An ADU as an investment opportunity on HGTV’s Flip or Flop

Last night’s new episode of Flip or Flop, Season 9 Episode 7, featured a home with an ADU (accessory dwelling unit). And this unique feature of the home offers a chance to make more money:

After Tarek and Christina realize the garage in the backyard is now a living space, Tarek lays out the argument: this is not just a studio space or a he/she-shed. It is possibly a rentable unit. This may make this property even more enticing.

This got me thinking. ADUs are supposed to help provide more housing units in more expensive markets like Portland and Los Angeles. Instead of building denser, taller housing in single-family home neighborhoods, ADUs take advantage of existing yard space, garages, or other buildings on residential properties.

But, while the ADUs might provide more housing, they may not necessarily provide housing that is that much cheaper. Take the example from Flip or Flop: with a home valued at over $1 million in North Hollywood, they estimated they could rent the studio ADU with a full bathroom and kitchen for $2,000 a month. How many people could afford this?

Further, such units could become a tool for residents and developers to generate more revenue. In such competitive markets, adding any kind of residential unit presents an opportunity. The ADU could enable a homeowner to generate money from their property. An investor interested in a single home or one with multiple homes could generate even more money with ADUs.

To truly provide housing that is more plentiful and at a reasonable price, it seems like a lot of ADUs are needed. They cannot provide as many units as large multifamily developments might. Yes, they do not disturb the existing character of a neighborhood much. But, if the ultimate goal is to broadly expand housing options, the occasional ADU in an expensive area might not be enough.

How are suburban apartments designed with COVID-19 in mind different?

A proposed apartment building in downtown Glen Ellyn, Illinois includes several features in response to COVID-19:

The latest iteration creates dedicated, work-from-home spaces inside apartments. South Bend, Indiana-based Holladay Properties is looking at installing voice-activated elevators to limit touch points. The project also would incorporate small conference rooms and phone booths where residents could take a call or prepare for a presentation.

“It’s hard to ignore the global pandemic,” Holladay Vice President T. Drew Mitchell said. “It’s in front of us everywhere, so some of the things that we’re doing inside of the units is sort of a reaction to that.”…

“What we’ve encountered in our product in suburban Chicago is overwhelming demand,” said Mitchell, who’s based in the firm’s LaGrange office. “We have a waitlist right now at Burlington Station in downtown Downers Grove, and what we’re seeing unfortunately for Chicago is people are returning to the suburbs.”

In Glen Ellyn, rents would range from about $1,400 to nearly $3,000. Glenwood Station amenities would target young professionals working in the city, empty nesters seeking a lower-maintenance lifestyle and other demographic groups.

From the picture provided, this looks like a fairly typical apartment building for a wealthy suburban downtown. The building is not too tall; height is a problem in many suburbs as residents do not want structures to dwarf other buildings, particularly houses). There is room on the sidewalk for pedestrians with streetlights and plantings. While there is some variation to the exterior, the design is not too crazy for a bedroom suburb. The building is not too large; there are just 86 units. There are American flags flying at the street corner.

The changes, according to the article, seem to focus on interior spaces. If you live in an apartment, how do you find space to separate home and work? This may be easier in large homes. What additional spaces could an apartment building or complex contain that gives residents some variety without having to leave? The suggestion above is to provide private spaces elsewhere in the building. It will be interesting to see how apartment developers and owners will in the future modify public spaces – gyms, pools, gardens, dog areas, party rooms, etc. – when restrictions may not allow apartment dwellers to use them in the same way.

What is missing from the COVID-19 apartment approach? Given the economic insecurity and the housing pressures many feel, will apartments be cheaper? These are not cheap apartments according to the story. Will this bring different kinds of people to Glen Ellyn than who might have typically moved there? The amenities are said to be geared toward the types of people suburbs often want to attract as opposed to affordable housing that would better serve those who truly need decent housing.

In other words, suburban development continues in fairly normal ways: the developer gets TIF financing, the city gets a building that fits its character and aesthetic, and suburban downtowns become a little denser.

