Developers building micro homes to reach affordability quotas
The increased construction of micro units, apartments of around 300-400 sq ft, is helping US housebuilders comply with affordable housing requirements, according to Anne Herbert-Rollins of law firm Miles & Stockbridge. Herbert-Rollins said moderately priced dwelling unit ordinances give developers the flexibility to either build affordable housing themselves, or pay into a fund that can be used by another firm to construct the homes.

In my previous article “The Tiny House Craze: Zoning Laws Could Be a Tiny Impediment” I discussed the popular new “tiny house” trend in residential housing options. Along with the “tiny house” craze, another new and growing trend in housing options, particularly in urban areas, is the increasing popularity of the “micro unit.” Whether the popularity and demand is being driven by economic factors and the need for more affordable housing, or by peoples’ preference to downsize to a more simplified lifestyle, “micro units” are becoming more popular and common. The “micro unit” has become very popular in urban areas, and seems to have particular appeal to “millennials” and “empty nesters” looking to downsize. Developers are answering the demand by including more “micro unit” options in multi-family buildings projects.

Unlike a “tiny house” which is a separate, detached dwelling unit, sometimes even built on a platform with wheels, a “micro unit” is a small, individual, attached unit making up part of a larger, high density multi-family housing building or complex. So, unlike a “tiny house” on a separate building lot, which must meet zoning regulations for minimum lot size, setbacks, density, and other zoning and building code requirements, a “micro unit” is part of a larger multi-family building or development, so the development and construction of an individual “micro unit” would be regulated as part of a larger plan, rather than as individual units.

The attributes and appeal of the “micro unit” are many. The smaller size and relatively smaller cost appeals to the affordability aspect. Where a one or two bedroom apartment or condominium unit may be over 1,000 square feet or more, and a typical “studio” apartment may be in the 400 to 600 square foot range, the new “micro units” typically contain only 300 to 400 square feet of living space. To make up for the smaller unit size, “micro units” tend to have a lot of built-in storage space or “pull down” options to allow for additional room when certain components are not being used. To make up for less space within the individual units, developers often provide more shared amenities, such as storage areas, laundry rooms, and fitness rooms.

From the developer’s perspective, another appealing aspect of the “micro unit” is that it may assist the developer in complying with any regulations requiring the developer to provide affordable housing. Some jurisdictions, such as the City of Frederick, have adopted moderately priced dwelling unit (“MPDU”) or similar ordinances, which require a certain percentage of affordable housing units to be built as part of any development over a certain size and density. Often MPDU ordinances allow the developer to pay a “fee in lieu” to develop the project without including the actual affordable housing units. The fee is paid into a fund which is then used to support other affordable housing options. Unlike a moderately priced single family home, which a developer may not find as easy to market for sale in a single family neighborhood of higher priced homes, an affordable micro unit included within a large apartment or condominium project does not present those similar concerns.

In addition to zoning and subdivision regulations, building codes, and MPDU ordinances, many jurisdictions, including both the City of Frederick and Frederick County, have also adopted “adequate public facilities ordinances” (“APFO”) which require that adequate public facilities and infrastructure are in place to support new development before the new development is approved and constructed. Public facilities to be considered under an APFO usually include a development’s impact on roads, schools, parks, and other municipal services and facilities, such as public water and sewer services. The developer is required to either provide the facilities at its expense or to pay fees for the resulting impact on existing facilities or new facilities. Jurisdictions will now need to consider how a “micro unit” impacts those public facilities.

Some jurisdictions have also adopted and implemented “impact fees” which are charged to the developer to pay the cost of the “impact” of any new development. Impact fees generally vary depending on the type of residential unit or structure. Jurisdictions would need to consider where a “micro unit” would fit into the impact fee scale based on the anticipated impact of a “micro unit” on public facilities and services, as compared with a standard sized apartment unit or condominium or other types of residential dwelling units.

As the demand grows, planners and elected officials will need to consider where and how “micro units” fit into their community. Real estate and land use attorneys and developers should stay updated on local zoning regulations which may be adopted to allow for “micro units.”

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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