Centrum Silver Bullets for Housing Affordability
Housing affordability is a big, complex, politically challenging, financially overwhelming issue. Frankly, there may only be one person who can tackle such a historically insurmountable problem: Grandma.
Grandparents are popular, for good reason. They are notoriously more generous with their grandkids than with their own children. It is difficult to beat the value of skip-generation childcare, complete with free (often unsolicited) parenting advice. Most parents hope to be promoted to grandparent status someday, which brings admiration and empathy.
Older Americans, regardless of parental status, even vote in higher numbers. Much higher. This is especially true in local, off-cycle elections, where races are regularly decided by as little as 15% of eligible voters. Those aged 65 and older are seven times more likely to vote than those under 34. Seven times!
Our politically powerful elders are often on fixed incomes, without fixed expenses. Costs most common later in life increased rapidly and consistently well before inflation was all the rage. It is thus no surprise that senior voters frequently lean toward pocketbook issues and against school and municipal budget increases.
According to NORC @ University of Chicago, among middle-income seniors fortunate enough to be homeowners, three-quarters will be unable to meet their medical needs without selling their home — and more than half of that (rapidly growing) population will run short of covering assisted living costs even after selling.
Because of all this, not despite it, I have a theory that seniors may hold the keys to unlocking housing affordability solutions for all. Read on, and please share your thoughts after you do.
Granny Flats
An Accessory Dwelling Unit (“ADU”), colloquially known as a “Granny Flat,” is a secondary residence that shares land with a primary residence.
A proper ADU will have a full bathroom with a shower or tub, a kitchen or kitchenette, and sleeping quarters in studio fashion or a one-bedroom configuration.
An ADU is typically much smaller than the main house, often closer to a “tiny home” or backyard “casita.” Many municipalities consider basements converted into apartments to be ADUs, or sometimes creating a duplex.
The ADU is widely cited as a crucial tool in the housing affordability toolbox, partly because private dollars bring organic, unsubsidized affordability into otherwise inaccessible neighborhoods. Some call it a form of “gentle density.” Others say it is the way things used to be. Both are correct.
In some states and cities, ADUs are now permitted “as-of-right,” meaning homeowners who otherwise comply with local ordinances can construct one confidently without a costly variance process. However, in most of America ADUs are still foreign to code officers, viewed with suspicion, and prohibited. The heroine of our story, Grandma, lives in just such a jurisdiction.
Grandma Smith Goes to Washington (Township Council)
The story begins at an otherwise uneventful municipal meeting where Grandma quietly approaches the podium during a new business open mic and shares her conundrum with the town council.
She has modest savings and lives primarily on Social Security. Her property taxes rose more quickly than her income for years, and now her grocery bill is growing even faster.
She knows she should tend to the worn roof, and the driveway cracks are becoming a tripping hazard, but there just isn’t much left at the end of the month. The yard is tidy, but it is getting harder to keep it that way.
Her grandson lives in California, and he had an idea the last time he visited: he and a couple of friends could build an ADU in her backyard that she could rent out for additional income. His friend in San Diego did this from a kit that reminded him of the Sears catalog houses Grandma still talks about.
She has done the math, and the rental income from the ADU may be enough to pay her property taxes each month (provided they slow their roll, Grandma gently prods town council), freeing up much of her Social Security deposit to cover some of those other maintenance items.
A long-time neighbor considering downsizing is even looking for a studio or one-bedroom to rent in the area, and he is having trouble finding one he can afford. Perhaps he could move into the ADU. She rather likes the idea of having someone around, ever since her husband passed.
Before getting excited, Grandma came to the council meeting to ask if there were any reasons why she could not build an ADU. She was warned by a friend that there might be.
Town council members listen attentively at first and then begin to look down, squirming a bit. Grandma’s question is reasonable, and her request is straightforward. Her case is sympathetic. They want to help… but all know the truth: ADUs are prohibited. Period. Sorry, Grandma.
But Grandma is as persistent as she is patient, so she presses on.
What if she did not build a separate structure? Could she build an apartment in her walk-out basement? Maybe Grandma could even move in down there, which holds the appeal of one-floor living, and rent out the main house. Her husband insisted on running plumbing down there when they built the place, saying his mother may move in one day (a day that thankfully never came, Grandma adds).
No, Grandma, you cannot do that, either. That would make your single-family home into a duplex, or at minimum, the basement would be an internal ADU, technically speaking. You are not zoned for that. Almost nobody in this town is. Your property is only for single-family homes.