How far might rent drop in Manhattan and other cities and who will benefit?

As some people reconsider living in Manhattan and other cities with high housing costs amid COVID-19, how far might rents drop?

According to StreetEasy, the median rent has fallen below $3,000. That is the lowest price since 2011.

The third quarter of 2020 also marked the first time since 2010 that Manhattan, Brooklyn and Queens all recorded year-over-year rent declines.

StreetEasy says renters are no longer willing to pay the so-called “commute premium” of living in Manhattan, because so many people are working from home.

Any rent drop in Manhattan or in New York could provide opportunities for people who even just a short time ago had little chance to live there.

At the same time, dropping below $3,000 for the median suggests that rent is still pretty high. Who can take advantage of this drop? Those with resources to do so, not necessarily people who need affordable or cheap housing. Indeed, if these lower rents quickly induce a number of people to take advantage, then rents could stabilize and head back up.

Perhaps there is little that could actually move rents and housing prices in certain housing markets to a point where many more residents could take advantage. A pandemic is unlikely to lead to the production of more housing and struggles with employment, among other factors, will limit who would move to big cities with temporarily lower prices. At the same time, COVID-19 could help nudge conversations about housing in a productive direction.

Former Lt. Governor of Illinois now devoted to fighting for fair housing in Chicago suburbs

As Evelyn Sanguinetti transitions to addressing fair housing after previously serving for four years as lieutenant governor of Illinois, she describes the kinds of housing discrimination that occur:

brick building facade on cold clear day

Photo by Nick Bondarev on Pexels.com

Discrimination takes so many different forms. It’s not as apparent as it once was decades ago. The wrongdoers have become better at this sort of illegal activity. You will see it taking the form of lying about the availability of housing or home loans or home insurance, or applying a no-pets policy on service animals. You will see discrimination in the way of illegal steering. So when a prospective tenant wants to look at one apartment, the company showing the apartments says, “No, no, you really want to look a few blocks over; that’s where you really want to go.” A lot of people do not know their rights and they do not realize that this is what’s occurring. Another form it takes is offering different terms or conditions to members of a protected class, such as requiring sex in exchange for rent.

You see discrimination in the form of constructing inaccessible buildings — that’s a big one, too. A lot of the cases that we have pending and a lot of the work we do from a previous settlement, is we make improvements to make housing accessible to people with disabilities.

Another form of discrimination is saying, “No children allowed,”bwhich to me is like a stake straight at my heart. I grew up with my abuelita, my great-grandparents. I mean, there were a lot of us in one household and a lot of children. But the wrongdoers also find a way of making sure children are not allowed. Well, children need to live somewhere.

This sort of discrimination is often quietly done and scattered across locations. It rarely comes up in the news. It may be hard for people to guess how often it happens. The people affected by it may not know how to fight back or bring the issue to light.

Some of the issue might be defining fair housing. Sanguinetti explains the concept:

There’s always this conclusion that goes on with a lot of people like, “Fair housing? Free housing! That’s cool.” And I’m thinking, “No, no.” The Fair Housing Act provides that if you have the resources to live where you want, but you’re being prevented from doing so because you’re a member of a protected class, that’s illegal.

I imagine some might confuse fair housing with affordable housing which is often about providing housing for those who do not have the resources to live in a place. If we do not have a foundation of fair housing, it would be even harder to make the case for affordable housing – which is hard enough in many suburbs.

At the same time, efforts which help ensure fair housing do not necessarily help with getting residents resources (jobs, income, wealth, connections, etc.) that would help them access housing). Fair housing addresses the housing side once people try to acquire housing. Work is also needed on the other end in helping people get to a point where they can have housing choices that help them meet their goals.

Naperville considering affordable housing – but primarily for current residents?

Naperville will soon discuss recommendations from a consultant regarding affordable housing. Several of the suggestions point to at least some of the affordable housing serving current residents:

low angle photo of balconies

Photo by Jovydas Pinkevicius on Pexels.com

Commissioners say the ideas are designed to help the city meet a state mandate on affordable housing and provide more places where seniors, young professionals and others who can’t afford many of the houses in Naperville can live…

Establish a rehabilitation loan fund to help low-income senior homeowners make repairs so they can age in place.

