If you are shopping for a home to rent or buy, I have bad news for you: Living in Massachusetts is going to be very expensive. It might be unaffordably expensive for you. But if you, like me, believe in our democracy, I also have some good news: We can fix home prices dramatically quickly and make a dent in climate change, too. To prove the point, come with me for a walk through a typical three-decker, and bring your calculator. 

Here, we have three apartments on three floors. The apartments have over 1,000 square feet and three bedrooms each. There’s no attic. You’ll see in the basement there are three methane gas boilers, three methane gas water heaters and a bunch of junk left behind from previous renters. (Push aside that rusty bike.) 

The main carrying beam of the house is a bit cracked and sagged, but stable. The upstairs kitchens are no better. There are still built-in cabinets from when the house was built in 1890. This place is old! 

Here’s the question for today: The owner of this building has $200,000 to invest. How should they invest it?  

Where did they get the money, you ask? Well, it doesn’t matter. You can imagine the $200,000 comes from savings at a day job or from equity in the building. (If you dislike landlords, imagine the $200,000 comes from “capitalism, blargh!”) Let’s go back outside and talk about this landlord’s options. 

 Option 1: Raise the Rents 33 percent 

These units currently rent for $1,500 per month each, which is average for the neighborhood. If the landlord renovated them nice with quartz countertops, quiet-close cabinets and stainless-steel appliances, they might get $2,000 apiece.  

We’ve been seeing kitchen renovations in this neighborhood come in at no more than $50,000 each. That’s $150,000 for all three kitchens. Let’s use the rest of our $200,000 budget to add in the structural and plumbing work. 

Given an amount to invest equal to adding a unit, it’s always better to add the unit.

If the landlord does all this, their first-year, cash-on-cash return on investment will be a $500 rent increase for each unit, times three units, times 12 months in a year. That’s $18,000.  

This strategy is not without risk. The higher the rent, the fewer who can afford it. The landlord will be pressured to lower their screening criteria, and then they will be more likely to see a missed rent payment. 

 Option 2: Increase the Units 33 Percent 

Suppose instead the landlord used their budget to add a unit. They can’t make a fourth-floor unit, because the structure isn’t strong enough for that. They could clear out the basement and move the boilers, but that sounds like extra work. Probably they would put their unit on the back patio, townhouse-style. There could be two floors and they wouldn’t have to touch the rest of the building. In planning-speak, this is sometimes called an “accessory dwelling unit.” 

Foundation and framing will be a substantial cost. When the public spends money on renovation, for comparison, we tend to pay $400,000 per unit in construction costs. This private landlord will likely pay half that, because private permitted construction tends to run approximately $200,000 per unit. They’ll build it all per the code. It will be well-insulated and sealed. It will be heated and cooled with heat pumps because the landlord would like to offer air conditioning. (Besides, that old methane gas line would be a pain to extend.) 

In order to equal the cash-on-cash return from option one, the landlord would have to set the fourth apartment’s rent at $1,500. Just imagine: With a brand-new kitchen, new bathroom and air conditioning to boot, such an apartment would be underpriced! This landlord will likely make more money than that. Or else they’ll have less risk, with lots of renters to choose from. 

Doug Quattrochi

  Adding Units Beats Raising Rents 

So you see, this landlord would much rather add a unit than raise the rents. The math holds true for any landlord on any size building. Given an amount to invest equal to adding a unit, it’s always better to add the unit.  

And we should want landlords to add units. Where three households called Massachusetts home, there now are four. Where 100 percent of the lot was greenhouse gas-emitting, now 75 percent is. Where previously not one unit was suitable for the elderly or others needing air conditioning, now one is. 

Of course, you already know the catch: Adding units is usually illegal without a variance or special permit. Zoning will, in every community in Massachusetts – to the best of my knowledge – prohibit the addition of new units without special permission. This prohibition extends to even those renovations that keep the building its original size and shape.  

Massachusetts must become welcoming to multifamily “gentle density” as of right. I don’t mean high-rises. I mean the homes we see all around us flexing to meet the times. And I mean landlords funding it, not the public, because this is what landlords naturally want to do.  

Doug Quattrochi is executive director of MassLandlords Inc.