I see. It seems odd to Grandma that basement apartments are not permitted, given how many neighbors already have them. How is that? (We can add perceptiveness to her qualities of persistence and patience.)
Homes in her neighborhood were built in the 1940s, after the war. That was before strict single-family zoning in this town, or really any town, which went into effect in the late 1950s. (The explanation is given almost academically, without mentioning the original reason behind the town’s single-family zoning vote decades ago. That is not discussed in polite company, though the official minutes of those meetings include the phrase “to preserve our white way of life.” It was a different time, we tell ourselves.)
Fascinating, thinks Grandma. So, when she and her husband bought this land and built this house, she could have created a basement apartment? Yes, that’s right. Then the town took away her right to do that. Yes, that’s right. “I don’t recall being compensated for the loss of that right. Or even notified when it happened.” Blank stares.
Well then, she asks, what can she do? She has a perfectly good property. Rental income could provide a nice place for someone to live — someone who maybe cannot afford to live in this neighborhood otherwise — while also solving her financial problems. What would council suggest, working within their arbitrary rules? (She could not help herself with the “arbitrary” comment.)
Meek offerings follow: “You could look into one of those reverse mortgages from TV.” Or “maybe you could sell the house and move in with family? Isn’t your sister just over in Springfield?”
She is visibly upset, though she chooses her words carefully:
“So you are saying you have the power to change the rules, to allow me to do this. To allow my friends, who have the same problem, to do this. To fix the problem ourselves, without relying on government programs or burdening our families. But you will not? Interesting…
I have this problem, and I vote. My friends have this problem, and they vote. I’m not sure many other people in this town vote, do they? And aren’t you all up for reelection in the fall??”
Mic drop.
Serve the Silent (Generation) Majority
When a city or state considers liberating regulations to permit ADUs, some citizens can be counted on to object. In such cases, the silent majority may favor taking back these property rights. However, a vocal minority of homeowners is almost guaranteed to appear at town council meetings, armed with “Facebook facts” and overblown fears (and some legitimate concerns, to be fair).
Visions of neighborhoods overrun by AirBnB party houses, families flooding schools, and street fights over parking spaces can shut down debate before it starts.
Social science tells us that those favoring a proposed change often underestimate their number. They hear high-decibel objections from others and incorrectly assume they are alone, so they remain quiet. Again and again.
If you are a town council member concerned about ADUs becoming party houses, ban party houses, not ADUs. Clarify your noise ordinances and enforce them. Require leases of at least a month, or three, or six.
If you are worried about parking, remember you have little control over that today. Most homeowners have unlimited as-of-right street parking today, yet no right to rent out their basements. No additional parking construction is required when each resident gets their driver’s license or buys a car, yet they can store their vehicles (but no other possessions) in the public right-of-way.
(There are reasons why you hear about a housing affordability crisis, not a parking affordability crisis. Despite the rhetoric, parking requirements kill thousands of times more housing development projects every year than environmental laws do. The spotted owl has nothing on the Honda Accord.)
Worried about large families moving in and overwhelming the school system, then deed-restrict as-of-right ADUs to be 55+ while capping the number of unrestricted ADUs each year on a first-come-first-served basis. (Maybe someday Grandma could move into an age-restricted unit and rent out the main house. Even knowing she has that option may be comforting.)
Deed restrictions were not always used for good. Presently unenforceable, racist deed restrictions remain in the land title records of countless American homes today. We can turn those swords into plowshares.
Do a good deed (restriction)
To comprehensively address housing affordability, we need to build. A lot. ADUs can help. A lot. Yet we cannot solely rely on building.
Constructing affordable housing is ironically expensive. Very expensive. Creating any housing is pricey, and subsidized developments cost even more for the same quality due to higher “soft costs.”
Hard costs include lumber and labor, among other things. Soft costs relate to planning, financing, and even litigation.
With affordable housing, soft costs skyrocket due to the need to stitch together at least half a dozen different capital sources and the likelihood of active community resistance that slows the approval process while the meter runs with technical consultants.
There are faster, more permanent paths. Enterprising municipalities have purchased market-rate apartment buildings and converted them to serve as affordable housing. In some cases, they have provided material tax abatements (essentially property tax reductions) to entice third-party real estate operators or tenant groups to purchase such buildings and restrict most units to affordable.
As expensive as that is with today’s multifamily valuations, it can be cheaper than building new. The quality may not be the same, though the affordable inventory impact is nearly immediate.
What if we applied similar approaches to single-family homes, townhomes, and individual condo units? What if we did so even more efficiently, more democratically? And what if we helped older Americans along the way?