Establish a housing trust fund to help veterans, seniors, populations with special housing needs and first responders (including nurses, police officers and firefighters) purchase a home…

These ideas and others are listed in the report from SB Friedman, which found that roughly 22% of homeowners and 44% of renters in Naperville are spending more than 30% of their income on housing, making them “cost-burdened.” Many of these households are low-income, the report found, saying “there appears to be a considerable need for both owner- and renter-occupied affordable housing and income-restricted housing throughout the city to meet current residents’ needs.”

One way for wealthier suburbs to address affordable housing is to look for solutions for some of the populations mentioned above: seniors who are retired and are downsizing or having a hard time affording local housing on a restricted income; young professionals who are just out of school and looking to establish their career; and local workers who are seen as essential to the community such as teachers, fire fighters, and police officers. These are all groups that a wealthier suburb would want to keep as older residents should be able to age in place, attracting young professionals is important for keeping a strong tax base and having more young families in the community, and having certain occupations near their jobs and involved in the community is viewed as a plus.

At the same time, it is not clear that this gets at the full range of housing needs in the Naperville area, Chicago region, or the United States. There are lots of people who would benefit from cheaper housing costs yet the issue of affordable housing in many places is also connected to race and class. As noted in this article, housing is a social justice issue. Is Naperville addressing social justice issues if it is providing housing for the populations discussed above? Or, would providing housing for those with lower-wage jobs make more sense? Or, could cheaper housing provide opportunities for some future residents to experience upward economic mobility in a community with a lot to offer?

There is still much that could happen in these discussions. Naperville has a lot to offer to residents and it is a well-off and high-status community. What comes out of these conversations could help determine what the population of Naperville looks like in the coming years.

 

Trying to figure out whether tiny houses are actually affordable

I ran across a story of a self-sustaining time home made in Australia and retailing for roughly $61,000:

In total, this Urban Tiny home on wheels is 8.2 feet wide, 14.1 feet tall, and 24.3 feet long, including its drawbar. The drawbar, which is 4.6 feet long, allows the 7,363-pound tiny home to be towed by several vehicle types, including pickup trucks and SUVs…

The home’s self sufficiency title comes from its power systems, which includes solar panels, a battery system, and a 240-volt inverter…

The inside of the home looks no different than a typical loft apartment…

The bathroom and kitchen source its water from the drinking and grey water tanks. But for those who want a more consistent stream of water and power, there are water and generator power connection points in the tiny home.

The home looks appealing and the built-in electricity and water units provide more flexibility and sustainability. But, here is why I wonder if such houses could truly be affordable housing:

1. The price on one unit is cheaper than most single-family homes in the United States. This does not necessarily mean it is affordable. It is almost double the cost of the average new car in the United States. Would lenders be willing to extend longer mortgages for these small housing units?

2. The owner of the tiny house still needs land. This would require buying a lot, renting a lot, or finding a free lot. The first two options could add significant costs while the third requires a personal connection.

3. It is unclear what the operating costs are for tiny houses: what does maintenance cost? How much are utilities? How long do these units last? What is their resale value after five or ten years?

4. Moving the unit is an attractive option (particularly given #2). But, this requires renting or owning a large enough vehicle to tow the unit.

5. This is not a large unit at roughly 200-250 square feet (including the loft space). In terms of price per square foot, this is not necessarily cheap (particularly if the costs for #2 are added in). If people have a lot of stuff, would they need to rent a storage unit or have a storage building/garage on their property? There is not a lot of private space in these units; would this require living near a community that provides pleasant public and private spaces (think coffeeshops, libraries, parks, etc.) and would this drive up the price of parking the unit?

Putting this all together, I’m not sure this is within the reach of many people (perhaps it is more in the ballpark for a retreat or second home for people with more resources).

Addressing race without addressing residential segregation?

