construction

Modular construction significantly accelerates project timelines. Because modules or panels are fabricated in a controlled factory environment simultaneously with site preparations, total construction duration can decrease by 30-50%, dramatically enhancing project feasibility and market responsiveness.

Cost Efficiency and Reduced Waste

Factory-built housing drastically reduces material waste and labour costs, mitigating delays due to weather and labour shortages. Modular construction allows projects to proceed efficiently even amid the current labour constraints affecting the North American construction industry.

High-Quality and Sustainable Design

Precision engineering in controlled environments ensures superior quality and enhanced energy efficiency. Many modular companies in both Canada and the United States exemplify this commitment, producing housing solutions that meet rigorous local building codes and sustainability standards.

Flexibility in Design and Scalability

Both panelized and volumetric modular systems provide adaptable design solutions that integrate well into existing urban neighbourhoods. Panelized systems are particularly effective for smaller-scale housing such as townhomes and row houses, where flexibility in layout and architectural detailing is important. Volumetric modular construction, on the other hand, excels in producing repeatable stacked housing forms like fourplexes and small apartment buildings with a high degree of efficiency. That said, either method can be used for a wide range of project types. The most appropriate off-site approach should be determined based on site conditions, design goals, budget, and construction logistics.

Alignment with Zoning Reforms

As North American cities adopt zoning reforms, modular construction can capitalize on newly permissible multi-unit developments, rapidly deploying units to alleviate housing shortages efficiently.

Outstanding Issues to be Solved by the Modular Industry

Despite these clear benefits, significant challenges remain for modular construction to fully realize its potential in delivering missing middle housing:

Financial Structure Alignment

A critical barrier is the discrepancy between traditional construction funding models and the financial needs of modular manufacturers. Modular firms typically require substantial upfront deposits to procure materials and schedule factory production, conflicting with traditional funding practices, which disburse payments as materials arrive on-site. Addressing this mismatch requires innovative financial models, such as flexible credit lines based on projects rather than fixed collateral, or targeted funding programs from governments and banks aligning closely with modular construction cash flows.

Increasing Industry Confidence through Proven Projects

Another hurdle is the limited number of fully successful modular proof-of-concept projects. Many modular developments face challenges that foster skepticism among financial institutions and potential developers. As an industry, greater transparency, collaboration, and collective problem-solving are essential. Rather than treating successes and failures as proprietary, manufacturers and stakeholders must openly share lessons and refine approaches together to bolster industry-wide credibility and trust.

Achieving Industrial-Scale Manufacturing Efficiency

True manufacturing efficiency requires high-volume, repetitive production. Modular housing manufacturers currently lack the consistent project volume necessary for optimizing their processes and achieving genuine industrial productivity. The efficiency gained by manufacturers producing 10,000 units annually vastly surpasses that of those producing only 100 units. However, the required volume increase is impeded by inadequate financing mechanisms and cautious investment, perpetuating a cycle of inefficiency and uncertainty.

Addressing these interconnected challenges—financial structures, collaborative industry confidence, and production volume—is crucial for modular construction to become the default method for missing middle housing.

The Path Forward

To effectively address the missing middle housing crisis, municipalities must continue to advance zoning reforms, create modular-friendly financial incentives, and invest in infrastructure to accommodate increased density. Equally important is industry collaboration among developers, policymakers, modular manufacturers, and financial institutions. Together, stakeholders can establish modular construction as an integral part of urban growth strategies.

By embracing modular technologies, North America can swiftly deliver attainable, high-quality missing middle housing, bridging the gap for millions in urgent need of diverse housing options. Resolving current challenges collaboratively will determine the industry's ability to meet this critical housing demand.

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xL Architecture & Modular Design (XLA) is an innovative architecture firm redefining the future of building through off-site construction technologies. With expertise in volumetric modular designs, and panelized building systems, we create cutting-edge solutions that seamlessly integrate form, function, and sustainability.