What will happen to all those excess McMansions built in recent years across suburban and exurban America, as energy costs rise and household sizes and incomes continue to shrink? From the American Planning Association comes a report with a suggestion — why not covert these houses, built for the affluent, into multiple dwellings less well off households could afford to rent and maintain? Here is the kicker — the report was written in 1949, and the subject was older Victorian-era houses in central cities. Many urban homes were in fact converted to multiple dwellings and rooming houses in the post-war era, as the housing units reached 50 years old, were no longer attractive to the affluent, and were passed down the economic ladder. Indeed it is passing down of housing built for the affluent, not subsidized housing newly built for the less well off, that has been responsible for much of the improvement in housing conditions for the less well off in the past century.
Having nearby homes within one’s taxing jurisdiction become affordable to the less well off, however, is not the typical suburbanites idea of a good thing. Particularly in the balkanized Blue States, where local government jurisdictions are many and small, and tax burdens and public service quality vary greatly depending on local success in getting business taxpayers in and keeping less well off service recipients out. That will be one side in the coming political war. The other will feature desperate homeowners seeking rental income to help with the mortgage, former residents who moved away but couldn’t sell and need to rent instead, speculators seeking profit, and working families and increasingly less well off seniors living on Social Security only (once Generation Greed finishes with us) seeking affordable housing. In some places, the battle is already underway.
From the 1949 report:
“There have been two major pressures for the conversion of large single-family dwellings into multiple-family use: one, periodic housing shortages; and two, the difficulties of present-day small families in maintaining such structures as single-family residences. Most cities have some large single-family residences that were built in once fashionable districts to house the wealthy families of the community. With the advent of the automobile, and with the increased congestion of the city, the wealthier families living in these districts often moved to the suburbs, leaving behind them units too expensive for most other families, who could not afford the servants or even the fuel needed to maintain these units.”
One of the big trends in the 1950 to 1975 period was the declining number of servants, as most working Americans had better options and labor saving home equipment made housework less demanding. “You can’t get good help,” as they said at the time. And one of the markers of the rising level of income inequality is the re-introduction of servants into affluent and even middle class homes in recent years, although it is hard to measure since so many are off the books. As for the second factor, the fuel needed to heat and cool large homes has become more expensive in recent years, and will probably become more expensive still in the future, particularly when paid for in shrinking dollars.
“During the past fifty years, the number of families in this country has increased greatly, but the average family size has decreased; therefore, smaller, as well as more dwelling units have been required.”
With the whole baby boom moving into the empty nester phase, and their offspring looking for their own place, that is certainly true today. The recession will probably leave them living together, or doubled up, for a time. But smaller units will certainly fit their needs over the next decade.
I never understood the whole “trade-up” thing, which for the upper middle class ideally peaks with a five bedroom house occupied by a 55-year-old couple whose last child is in college. Downsizing makes more sense to me, using housing as housing rather than the goal of life, and putting available funds elsewhere. But the housing bust, following a decade of excess consumption funded by cash-out refinancing during the bubble, has left many aging suburban homeowners unable to sell their homes for less than the mortgage. The only way they can downsize, and perhaps avoid foreclosure, is by adding roommates, boarders, and accessory apartments.
“Rather than keep the vacated large single-family houses empty and permit them to become tax delinquent, the argument has been advanced that these houses should be converted to provide two, three or more apartments, with separate cooking, bathing and other living facilities.”
There is no easier way to create “affordable housing” than that. A non-structural wall or two to separate the units. An exterior apartment door. Some re-routed electrical and plumbing, and a new Home Depot basic kitchen and bathroom. Might it cost $40,000 per one- or two-bedroom unit? Perhaps less if one could do some of the work one’s self. A relatively low rent could afford a nice profit, some income in retirement perhaps.
The New York area didn’t have the same level of McMansion boom as many parts of the country. With as yet undeveloped land located so far away from the center in our massive metro, there was no place for it, and development turned inward, with most of it happening in New York City and adjacent areas in the form of multiple dwellings to begin with.
But the New York area has many suburban communities built 40 or 50 or 60 years ago. Their housing stock is reaching the same age the urban housing stock was in 1949, and they are facing the same sort of public employee pension shock New York City experienced in the 1970s. As long as an area is growing, it will have relatively few retired ex-public employees relative to the number of current taxpayers, but once it is fully developed with a full public workforce heading for retirement, that ratio changes. That shouldn’t be a problem if retirement benefits are paid for when earned, but that never happens for retiree health care and seldom happens honestly for pensions, particularly those enriched after the fact (as in New York). The result is an ongoing cycle of tax increases combined with service cuts. As one Room 8 readers said when I explained this in an earlier post “communities are like sharks — they have to keep moving forward or they die.”
To see what might happen in some cases, read this article from Memphis.
“All across the Memphis area, foreclosed homes have glutted the market and are being sold at prices as low as a half, one-third or even one-tenth their appraised values or the prices they had previously fetched. Others are remaining vacant, creating another set of problems.”
“While the low prices provide affordable housing opportunities for local residents, they also have attracted an influx of out-of-town investors who have been buying scores of foreclosures for use as rental income. Local planners and community activists worry that the conversion of large numbers of homes from single-family ownership to rentals could cause neighborhood declines across the Memphis area.”
Now I’m told that in the 1950s and 1960s, many of those who subdivided houses in Brooklyn into rental properties were former residents of those houses (or their descendents) who had moved to Long Island, not out of state investors. Either or both are possible.
“It's a pretty safe investment for these guys to come in and buy homes for $20-$30 a (square) foot and rent them out and get their money back in a five-year period. It's a lot better than throwing it in the stock market.”
Sounds like a free market solution in low-tax Tennessee, but perhaps when it benefits the less well off, the free market isn’t so swell after all.
“I don't think we can prevent people from buying houses and renting them out. I think we might need to look at it from a national point of view.”
It’s going to be interesting, that’s for sure. As I’ve said, it is the government — federal and local — that is doing what it can to prevent housing from becoming affordable, but I don’t think the effort will succeed. Affordable housing, if one does not insist on living in one of a few expensive areas such as Manhattan, is going to be one problem we won’t have over the next decade. People are going to have to spend less, and housing is a big thing that less can be spent on.