The Missing Middle

Affordable New Construction

For the better part of a decade, local, national, and international real estate media have discussed the artificial boom in luxury home construction. From accelerated gentrification in urban environments via multi-million dollar condominiums to the proliferation of “McMansions” in suburbs and rural communities, construction of higher-end homes has exploded all over America. Coincidentally and relatedly, the U.S. is facing an affordable housing shortage, as affordable housing is one of the few market segments where demand significantly outstrips supply, and where the supply is shrinking instead of increasing. While unsustainable, the trend is certainly understandable. In an era of rising materials costs and a critical shortage of skilled tradesmen, the costs of new construction have never been higher. Builders are safer building high-end homes because the margins are much higher; a developer has more financial wiggle room on a $600,000 home than a $250,000 home. Of course, conforming to the trend merely delays the inevitable: eventually the luxury housing bubble will burst. Developers may be left sitting on thousands of units of luxury homes with no one to buy them while thousands of middle class Americans struggle to find housing. This phenomenon has a name: The Missing Middle. It has been featured in articles everywhere from the National Association of Home Builders to Zillow, and even has its own website.

Some developers are bucking the trend and seeking to fill the Missing Middle. McCall Homes is one of the few builders in Billings that focuses on a specific niche: affordable new construction. After achieving success in the 500-home Josephine Crossing, McCall Homes has embarked on a more ambitious project: a five phase, 1,000-unit community called Annafeld. Here, brand-new homes start at around $200,000, while their most expensive units are just under $400,000. According to Kelly Smith, Director of Marketing and Sales at McCall homes, “The goal is to build the highest quality home for a first-time homebuyer, a downsizing retiree, or for families to grow in. We are doing this in the context of a community that fosters the connection between neighbors and the natural spaces within the community. We want people to feel connection and a sense of belonging.” From cozy single-level cottages for downsizing empty-nesters to multi-level townhomes to multi-family rental units, Annafeld has something to offer most interested home-seekers.

The McCall family didn’t set out to affordable housing per se when they started. Siblings Greg, Brad, and Carolee McCall, inspired by master planned communities they saw in Denver, California, and other parts of the country, decided to bring those communities to Montana. Affordability turned out to be a beneficial side effect of building a close-knit community: smaller lots mean smaller land costs, and smaller homes mean lower prices for those homes. Before they knew it, McCall homes had created a blueprint for charming, comfortable, and affordable homes in Josephine Crossing, and established themselves as a pioneer of Missing Middle housing in Montana.

Bucking the trend does not come without challenges. Material costs continue to rise, and skilled labor becomes ever more scarce, and therefore expensive. McCall Homes is itself in the market for employees to fill some key roles. The company has devised strategies to ensure that the homes remain affordable and the business remains profitable. Unlike many builders,  McCall does not do simultaneous projects all over the city or the state. They build one community, and all of the equipment and labor stays there. Man-hours are money, and McCall saves a lot of it by eliminating transit time, misplaced equipment, and scheduling conflicts. They also cultivate key strategic partnerships. As a general contractor, McCall is dependent on its subcontractors in the skilled trades, so they deliberately seek and find the best companies to work with and forge deep relationships with them. Simultaneously, McCall Homes keeps a key component of the construction process in-house, literally: building wall panels and frames. The company keeps a small indoor manufacturing facility run by two skilled tradesmen. All the framing is pre-built in advance so it can be snapped up quickly when the site is ready for it. This approach allows McCall homes to build almost year-round - once walls are up, the building can be sufficiently insulated to allow work to proceed in any time of the year.

Kelly Smith adds that McCall Homes has an aspirational vision for Annafeld: “We want to build a walkable community in the full sense of that term. Neighbors will be able to access everyday things that they would normally get in their car for. Meeting someone for coffee, going to the gym, getting a beer after work or a meal with their family. It will feel like a small town when it’s all said and done.”

Annafeld Market will be the first such community market in Billings. McCall Homes aims to have the market finished by the end of 2021, along with another 100 or so homes in Annafeld’s newly-opened third phase. The company’s five-year goal is to finish all five phases and 1,000 housing units in Annafeld.

As Billings enters what may prove to be the most lucrative real estate market in its history, Kelly Smith reminds us that it shouldn’t all be about personal gain. “One of our goals is to help middle-class people share in the wealth being created through real estate appreciation. By making homes affordable, we are trying to help people create wealth through real estate.”

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