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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Nobody has explained the economics behind building two homes on a single family lot.  Those costs include getting approval to tear down a $1 million SFH and building a brand new building that contains two homes that are affordable for middle class families. It literally makes no sense to a developer - the cost of construction alone makes it untenable.

This is what makes sense to a developer: tear down a $1 million dollar home and build two $1.5 million homes.

[/quote]

Maybe you should have this discussion with the "Soviet-style apartment blocks" PP.

Also, you're right, nobody will tear down a $1 million one-unit house to build a two-unit house. However, plenty of people will tear down a small, old one-unit house to build a large, new $1.5 million one-unit house. These same people would likely be willing to tear down a small, old one-unit house to build a large, new two-unit house at $1 million per unit.[/quote]

I'll never understand why people who oppose building duplexes on SFH lots contrive the most ridiculous thought experiments as "proof" of why allowing those zoning changes doesn't make sense.[/quote]

Fine - explain the economics of building duplexes in ward 3. To be credible, you need to include land and construction costs. I don’t see it, but maybe you can help me understand.[/quote]

There is more to the DC area than just Ward 3. However, if you oppose duplexes in Ward 3, and nobody would do it anyway if it's allowed, then why would you care if it's allowed?[/quote]

Because developers like you will come in - scoop up SFHs - and turn ward three into a hodgepodge of ugly multimillion duplexes. Literally the absolute worst of both worlds. [/quote]

So wait. Does it, or does it not, make economic sense for a person to build two-unit houses (aka duplexes) on lots currently occupied by one-unit houses (aka oneplexes) in Ward 3?

Because "it doesn't make economic sense to build duplexes in Ward 3" and "evil developers will build ugly duplexes all over Ward 3" can't both be true.[/quote]

Well, I was looking at this in the context of affordable housing. If you don’t care if the duplexes are affordable than - of course - the economics make sense for developers. [/quote]

It seems like you're conflating two concepts - affordable housing and housing affordability. Developers in Ward 3 are probably not going to start building duplexes that are affordable to families making 80% of AMI.

But, even building expensive duplexes helps make housing more affordable. A lot that housed one family now houses two. That second family might have chosen to live Arlington but for the availability of a duplex in Ward 3. Now, that house in Arlington has one fewer competing offers, allowing someone who would have had to live in Falls Church but for the less-competitive offers on a house in Arlington, and so on. Building additional housing has knock-on effects, even if the housing you're building is expensive.[/quote]

That’s a nice theory in practice but the market dynamic is more complex. Let’s say we allow triples on lots currently zoned for SF and the cost of a lot is $1 million. Building costs for any of the three options are about $1 million including financing and permitting costs, but a little more for the double and a little more again for the triple. At market, the developer can reasonably expect to sell the one unit for $2.3 million pretty quickly. Let’s say the developer can get $1.15 million for each unit in a two-over-two. Which would you build? I would build the SF because the risk of not selling all of my inventory is lower when I only build one unit. So to build two units, the developer would need to get a higher price — maybe $1.2 or $1.25 or more — for each unit. The risk premium would be even higher for the triple because even to recover the initial investment, the developer would need to sell all three units, one of which probably would be an English basement. In effect, the expected sales price for the SFH establishes the acceptable floor for the price of other types of dwellings. And as you reduce SFH inventory, prices will go up, driving up the minimum acceptable prices for duplexes and triples.

Now think about the demand side. Buyers who can pay $1.15 million have a lot of options and will be making tradeoffs that consider the cost of the dwelling, commuted, schools, and aspirations. I’d be willing to bet that most buyers who can pay $1.15 million will choose not to share a roof with people they don’t know. The persistent high demand for SFH, even in exurbs, suggests this is the case. Thus, despite high overall housing demand, there’s a substantial risk you won’t be able to sell both units at $1.15 because the market in that income range is soft for the type of unit you’re delivering.

The funny thing about the urbanist school of thinking is that it says de-regulation will automatically result in more density. But because competition is imperfect (limited by land ownership and access to capital), the housing market does not function the way you learned in your introductory economics class. What the housing market needs is a different kind of regulation. I’m for increasing allowable density (most lots in NW and close-in suburbs are big enough to support quads), but to get more housing, the government will need to find ways to make building one unit where three are allowed more expensive, and it will need to make delaying projects or doing AirBnB conversions to limit inventory more expensive. [/quote]

Your example of a $2.3m SFH vs two $1.15m duplexes is contrived and unrealistic. Nobody is suggesting that developers build a duplex or triplex and sell all of the units for the same total as a SFH would. There is, as you say, a risk premium built in to the costs of duplexes and triplexes, but also keep in mind that the pool of buyers of $2.3m homes is much smaller than the pool of buyers of $1.15m (or $1.25m, or $1.3m, etc) homes. In any event, developers care less about selling all of their inventory and more about their bottom line. You're going to have a hard time convincing me that the carrying costs of one unit that doesn't sell in a duplex are larger than the carrying costs of a SFH that doesn't sell.

As to the demand side, DC is lousy with $1.15m (and up!) rowhomes, whose owners most certainly share roofs and walls with people they do not know, so I'm not sure that your case is as strong as you think it is.

Finally, your example of SFH demand being high in the suburbs is not particularly strong evidence of consumer preferences. SFH demand is high because suburbs are predominately exclusively zoned for SFH. So of course that's what people buy, because for the most part, it's the only thing developers are allowed to build.[/quote]

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