It may sound too good to be true. Perhaps it is. You may educate me on what I am missing. Meantime, an example may help to make it clear.
Consider a town with single-family homes valued at approximately $400,000 today. In this same town, building or buying a multifamily structure may run $250,000 per unit, not counting excess soft costs. If a town approves $3 million in affordable housing funding, debt and equity, that may provide 12 such units that will be delivered three to five years after initial community resistance is overcome.
Imagine if that $3 million instead went to 25 senior citizen homeowners in exchange for permanently deed-restricting their 25 properties as affordable. It could even be funded by a tax-exempt revenue bond based on property taxes of those restricted units.
For our example, let’s return to Grandma Smith. She is fortunate to own a home worth $400,000. In pursuit of its affordable housing goals, Washington Township could offer Grandma $120,000 to irrevocably file a permanent deed restriction with Grandma’s property records. Washington Township would be the beneficiary of the restriction.
The deeded provision would restrict the sale or rental of the property to buyers or tenants qualified by the local housing authority (perhaps using 80% of the area median income, AMI, as the baseline), and the maximum price would be calculated as a multiple of this income.
While a little complicated at first blush, purchasing an affordable housing deed restriction looks like child’s play relative to the complex tax credit structure and related capital stack of a typical affordable housing development.
This approach may be attractive to some senior homeowners who desire cash flow today while being cost-efficient for the many towns that are woefully behind on their affordable housing goals — a true win-win.
Yet we can make it more tax efficient for homeowners and more cashflow efficient for municipalities.
Rather than an up-front, taxable payment to the homeowner, a city could agree to waive a portion or all property taxes upon grant of the deed restriction until the property changes hands in an approved transaction.
Granny Smith (who is on a very fixed income — and who votes!) will receive immediate and meaningful tax relief (possibly equal to the rent she would have received from an ADU — and nothing prohibits her from doing both) — relief that will literally last a lifetime. (Re-election odds are improving.)
There would be no capital outlay by the city (just forgone future taxes), no taxable event for the homeowner (if I understand the code — you’ll correct me if not), immediate cashflow improvement for the homeowner, and eventual affordable housing inventory for the city.
Restricting the program payments to seniors while opening future affordable units to all ages concentrates cashflow benefits to fixed-income voters and delivers housing benefits to lower-income residents.
Older participants also naturally limit the timeframe of the tax waivers by reasonably predictable life expectancy rates across a broad population. The math is straightforward and widely accepted. Cities and states use it today for pension obligation calculations.
Best of all, the newly affordable inventory would come online steadily and throughout the entire community rather than concentrated in any one year or neighborhood. True income diversity over time.
And, unlike most subsidized housing, which focuses on renting, these restricted homes can be purchased by lower-income individuals. True ownership diversity over time.
There are some hurdles to overcome, of course. For instance, mortgage holders may balk at deed restrictions that negatively impact value in foreclosure. But this and other matters are solvable, including with a foreclosure-related exemption for the in-place mortgagee at the time of restriction recording. Easy.
Purple people power at the polls
If quizzed, could you determine if the above proposals are conservative or progressive? Red or blue?
There are clear property rights assertions, which lean red. There are affordable inventory growth proposals, which lean blue. Yet each has some aspect of both.
These are purple proposals.
Not long ago, most local elections were full of hyper-local, nonpartisan issues, and officials focused more on quality-of-life matters than national policy fads. What’s old can be new again.
These proposals are good for all generations, not solely the seniors they seem to serve. Affordable housing for any one group indirectly benefits all groups by mitigating demand pressures. The unrestricted ADUs provide naturally affordable rental options for everyone. The deed-restricted properties allow the benefits of homeownership to accrue to lower-income residents.
The benefits are universal, though I am proposing a politically palatable focus on seniors as a practical tactic to drive immediate action.
Of course, we could eliminate the senior centricity. It could be ADUs for all and deed restrictions raining from the sky. You would have my vote. But I think purple rain is more likely to go platinum with a silver tsunami at the polls, so I suggest we consider standing behind, with, and for our elders to bring more affordable housing to everyone.
But that’s just me. What do you think?
Please comment. Criticize and correct me. And together we will create a better plan for more attainable shelter and stronger communities.
Hat tip: thanks to the team at TrueHold for flagging the middle-income senior issue following my last article, calling out the group with income and assets above certain government program thresholds yet below likely private pay assisted living costs. Their sale lease-back program for seniors appears worthy of exploration.
