Generally, single-use owner-occupied homes are not the best investment vehicle. Yes, they appreciate in value, there may be some tax benefits and you get to live there but after accounting for mortgage payments, taxes and insurance, time and materials for maintenance … it’s iffy. That’s OK; owning a home should not be about return on investment. Homeownership is a personal lifestyle decision. It’s about long-term financial security and a physical and psychological refuge.
A challenge today with owning a home is that homes are too expensive to simply be homes. It’s difficult to justify having $825,000, now the median price for a California home, invested in a place where we spend only part of our time. The average homeowner spends more “awake time” away from home than at home. For many, commuting, work, shopping and recreation is all away from home.
The pandemic changed that a little. More former office workers are working from home and everyone is doing more shopping from home. According to the U.S. Census, between 2019 and 2021 the number of people primarily working from home tripled from 5.7% (roughly 9 million people) to 17.9% (27.6 million people). Despite the increase, 60% of the workforce still works away from home.
Actually, years before the pandemic the number of people working from home had been increasing especially for small and start-up businesses. According to U.S. Census data, there are 15 million home-based businesses in the U.S. Folks have discovered how to produce income by working from home or saving the expenses of operating a business away from home.
Homes have been converted into daycare and learning centers, garages are transformed into workshops and bedrooms are converted into offices. My rural street is a hub of commerce. Mary has a bookkeeping service, Jim is a residential contractor, George has an excavation company and my wife Vicki is an artist working from her home studio. Utilizing the family home for a home-based business helps to offset the financial impact of homeowner’s fire insurance, utilities, property taxes and mortgage payments.
Not everyone, however, has the skills or desire to have a home-based business or the opportunity to work from home. That’s a financial struggle for many first-time buyers. With the price of housing at record highs and mortgage rates the highest in 20 years, new homeowners often discover owning a home is more costly than they realized.
A recent Zillow survey of new first-time homebuyers found 56% felt they were financially over their heads since purchasing their home and 62% said they have struggled to make their mortgage payment on time. That’s why generating income with their home is a priority. The same survey found more than half the millennials, now 27-42, view the opportunity to rent out a portion of their home for rental income as “very” or “extremely” important.
House hacking, renting out part of the house to offset the expense of ownership, is experiencing a revival. Back in the day, they were called boarding houses. They were often large homes where the owners rented rooms on a weekly or monthly basis. “The additional income from house hacking can help make those dreams of homeownership penciled into reality, given that there’s so many affordability constraints on the current market,” said Manny Garcia, senior population scientist at Zillow.
Single-family homes are being converted to multigenerational homes. According to Pew Research, 60 million people live in a multigenerational household. Another broker was sharing with me how his clients were able to purchase a home by moving grandma from assisted living into their new home. Grandma’s former rent payment is now going to the mortgage payments.
Boomers have previously placed a high value on having their own space and privacy. Only 5% of boomers think favorably about renting a portion of their home. That’s going to change. If seniors are to remain in their homes many will need to become landlords.
Senior homeowners have some unique challenges. They are either retired or facing retirement with the prospect of reduced income. Inflation may have eroded their savings and the cost of homeownership — property taxes, insurance, utilities and normal maintenance — continues to increase. For many, selling is not an option. They want to remain in their homes and neighborhoods.
Owning an accessory dwelling unit is gaining acceptance among seniors looking to supplement their fixed income. A study by the Joint Center for Housing of Harvard University found that 18% of all new 2022 housing in California has been ADUs owned predominately by seniors.
The 2023 California Legislature made significant changes to the statewide laws governing ADU construction. This will streamline the permitting process and increase the amount of affordable housing.
Height restrictions have been relaxed from 16 feet to up to 25 feet or as tall as the primary house. Side and rear setbacks are 4 feet. Fire sprinklers are no longer mandated for the primary ADU and a separate bathroom is no longer required in a junior ADU as long as there is access to one in the primary residence. Local governments must approve an ADU permit application within 60 days or work with the ADU applicant toward approval.
The metamorphosis of the single-family home into multiple uses will continue. The luxury of one family occupying one home without generating additional income may be destined for the history books.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached for questions and comments at ken@kencalhoon.com.
This is a very short-sighted article. The biggest reason to purchase a home when you are younger is to protect you from inflation and guarantee you can live off of your retirement. As everyone has seen, rents can increase quickly. If you have a fixed rate mortage, the only portion going up is the property taxes (Thanks Newsom) and the insurance (Thanks again Newsom!). Ideally if you buy a home in your 30s on a 30yr fixed rate mortgage, it's paid off by the time you retire. This means no rent, no high mortgage and a guaranteed place to live out your life in peace. My first apartment in Campbell CA was $545 a month in rent in 1990 and it's now $2850 a month. Considering minimum wage was 5.35 an hour and it's now 15, that's a 300% increase in wage inflation and a 750% increase in housing inflation. Thank the government (Thanks Newsom, Brown, etc...liberal ilk!) This is not sustainable on a fixed retirement income. Buying a home guarantees you are limited to insurance and tax increases. Tax increases being limited thanks to CONSERVATIVES and the Jarvis Gann Proposition 13. Buying a home is an inflation fighter - your income goes up - but your housing costs do not!
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This is a very short-sighted article. The biggest reason to purchase a home when you are younger is to protect you from inflation and guarantee you can live off of your retirement. As everyone has seen, rents can increase quickly. If you have a fixed rate mortage, the only portion going up is the property taxes (Thanks Newsom) and the insurance (Thanks again Newsom!). Ideally if you buy a home in your 30s on a 30yr fixed rate mortgage, it's paid off by the time you retire. This means no rent, no high mortgage and a guaranteed place to live out your life in peace. My first apartment in Campbell CA was $545 a month in rent in 1990 and it's now $2850 a month. Considering minimum wage was 5.35 an hour and it's now 15, that's a 300% increase in wage inflation and a 750% increase in housing inflation. Thank the government (Thanks Newsom, Brown, etc...liberal ilk!) This is not sustainable on a fixed retirement income. Buying a home guarantees you are limited to insurance and tax increases. Tax increases being limited thanks to CONSERVATIVES and the Jarvis Gann Proposition 13. Buying a home is an inflation fighter - your income goes up - but your housing costs do not!
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