How to Rapidly Create a Substantial New Supply

of Smaller-Sized, Lower-Rent Apartments

By Skip Schloming, Ph.D., and Lenore Monello Schloming, M.A.

 

Allow the private rental market to adjust unit sizes in existing buildings

     Allowing some existing large apartments, privately owned, to be subdivided into two smaller units would yield units with naturally lower rents, no subsidies required, and the supply of such units is potentially huge, far more than any taxpayer-funded, so-called “affordable housing could ever supply. Moreover, by using existing housing, the lion’s share of construction has already been done, requiring only modest investment by owners.

     The key barrier to this approach is the widespread, unstated assumption that “the private rental housing market has failed” and a loathing for landlords to have more "profit," which effectively ignores anything that can be done using privately owned housing.

We are over-housed  

     Today’s renter households are much smaller than they used to be, and they often live in large units built originally for the wealthy or for large immigrant households.

     Today in Boston, for example, 37% of all households consist of just one person, the most common household size. Another 27% are two-person households, making almost two-thirds (64%) of Boston households composed of just one or two people (U.S. Census Bureau data, 2017). Consequently, today’s smaller households, including many three-person households, are “over-housed.” One of the best ways for any household to lower its rent is to move into smaller space, become more efficient, and get rid of all the junk – which can easily be a positive experience in relationships.

     The easiest way for today’s small households to economize on rent is to move into smaller-sized units with lower rents. Yet, the supply of existing studio and one-bedroom apartments is limited, demand is high, and zoning prevents any more from being built – or created just by reconfiguring existing housing.

How we got here

      Most of Massachusetts rental housing was built between 1840 and 1920, architecturally beautiful and well-built. Zoning began in 1904, with the intent to exclude lower-income, minority, and immigrant families. We no longer share this value today.

     In Cambridge (MA), for example, zoning achieved this exclusionary goal by requiring 1,500 square feet of lot area (or a similar number) for each dwelling unit. All our historic rental housing instantly became illegal and non-conforming – and is allowed only by being “grandfathered.” This zoning approach effectively stopped all new rental housing construction without costly and often impossible-to-get special permits. Only luxury housing in high-rise buildings gets built, which does not help most renters.

The solution:

   Create smaller-sized units within EXISTING housing

     The solution, the way to create substantially more units at lower rents, is to change zoning and require – as of right – a given amount of square footage of LIVING SPACE (not units) for each 1,500 square feet of lot area (or other measure), thus allowing the size of units to adjust to market demand. Or, alternatively, to allow owners – as of right – to subdivide any existing two-bedroom or larger apartment into two, or even three, smaller units. And allow existing unused spaces in basements and attics to be converted, as of right, into accessory dwelling units. All of these options would be as of right, if building code and other requirements are met. Owners could then create any of the following unit sizes in existing unused spaces in basements or attics or by subdividing large units (such as triple-decker units) into two, and possibly even three, smaller units:

         Micro-units

         Studios

         One-bedroom units

         Smaller two-bedroom units (e.g., two bedrooms + large eat-in kitchen)

     When the authors first met in 1965, Skip lived on the second floor of a Cambridge triple-decker with a roommate in a smaller two-bedroom unit with large eat-in kitchen. This apartment was made out of the former “parlor” and dining room, converted into bedrooms, with the original large eat-in kitchen and bath. Next door on the same floor was the remainder of the original second-floor apartment, turned into a one-bedroom with a modest-sized new kitchen in a former bedroom, and a new bath. This unit tied into the back hallway exit. The owner undoubtedly did the conversion back then without a permit.

Boston triple-deckers as an example

     Boston has about 14,000 three-unit buildings (mostly historic triple-deckers), or roughly 42,000 units in its three-unit buildings. If just one unit per three-unit building is allowed to be subdivided into two smaller-sized units, the city could gain potentially 14,000 additional new smaller-sized units and 14,000 existing units made smaller, a total of 28,000 smaller units all with “naturally” lower rents.

     To calculate the net increase in units, we need to subtract the loss of the original 14,000 large apartments that were subdivided, which would yield a net increase of 14,000 additional new units. When people move out of their large apartments, however, into these smaller units, they effectively release their 14,000 former large apartments, which become available for larger households.

     So, the net increase in supply, assuming one unit per three-unit building is allowed to be subdivided, is 28,000 newly available units of all sizes. Even limiting this subdivision option to certain zones, such as near main transit routes, would still yield a very large supply of new, lower-rent units – at zero cost to taxpayers.