Residential segregation is a long-standing problem in American society. Through legal and illegal means, formal and informal practices, whites often sought and still seek to keep others, particularly blacks, out of their communities and neighborhoods. While residential segregation has lessened in recent years, it is still persistent and numerous communities disadvantaged decades ago are still struggling because of this.

The ability of people of different races and ethnicities to live near each other is not just about proximity to work and access to jobs (though this is helpful too); there are numerous consequences.

-local schools

-access to local governments, and social services

-interaction with neighbors and people in the community

-political representation at higher levels such as state officials or Congress

-nearby cultural opportunities

-health as well as recreational opportunities

-could provide more options for housing and building wealth

-the chance to address local or community problems together

And the list could go on.

As one example, more minorities living in the American suburbs does not necessarily a guarantee them a better life. When many suburbs were built on and operate on the logic of exclusion, suburban residential segregation subverts the idea of the suburban single-family home representing the American Dream.

Tackling residential segregation is a difficult task. Whiter, wealthier communities are not likely to be on board (see how this plays out with affordable housing conversations). Addressing housing at a national level is hard. But, that does not mean it is not worth addressing.

Constructing needed housing and other housing during COVID-19

Even during COVID-19, construction goes on in the Bay Area amidst a need for housing:

California’s shelter-in-place order has forced millions of people to stay home and businesses to close to prevent the spread of the novel coronavirus. Some construction workers, however, are still reporting for work to build and renovate Silicon Valley mansions and San Francisco luxury condos because of carve-outs in shelter-in-place orders that exempt any housing construction as “essential” business.

Local officials say residential construction of all kinds is necessary to address the region’s housing crisis. The exemption means affordable housing projects are moving forward, too…

In Palo Alto, where the median property value is $3 million, according to Zillow, residential construction has been so ubiquitous that the city’s new coronavirus support line was inundated with calls about what kind of construction was permitted under shelter-in-place, according to the city’s daily coronavirus newsletter Monday. This past week, crews showed up to work on single-family homes valued on Zillow at $7.3 million for an eight-bedroom house and $9.6 million for a five-bedroom house…

Backlash from concerned neighbors is predictable, said Laura Foote, executive director of YIMBY Action, a Bay Area network of advocates for increased housing supply at all economic levels. “People find new reasons to believe what they have always believed,” she said. “We have a housing shortage and that is what’s driving up cost. More housing also helps bring down the overall cost.”

The article goes into more detail about the debates over the continued housing. There appear to be multiple issues: whether any construction should go on, whether construction should go on for building luxury or expensive housing, and if construction goes on, whether workers and developers should follow rules about social distancing.

This is both a reminder of the lingering issues in a world very focused on COVID-19 as well as the complications of housing questions in the Bay Area and California more broadly. Fiinding solutions has proven difficult; building more affordable housing in many regions depends on local actions which wealthier communities tend to avoid.

Perhaps the question coming out of the pandemic will be this: will the Bay Area, the Seattle area, New York City, and other tight housing markets be more open to affordable housing conversations and action after everyone had to unite (or at least agree to stay away from each other) for a common cause? Crises tend to reveal inequalities but they do not always lead to efforts to address and rectify the problems.

Argument: Westchester County and affordable housing better off without federal government involvement

The headline summarizes the argument: “Team Trump just called a halt to the Obama-era war on the American suburbs.”

But the big win came last month, when — based on Westchester’s experience and expertise from groups like Americans for Limited Government — the Trump administration replaced Team Obama’s AFFH regulation with its own.

Gone is the federal mandate dictating the modeling of communities based on statistical formulas. Restored to local officials is the power that gives them the flexibility to weigh real-world factors in making housing decisions. Restored, too, is the prosecution of bad actors by the courts — not bureaucrats — under the Fair Housing Act.

And builders are now more likely to build affordable housing, since the attached strings have been removed.

The Democratic candidates for president didn’t get the memo. They continue to support radical, divisive and failed housing policies aimed at abolishing single-family residential zoning. And they’d use billions of our tax dollars to local communities — and the threat of lawsuits — to get their way.

