In the northeastern cities best known to me (Boston and New York), small multi-family buildings whose owners live in one of the units are a common housing form. The classic types are, respectively the triple-decker and the brownstone row house. Interestingly, these physical forms became owner-occupied rental housing (OORH) from opposite directions: the three-deckers were built as rentals for a large influx of immigrants, the brownstones as single-family homes for a growing upper middle class, with servant accommodations. The three-decker was actually the result of a policy error: after the Boston Fire, the building code was reformed to forbid wooden tenements of four or more units, but it turned out to be cheaper to build three-unit frame buildings than larger brick ones, even with the required driveway separation between them.
Elsewhere in the US, this occupancy is zoned against with the fervor only an ignorant and frightened middle class can gin up against anything of which they have no experience, and that might affect property values — like public transit disgorging hordes of brown criminals into the peacable white heart of Georgetown or Marin County. This is a pity, because there is a lot to be said for accessory dwelling units in private homes. It certainly worked for me (YMMV); the only good business decision my parents ever made was to buy a brownstone in 1946 and rent the bottom two floors as apartments; we lived in a three-bedroom two-story apartment absurdly above our real financial means, my mother had a sculpture studio in the front of an unusual fifth floor penthouse (probably not strictly legal) and my dad’s workshop was in the back half. In Brookline, Mass, my wife and I bought a Victorian with a carriage house whose second floor was an apartment. While our kids were growing up, we had an au pair couple in it and my mother lived in the attic apartment of the house after she moved to Boston. Again, we were living better than our real incomes could normally justify.
A typical pattern is an older family owning the building and living in the largest unit, or two floors of a triple-decker put together, renting one or two units to students, to an au pair couple, to a young couple just starting out, or to empty-nest grandparents. The rent helps pay the mortgage and taxes. Back in the day of outrageous depreciation rules for real estate, it was possible to live almost free as the landlord in a three-family building, but those days are probably gone; still, insurance, depreciation, roof repairs, water and sewer, and the like can partially offset taxable rental income, so for a modest investment in management and faucet repairs, being the proprietor of one of these is a very good deal in most markets.
More important, the form keeps neighborhood populations mixed in age and status; you don’t get a whole street of suburban single-family houses with an identical family in each one, houses that will all turn over at once when the kids leave and can’t afford to buy a house on the block for a couple of decades. Grandma doesn’t have to choose between living with the kids and living forty minutes away, and can almost certainly stay independent longer. There are always kids of different ages out and about. And these neighborhoods are denser and usually walkable, always a good thing.
OORH landlords do not ignore a leak or a broken window or failing heat in their buildings. OORH tenants do not trash the place or turn it into a crash pad for dopers. The owners do not try to gouge every last dollar of rent, because tenants provide useful services (and are anyway very close neighbors), like taking care of the dog during ski weekends and turning off the oven you left on when you went out of town. What this housing form makes (not without exception, but usually, and much more successfully than automobile suburbs) is stability and a dense network of neighborhood social capital. Neighborhood social capital is a Good Thing.
Furthermore, it allows efficient, green, use of housing stock (in the case of the converted brownstones and San Francisco Victorians) whose units are too big for modern families with fewer kids and no live-in servants. Rationalized zoning to encourage this pattern could bring a lot of people back to sustainable living in cities; building more of it from scratch wouldn’t hurt either.