     Finally, adding such a large new supply of units will increase supply in general – and likely push rents down modestly on all other housing, without resorting to subsidies or rent control. The impact is a win-win all around.

So-called “affordable housing” is unaffordable

     Our suggested approach makes far more sense to us than the current approach, which focuses almost exclusively on building so-called “affordable housing,” either new construction from the ground up or gut-rehabbing older housing, all to modern codes. These units currently cost $1 million per unit (per MIT professor of affordable housing finance), all of it dependent on taxpayer dollars. Thus, only very limited quantities of this unaffordable housing can be created. Our solution uses the efficiency of private rental housing and of small landlords to create a substantial supply of new rental units.

Use existing, older housing

• Cheap to build, no tax subsidies needed

     These new smaller units would be cheap to build. Using existing apartments, well more than half the work has already been built:  foundations, floors, walls, ceilings, roofs, and all utilities are on site. A few new partitions and doors would be needed, and the utilities extended to the new unit to create a new kitchenette and bathroom. Owners can build these smaller units using their own financial resources or small loans, and will build them for the extra income they will receive. Of course, all new units must be built with permits and according to codes.

     In comparison, accessory dwelling units, the currently popular approach, are more expensive to build because they use unfinished spaces in attics and basements or in garages, all of which require much greater investment in finishing walls, ceilings, and floors and bringing in utilities.

• Naturally lower rents

Smaller in size, with modest amenities like the amenities in other units in the same building, these units would have “naturally” lower rents. Restricting their rents with permanent deed restrictions is unnecessary – and would inhibit or completely stop their creation. The modest increase in rental income is what will motivate small owners to create these units.

• Preserves historic appearance

All these units would make little or no change to the exterior appearance of our beautiful historic older housing. A second means of egress is often needed, but basement entrances on the sides or backs of the houses and exterior staircases on the backs will scarcely be noticeable. Roof dormers might help enlarge attic space, but they are already a common feature in older housing. 

• More property tax revenue for municipalities

Many present zoning rules prevent accessory units, subdividing large apartments, or creating any new multifamily housing at all. Hence, only zoning changes are needed to make these additional units possible. The zoning for smaller units should be “as of right,” without any need for a special permit that requires neighbor input. The delay in getting a special permit would stop many new units from being created. Moreover, all these smaller new units would increase valuations and assessments and increase both property tax revenues and income tax revenues at all government levels.

·    Transit-oriented, no parking requirements

     One way to phase in this subdivision idea and monitor its impacts is to allow subdivision only along a city or town’s main transit routes, perhaps one or two house lots deep on either side of the main street. In this way, the occupants of subdivided units will have easy access to public transit, both bus and train, and can also use bicycle and pedestrian modes – with the result that no new parking spaces would need to be required, again facilitating subdivision. The issue of locating lower-income housing in single-family zones is complex, but subdivision along transit routes would place this lower-rent housing adjacent to residential areas and close to commercial zones that might have good job opportunities for moderate-income people living nearby. And serious impact on nearby residential areas is eliminated. 

     In fact, studies show that modest mixed commercial-residential properties built next to residential zones, including single-family zones, improve nearby residential property values (first known to us in a MassLandlords.net magazine article.)

The fashionable trend to smaller units

     Our subdivision idea here is similar to the recent idea of “micro-units,” very small, compact units. Such micro-units are cheaper than other forms of new construction, but still relatively costly.

     In 2014, Boston created a Housing Innovation Lab to test “innovative housing models” to improve affordability. The Lab’s key focus is accessory dwelling units, “great as naturally affordable housing,” not income-restricted. Our proposal, then, to add micro-units, studios, and one-bedroom units does not involve far-out ideas.

The fire sprinkler issue

     A major obstacle is a costly requirement, in some subdivision situations, to install fire sprinklers in all units when a fourth unit is added. Fire sprinklers save lives and property. Every new unit adds a stove and usually a furnace, both fire sources. The sprinkler requirement is reasonable to save lives and property, but the cost (at least $30,000 for a three-unit building) would stop owners from adding a unit or two.

     This issue needs to be confronted head-on. Requirements could be relaxed. Cheaper options might be found. Most effective might be tax credits to bring costs down – far more cost-efficient with tax dollars than building “affordable housing” from scratch at a cost of $1 million per unit.

      Another possible issue is accessibility for the handicapped. Because of these issues, a task force or commission on rental housing policy might be convened to sort out the various issues.

   

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