The United States needs affordable housing. By replacing social engineering with common sense, guarded by strong nondiscrimination laws, the country is now better positioned to meet that need — and that’s a victory for everyone.

See more on the exclusionary zoning and housing in Westchester County: more recently under the Obama administration, in the 1970s, and the affordable housing issue in the county.

Conservatives claimed the Obama administration wanted to push Americans away from suburbs and into cities. This claim of social engineering tends to ignore the social engineering of suburbs, with plenty of federal government help, toward whiter and single-family home communities.

More broadly, this gets at a fundamental difference between liberals and conservatives. Liberals will argue that government intervention is needed regarding housing. As noted above, this might start with more serious enforcement of housing laws already on the books. But, this would not necessarily tackle the harder issues of residential segregation or exclusionary zoning, These issues would require communities across metropolitan regions to provide cheaper housing so that certain communities do not carry the burden. The conservative argument is different: the government needs to get out of housing and should let local governments make the decisions that would best serve their residents. Builders and developers will be empowered to construct cheaper housing with fewer regulations. Or, perhaps neither party really wants single-family home suburbia.

I have argued before that free markets for housing will not work. When given the opportunity, wealthier communities will not build cheaper housing as they would prefer to remain more exclusive. Recent efforts in California suggest it will take a lot even at the state level to promote more affordable housing. Plus, major political party candidates do not seem too keen to tackle housing. Americans may not like the idea of the federal government weighing in on local development decision but in many metropolitan regions the preference for local control is not moving the logjam of needed affordable housing.

The spread of upzoning and metropolitan regions

A number of cities and states in the United States have changed zoning guidelines or are considering changes to allow multiple housing units in what used to be areas just for single-family homes:

Minneapolis and Seattle are among cities that have effectively abolished zoning that restricts neighborhoods to owner-occupied, single-family dwellings. Oregon has done so in its largest municipalities, and Californians, like residents of Salt Lake City, are now free to build small cottages, sometimes called “granny flats,” for use as rentals in neighborhoods that were previously single-family only…

Before World War II, only about 13% of Americans lived in a suburb; now more than half of us do, and as the New York Times reported, in many American cities, more than 75% of residential land is zoned for single family use only.

In some cities, the share is even higher: in Charlotte, North Carolina, for example, 84% of residential land is zoned single-family; in San Jose, California, 94% is, according to a Times analysis in collaboration with UrbanFootprint…

Other states with single-family zoning in the legislative crosshairs in 2020 include Virginia and Maryland, where House Delegate Vaughn Stewart says upzoning can correct social-justice issues, as well as housing problems. “For too long, local governments have weaponized zoning codes to block people of color and the working class from high-opportunity neighborhoods,” Stewart told Kriston Capps of CityLab.

Sonia Hirt, quoted in this article, argues that single-family homes drive zoning in the United States as the goal is to protect homes and homeowners from uses they find less desirable, threatening to a residential character, and negatively impact property values.

As someone who studies suburbs, zoning, and housing, here are a few thoughts about the future of these changes:

  1. Making changes at the city or municipal level will be easier or more palatable to more voters who tend to like local control over land use decisions. If zoning changes are made at the state level, it will be harder to enforce the guidelines or penalize communities that do not comply.
  2. Wealthier communities will fight hard to avoid these zoning changes. Part of the appeal for some to move to wealthier suburbs is to keep others out and have a particular aesthetic (and these homeowners usually are not looking for more density).
  3. Adding some accessory dwellings throughout single-family home neighborhoods may not change the character of communities much but asking for bigger changes – multi-family housing, apartments, condos, turning large single-family homes into multiple units – on a bigger scale will be a tough sell in many communities.

These difficulties suggest progress in providing more affordable housing or more housing units could be slow. If change and enforcement primarily happens at the local level, this limits the ability of regions to address affordable housing issues because the problem simply becomes one that other communities should address. Housing, like transportation or water, is an issue that benefits greatly from the cooperation of all actors in a region. While it is a difficult topic to address at this level, let alone a national level, significant progress requires broader cooperation and efforts.