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The Myth of the "Affordable" Tear-Down

It shouldn't need to be said, but if an old single family dwelling gets torn down and replaced with something newer or bigger, it probably wasn't really "affordable" in the first place.

Anyone working in community development has probably heard planning commissioners, council members, or anyone else who should know better bemoan the loss of "affordable" single family homes to demolition and reconstruction--especially when the redevelopment results in more usable housing. This always drives me insane because some old homeowner usually brings it up as a way to oppose new development, others jump onboard to join the fun, and planning staff all too often lets it ride as if it were a reasonable position. If this isn't just the thinly-veiled NIMBY instinct coming to the fore, then the only other explanation must be something between ignorance of basic market economics or a lack of common sense. Why would someone pay to demolish an old house and then build a completely new one to sell/rent for the same or lower price? Heck, why would someone even pay to remodel an old house and then sell/rent it for the same or lower price? It makes no sense unless you are living in a world world where land values don't increase, labor and materials costs never rise, and housing producers/maintainers are expected to build and sell homes for less than it what it costs to produce or maintain them.

However sometimes you do hear about the actual housing cost spent by the people living in old single family homes and it does sound affordable. But I would guess that these apparently-affordable lower monthly costs are really just indicators of one of the following situations, and mostly lack consideration of the full picture:


  1. The resident purchased and paid off the property long ago, so the only out-of-pocket housing costs appeared to be taxes and incidentals: For anyone living in a community with restrictive zoning and low property taxes, this is an attractive situation indeed. But it hides the cost of that zoning on all other development, and the ways that public funding needs just reaches into other things like impact fees or user charges.

  2. The resident is still paying a mortgage but the monthly payment was set 20-30 years ago: I have a relative living in 1 million dollar house house paying a mortgage payment of something like $600 a month. This seems pretty cheap, but she has been paying it for decades...

  3. The resident/owner has not paying for normal upkeep and maintenance: this, of course, just defers that cost towards the next owner, or allows things to deteriorate to the point where demolition becomes the only option

  4. The older house was simpler, smaller, and less complicated: Houses built in the mid twentieth century were smaller, had fewer bathrooms, were constructed with simpler materials, and were subject to far fewer zoning/environmental regulations which add cost to the final product. I'm sure a Model T built today would be a lot cheaper than a modern Ford Taurus, but there have been a few improvements to the most basic standards of what is considered an automobile.

The fact of the matter is, as long as we live in a market-based system, new, more complicated stuff is always going to be more expensive than old, less complicated stuff. And no one is going to pay to demolish and redevelop something unless the cost demo and rebuild can be recouped with whatever springs up in place. Below are a few examples of "affordable" homes that were demolished and replaced with something new, in all cases but one resulting in better land use efficiency (and better long-term affordability).

 

Example 1: A two bedroom house built in 1946, demolished around 2016 and rebuilt as a 5 bedroom "single unit" (6 bedrooms if the den gets leased out, which usually they do). 5br/5bath units like this are really just boarding houses pretending to look like single family homes, so in a way each bedroom is sort of one "unit":

Land value per bedroom in the year it was demolished (2016): $85,750

Land value per bedroom today: $36,000

Result: More efficient use of land

 

Example 2: A three bedroom house built in 1947, replaced in 2016 with two units of five bedrooms each (duplex):

Land Value per bedroom in the year it was demolished: $57,000

Land Value per bedroom today: $29,000

Result: More efficient use of land

 

Example 3: The property history isn't totally clear, but looks like this parcel was originally two 2-3 bedroom houses probably built some time in the 1950s. Both were demolished and replaced with 32 bedrooms in 12 units built in 2018:

Land value per bedroom in the year it was demolished: $34,250

Land value per bedroom today: $22,500

Result: More efficient use of land

 

Example 4: A 1,706 square foot, 3 bedroom house, built in 1950, demolished and replaced with a 4,344 square foot, 4 bedroom house built in 2016:

This is in a different city, so the type of data available is not the same. In any case, the old house on the left sold for $695,000 in 2016, and the actual value of the new build is $2,580,400 in 2020. That means that the actual value went from about $231,666 per bedroom as an old house to $645,100 per bedroom today.

Result: Less efficient use of land

 

To conclude, valuable land encourages more intensive use within the confines of whatever regulations are available. When land is valuable and zoning is restrictive, people either build boarding houses that have pretend to be single-unit dwellings (example 1), or larger single-unit dwellings that simply concentrate more wealth in one place (example 4). When land is valuable and zoning permissive, people build higher density (examples 2 & 3) housing which results in a lower overall cost per bedroom. When land is less valuable and land use regulation is still being enforced derelict buildings will often get demolished (think parts of Cleveland and Detroit), when land is less valuable and no one cares the derelicts will just stay there until they fall on their own (think other parts of Cleveland and Detroit). Under pretty much no circumstances will an "affordable" old home in a strong property market ever be remodeled or demolished/rebuilt and then return to the market at a lower price than before.




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