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Miami Micro-Units Solve for Both Tenant Affordability and Developer Profitability

Cities across America are facing an affordability crunch and housing in Miami is no different.  The short supply of affordable housing is even scarcer in proximity to Miami’s central employment districts with no single solution available.  Efforts to promote inclusionary zoning (mandatory affordable unit requirements) have populist appeal, but limited success and actually reduce land values for property owners.  Micro-units though, have the opportunity to create both affordable housing and also increase developer profitability.  In accomplishing both affordability and profitability, micro-units hit the perfect spot that incentivizes the private sector to build affordable housing because it is more profitable.  As a result, several municipalities in South Florida are exploring codifying micro-units.

Micro-units provide affordability for the simple reason that the units are smaller and cost less to build, while yielding a greater return for developers and landlords. Thus, they provide the unique dual benefit of affordability and profitability.  Reduction of minimum unit size increases unit density with the same building envelope.  Moreover, smaller units always rent for more per square foot than their larger counterparts.  Thus, the same building envelope can now contain more units and these units can rent at a higher price per square foot.  The units remain relatively inexpensive to rent simply due to their size.  In Manhattan’s Kips Bay neighborhood, micro-units ranging from 260 to 360 square feet were developed to test the viability of micro-units.  The Kips Bay units are fully leased, proving out the micro-unit model.

One of the main opportunities for micro-units is that they provide affordable market-rate housing to recent graduates and young members of the workforce. In Manhattan, the Kips Bay developer found that the success of the micro-units was due to the steady gravitation of millennials towards minimalism as a way of living combined with social events organized for residents.  Recent graduates are some of the populations most affected by the lack of housing affordability.  In fact, a recent study by Trulia found that only 2.2% of recent graduates can afford Miami rents.  The City of Miami identified this acute housing problem and has embraced the micro-living trend sweeping the nation.  The growing demand for micro-units, dwelling units of less than 400 square feet, is particularly high in the urban core Transit-Oriented Development (“TOD”) areas where there is significantly less reliance on automobiles and enhanced utilization of bicycles and public transit facilities.  Miami 21, the City of Miami’s current zoning code, defines TOD areas as a designation involving an area not exceeding a one-half  mile radius from a convergence of modes of transit, for example Metrorail and Metromover stations.

The City of Miami was recently the first in South Florida to pass its own micro-unit ordinance. City of Miami Commission voted unanimously in favor of a resolution to allow development of micro-units within TOD areas of the City of Miami (the “Micro-Unit Resolution”).  The highlights of the Micro-Unit Resolution are that Micro Dwelling Units are now allowed to be as small as 275 square feet, but they are only permitted in TOD areas and require administrative approval by the City of Miami.

The continual appeal of micro-units amongst a younger demographic may finally achieve the modern urban city planning trifecta, since these units are poised to attract young workforce talent, develop affordable market-rate housing, and promote public transit instead of suburban sprawl.  For Miami, this means an increase in the City’s ability to retain and attract its most critical resource, young workforce talent.

© 2018 Bilzin Sumberg Baena Price & Axelrod LLP

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About this Author

Anthony De Yurre, Bilzin, Real Estate Development Lawyer, Investment Strategies Attorney
Associate

Anthony’s background, prior to practicing law, as the founder of an internet startup gives him a unique perspective into the challenges that entrepreneurs face on a daily basis. Whether a client is buying, zoning or developing a property, or dealing with the inevitable disputes that can arise, Anthony is positioned to help his clients find a business-focused path forward.

In addition to practicing law, Anthony is an adjunct professor at the University of Miami School of Law in the Real Property Development Program. He also coaches entrepreneurs as part of the...

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