Housing markets everywhere are in a tough way. Prices and interest rates are so high that most first-time buyers don’t have a prayer, and sellers looking to move are getting pinched despite their ability to bring much bigger down payments to the table.
But this coming year, state legislators could put a potentially powerful tool in buyers’ and sellers’ hands that might help unstick the housing market: statewide accessory dwelling unit legalization.
To understand the idea’s power, it’s first necessary to reframe how we talk about home prices. A home’s sticker price is always a shock, especially to people who haven’t been in the market in a while (or ever). But in many ways, the most practical way to measure home prices is by a buyer’s monthly mortgage payment.
This is why the dramatic rise in home prices during the pandemic knocked a few buyers out of the market but didn’t appreciably dent demand until mortgage rates went through the roof starting in late spring. The mortgage payment on a $400,000 home whose price jumps to $450,000 only goes up a little over 12 percent if the interest rate stays at 3.5 percent with a 5 percent down payment. If that price increase happens at the same time the interest rate gets cranked up to 7.1 percent, Freddie Mac average’s high-water mark this year, it spikes 67 percent to $2,873.
Real estate industry forecasters so far say mortgage rates are likely to moderate slightly next year, in the 5 percent to 6 percent range, but housing markets in the Northeast aren’t likely to see a collapse in prices even as the rest of the country heads down that path.
This is where ADUs come in. A rental unit or two attached to an otherwise single-family home generate valuable income a buyer can put towards today’s elevated mortgage payments – thousands of dollars at contemporary prices.
Unfortunately, most Massachusetts towns and cities impose onerous, expensive and frankly absurd requirements on building new ADUs or carving them out of existing, larger homes. If they’re allowed at all, often a special permit is required: the same process imposed on much larger apartment buildings and commercial developments. In other cases, multiple dedicated parking spots are also needed, even if a unit is in the 600-square-foot range, the size of a small one-bedroom.
Adding insult to injury, the lack of a statewide standard keeps construction costs high by stifling the growth of an ADU specialist construction industry. In other states, sensible, statewide ADU rules have opened the door to scores of firms who develop expertise in tough jobs like worming bathroom and kitchen plumbing into old houses or economies of scale with semi-standardized ADU designs and supply chains to match.
The state Senate backed this idea in its version of the 2022 economic development bill. It’s time for the House of Representatives to get on board, and give a helping hand to struggling renters and prospective homebuyers, alike.
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