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(Stealing this argument from a friend who I discussed something similar with ...) It's hard to see how allowing duplexes will do _anything_ to address housing
by autarch 5y ago
(Stealing this argument from a friend who I discussed something similar with ...)
It's hard to see how allowing duplexes will do _anything_ to address housing issues. We have a similar law here in Minneapolis which allows triplexes on any property.
But what are the economics of this? Surely there's not a lot of vacant land in LA or Mpls just waiting for a new plex to be built. Instead, all the plots are already occupied. So that means either converting an existing house or tearing it down and building something new.
What would it cost to convert a single family home to a duplex? I'd say a _very_ conservative estimate is c. $200,000. And what does it rent for? A typical house might be converted into a 700-900 square foot rental. Looking at Zillow, it seems like you'd get maybe $2,000-2,500 for that. Let's be optimistic and say $2,500. So it's $30,000 per year. You'll make a profit in ... 7 years ... after the construction work is done, which could itself take 6+ months. And I suspect my cost estimate is way too low.
Seven years for a positive ROI doesn't seem like a very strong incentive. And if this is your own home that you live in, it'll be unliveable for much of the construction time. That means you'll have to live elsewhere and that cost further delays a positive ROI.
I can't imagine a developer seriously investing in duplexes or triplexes, or even quads. What they would want is to tear down several adjacent houses and build an apartment building in the same space, and to really make it worth it that building probably needs to be 3+ floors.
This plex stuff seems like political theater.
- denimnerd42 5y agonah. you'd do a 3 story and get 3.5kft out of it per unit. would cost around a million for the 2units with today's material prices. rent it for 6000-8000/mo. affordable housing never starts with new built unless there are major incentives.
- mixmastamyk 5y agoWhat happens in LA is that an extra apt or two will be built in the backyard, which can be rented for a few thousand a month.
- autarch 5y agoIs the ROI on that worth it? Again, I think we're looking at $200k in construction costs for $2,500/month in rental income. Also, one other thing I forgot is that this construction will probably increase your property taxes, further pushing out a positive ROI.
- mixmastamyk 5y agoQuite a few people have done it already, when allowed. Prop 13? I’m guessing it does over the long run, but haven’t tried it myself.
- sjg007 5y agoYes. You build the ADU, rent it out and then when you are ready to move on or out you can move into it and rent the main house or sell or whatever. I would do this in a heartbeat. It gives people transitional options. It may not though stop inter-generational property transfer though but that could be taxed fairly.
- kgermino 5y agoThose are some crazy numbers. I could build a garage apartment for a bit over 100k in Milwaukee. I could divide my house into 2 units with a few walls and electrical work. Lots of houses have unused or underused attic/garage/conditioned space that can be converted relatively cheaply. My "fully built out" neighborhood has plenty of tear-downs, houses on double or triple lots, and even a few truly vacant lots. This is not going to double the density of neighborhoods, but it opens options for residents and makes it much easier to add units. Sometimes that won't be worth it economically - even if you want to - but the numbers will work out in many cases.
- autarch 5y ago> *I could divide my house into 2 units with a few walls and electrical work. Lots of houses have unused or underused attic/garage/conditioned space that can be converted relatively cheaply. A few walls, some electrical work, an entirely new kitchen, and a new master bath unless you happen to have a house with two full bathrooms.
- clairity 5y ago> “This plex stuff seems like political theater.” it absolutely is just political theater, at least for duplexes and accessory dwelling units (adu), two laws recently passed here in CA. it’s a show of ‘doing something’ while not changing the landscape at all. less than 1% of LA will upgrade to duplexes from single-family homes because of the underwhelming economics. what we need is a minimum of 4+1 (quadplex plus adu) by right on an R1-zoned property, and scaling up from there.
- mrep 5y ago10 year treasures are yielding 1.453%, the SP 500 has P/E ratio of 28.83 indicating a yield of like 3.5% and you think a 14% yield is not a strong incentive???