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Accessory Apartments - A Way out of the Foreclosure Mess?

Adam R.'s picture

Posted February 3, 2009

During the primaries, Clinton came out with some strong preventive measures for foreclosures, from a five-year moratorium on subprime loan features to low cost refinancing products.  Yet those might still fall short in some places, particularly where home prices values have plunged and thus refinancing is not a good option.

The recent concessions by Citigroup to step up loan modifications are a better plan.   Lenders have more flexibility before mortgages have been securitized.  As long as they are in the portfolio or held-for-sale, there are fewer parties (servicers, sub-servicers, investors) to negotiate between and more hope for resolution.

People should be getting creative.  The idea to allow accessory apartments for some homes has merit.  This is a plan, worked out with the input of local zoning, that allows residents to retrofit rooms in their homes for renters.  It instantly provides a flood of low-price rental housing.  In most cases, it would make our cities more dense, and probably reduce demand on unused land.  It keeps families together, as one natural function would be the mother-in-law suite (Jane Jacobs is smiling.)  And, while repurposing some of the huge homes that were built in the last few years, it puts a new revenue stream into households that may be struggling to make a mortgage payment.

The stimulus plan is a good place to engage this idea.  The author of the above article proposes a $5000 tax credit to pay for the costs of retrofit.  This speeds up the redevelopment of our rental housing stock.  It also supplies a lot of construction jobs.  It helps to pay for housing with very little demand for new infrastructure.  After all, we won't have to build new sewers, roads, or pipes to these apartments.  They will all run off of existing infrastructure.

The free market types will like this plan, too.  It will still leave apartment hunters with plenty of choice in housing.  A retrofitted apartment that is a small dungeon will not be viable.  Homeowners will be incentivized to make decent apartments.  This already works in cities - the English basement is a staple of housing for many college students or for older adults.  The ability of this plan to help families with older parents is also intriguing.  The market for senior housing is certainly going to be stunted in the near future, with so many losses to stock portfolios.  This is a very low-cost alternative.