Single Family Conversions: The Real Luxury Housing Crisis
While much has been made of the tendency for new construction to fetch wild prices on both the rental and condo market, it is often easy to miss the more subtle introduction of new luxury housing via conversion of existing, more moderately priced homes into high-priced units.
In 2019, a two-family home at 384 Broadway in Cambridge, Massachusetts was sold for $2,070,000. The property had 3,683 square feet of livable space, and at least one of the two units had been on the rental market in 2016 for $2500 — a low-to-middle market price rent for a likely 3 bedroom apartment in 2016, in a somewhat dilapidated building. Initially listed at $2.2M in January, this property sold below the initial asking price.
The home is now on the market again — and is no longer a modest 2-family home. Instead, it’s transformed into a 7 bedroom, 5 bathroom, single family home, with a newly finished basement space adding more than 1500 square feet to the property. The new listing on Zillow lists this as a 5300 square foot house… with an asking price of $3.995 million.
Where previously there were two moderately priced (at least, for Cambridge) units, at about $1M per home, we now have a single $4M home in its place. (While a $1M home is out of the range of median income earners, for a family of 4, it is within reach to those making 150% of the area median income. A $4M home would likely require annual income of $800,000/year in order to be ‘affordable’.)
The description of the property is similar to the descriptions you will see in every renovation, but with numbers of rooms that are completely out of line with most Cambridge housing: “Completely renovated and transformed in 2019, the 7 bedroom, 4.5 bath home features high end stainless steel appliances including six gas burner Wolf range, 42” Subzero refrigerator, Bosch oven, Asko dishwasher, Carrara marble counter tops, oak & mahogany hardwood floors, gas heat, four zones of heating/cooling and new Paradigm premium high efficiency windows.”
The monthly cost for this 7 bedroom home for the eventual buyer is estimated by Zillow at $20,000 — nearly $3000 per bedroom.
If this conversion were happening in an area without a housing crisis, this would be less of a problem: this restoration appears to have kept many of the original elements of the home (which was probably converted from a single family home to a two-family home in the first place), and overall seems to be a high quality renovation bringing the home up to many modern standards.
However, in an area where tens of thousands of residents wait on wait lists for low-income housing, treating housing as a luxury good creates negative outcomes.
First: We’ve lost access to one home, entirely. Through the combination of the two existing units, the total number of places for a household group to live in Cambridge went down by one.
Second: Because of the combination of these units, developers have created a new instance of the true luxury good in the Cambridge housing market: the large, single family home in a neighborhood of dense, walkable amenities, increasing the price for this home by four-fold over the previous homes in this space.
What’s the Alternative?
This home is on a 6000 square foot lot. Under existing zoning rules, only 3 units are allowed on this property, which makes investing in an expensive conversion to 3 homes financially unlikely: in general, in order to look at completely redoing a building, you need to be looking at doubling or tripling your square footage.
Additionally, the existing building was very close to its maximum square footage, so adding any extensions onto this building in order to expand footprint under existing zoning is unlikely.
However, with different zoning, you can imagine several different outcomes for this property.
Option 1: Affordable Housing Overlay
One of the difficulties in building affordable housing is that competing under existing zoning is difficult; with the option to build a maximum of 3 units, the $2M price tag of this property is simply too high. However, the the proposed Affordable Housing Overlay that was tabled last fall, an affordable housing developer on this property would be able to build much more densely.
A rough approximation of the area that developers might be able to build is to imagine building 70% of the lot (leaving 30% open space), 4 stories tall, giving a total square footage of around 16 thousand square feet, or around 16 affordable homes.
Affordable developers can typically make projects work at purchase prices up to about $200k per home built, which means that an affordable developer bidding under the terms of the Affordable Housing Overlay could be in a position to make a highly competitive offer on this property — $2.4M to $3.2M, or 20%-60% over the asking price. (A practical evaluation might limit this somewhat, while still leaving the project as feasible.)
While the age of this house might present some difficulties (as an 1880s house, it would be eligible for a 12 month demolition delay, and the site might prove problematic), the potential creation of more than a dozen homes here would be an example of the type of development the Affordable Housing Overlay is intended to encourage.
This would be in character with the neighborhood: on Broadway, there is routine intermingling of older wooden structures like this one with larger brick buildings offering more dense housing.
Option 2: Limiting down-conversions without a special permit
In the midst of a housing crisis, allowing builders to convert our moderately priced housing stock into high-priced luxury homes is exacerbating an ongoing crisis. While there may be cases where this is appropriate, removing homes from Cambridge’s supply deserves the consideration of a body like the Planning Board or the Board of Zoning Appeal.
This process would then allow for public comment and input, involvement with the developer, and a process where community input becomes relevant — something that doesn’t apply to removing units from the housing stock today.
Over the past 18 months, more than 30 homes have been removed from Cambridge as the result of conversions from multi-unit buildings to single family homes (or, occasionally, smaller multi-family homes). In cases where these buildings are being downsized in this way, the builder should be required to get a special permit, and allow the public to have input on these negative impacts to our community’s housing stock.
Fighting For Homes
In order to make the most progress at helping residents of Cambridge, our most effective path forward is to fight for homes, rather than against them. More homes can help hold rents in check, and provide greater options for the residents of Cambridge (current and future) to meet their needs on the housing market. With zoning changes, we can make alternative approaches to redevelopment more practical — focusing on creating more homes for low-income families in need — and work to be more involved in processes that remove homes from the Cambridge housing supply.
