FEATURED ARTICLE: The New Path Toward Tomorrow's Real Estate Profits
at a time when the waters were less threatening and the winds less vio- lent. Property damage worth billions of dollars could be reduced if homes are strengthened and reinforced. The problem is that it can cost big money to update. However, Freddie Mac has a new and inter- esting approach called the Choice- Renovation mortgage. Like the FHA 203(k) and Fannie Mae HomeStyle mortgages, the Freddie Mac loan is a form of combo financing. You can use it to acquire a property with one to four units and – at the same settlement – obtain money for repairs, improvements, and reno- vations. The repair money is paid out after closing as improvements are completed. Because there’s no need for a second loan, there is also no need for a second closing, thus saving thousands of dollars. Owner-occupant borrowers need just 3% down to participate in the pro- gram. Investors with 15% down can use it for one-unit properties only. What sets the ChoiceRenovation mortgage apart is that it can be used to finance so-called “resilience items” such as surge barriers and retaining walls, protections that can help fend off natural disasters. Where’s the opportunity? Will buyers pay more for a better proper- ty and enhanced security? Of course! Who wants to be dislocated the next time it rains? Will insurance costs fall? Absolutely! Insurance compa- nies love the idea of fewer claims. Will there be interest in the Freddie Mac loan? You bet! Harvard’s Joint Center for Housing Studies esti- mates that $424 billion was spent on remodeling in 2017 alone.
affordable single-family units on ‘adjacent’ land currently dedicated to non-residential uses.” Where’s the opportunity? Big city markets will have to revise selected zoning restrictions or stop enforcing them. You can already find cracks in the system. There are more to come. If California, with 12 percent of the nation’s population, can add almost 800,000 accessory units, you can imagine that the national poten- tial might total somewhere in the millions. So, what’s the problem? One reason homes today are so large and expensive is that zoning ACCESSORY DWELLING UNITS & MORE
and community rules often have minimum size requirements. Mc- Mansions sprout up because local standards do not allow for anything smaller. The origin of these rules was often anything but benign. According to the Century Founda- tion, “many localities have adopted exclusionary zoning ordinances – sometimes referred to as ‘snob zoning’ rules – that forbid build- ers from developing apartment buildings or townhouses in certain areas, reserving them instead for detached, single-family homes. While this practice may seem harmless upon first consideration, some of these ordinances actu- ally had racist origins and were designed to exclude low-income African Americans specifically.”
McKinsey says California is now short 3.5 million housing units, but even that state might actually have a surplus. “California,” says McKinsey, “could add more than five million new housing units in ‘housing hot spots’ – which is more than enough to close the state’s housing gap. In aggregate, there is capacity to build as many as 225,000 housing units on vacant urban land that is already zoned for multifamily housing; 1.2 million to three million housing units within a half mile of major transit hubs; nearly 800,000 units by allowing homeowners to add units to their homes; nearly one million units on land zoned for multifamily development but un- derutilized; and more than 600,000
Q2 2019 U.S. Home Affordability Heat Map Q2 2019 U.S. HOME AFFORDABILITY HEAT MAP
158 Q2 2019 Affordability Index* (Under 100 is Less Affordable Than Historic Average)
71
Q2 2019 Median Sales Price $78,000 $500,000 $1,000,000 $1,420,000
© 2019 Mapbox © OpenStreetMap
live only where housing is scarce and expensive. In chic metro cores and nearby suburbs, many house- holds are being squeezed out by high rental rates and soaring home prices. In too many cases, those who stay are becoming house poor, devoting inordinate amounts of their income to housing. According to ATTOM Data Solu- tions’ most recent Home Afford- ability Report, median-priced homes were not affordable for average wage earners in 74 percent of U.S. housing markets in Q2 2019. Among the 480 counties analyzed in the report, 323 (67 percent) require at least 30 percent of their annual- ized weekly wages to buy a home in the second quarter of 2019. The affordability issue is not only a problem for the poor and the
middle class, but also a problem for the upper crust. No matter how rich you may be, you want a community that is economically in- clusive. You may have a penthouse above the clouds, but somebody still has to pick up the garbage, drive the ambulances, teach the children, fix the plumbing, and put out the fires. In California, says the McKinsey Global Institute, there’s a “$50 billion to $60 billion annual hous- ing affordability gap. Virtually none of California’s low-income and very-low-income households can afford the local cost of housing.” And the situation is hardly restrict- ed to California markets. Manhat- tan, DC, Boston, Portland, Seattle, Fairbanks, and Honolulu are also plagued with affordability woes.
THEY’RE NOT MAKING LAND ANYMORE While there’s no land shortage in America, a lot of people want to
10 think realty housing news report
september 2019 11
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