Look, I wanted to walk you through some important housing data that just came out from the National Association of Home Builders. According to their latest analysis, construction of small apartment buildings in the two to four unit range took another significant hit in the second quarter of this year. We're talking about just three thousand units started in that quarter, which represents a pretty steep decline from four thousand units in the same period last year.
When you look at the bigger picture over the past year, builders started sixteen thousand units in these smaller multifamily properties, down from twenty-one thousand in the prior twelve-month stretch. That's roughly a quarter drop in production. According to Robert Dietz, the NAHB's chief economist, these small buildings now represent only three percent of all multifamily construction, which is a dramatic fall from the pre-2008 era when they made up nearly eleven percent of the market.
The root cause here isn't demand or financing, it's zoning. Dietz points directly to local land use restrictions, minimum lot sizes, parking requirements, and rules against attached housing in single-family neighborhoods as the main culprits keeping this segment depressed. While some cities and states have started adopting what they call gentle density reforms to legalize duplexes and fourplexes in residential areas, the national data suggests these policy changes haven't yet translated into meaningful production increases.
This matters because small multifamily buildings historically provided relatively affordable housing options in established neighborhoods close to existing infrastructure and jobs. With production stuck at less than a third of its historical share, markets are becoming more dependent on larger apartment complexes and sprawling single-family development to add inventory. That's not ideal for affordability in many regions.
The challenge for builders and developers is real, but Dietz argues the real solution requires what he calls light-touch density reforms at scale. Without broader zoning changes that make it easier to build these missing middle properties, we'll continue to see constrained supply in this segment. What I am seeing locally is that the Bay Area and East Bay regions continue to wrestle with these same zoning barriers, meaning opportunities for well-positioned infill projects and smaller multifamily developments could become increasingly valuable as markets search for attainable housing solutions.
