The Los Angeles Times has recently been reporting on the building trend that has been impacting Los Angeles neighborhoods, especially those on LA’s Westside, a place I live and where I am involved in the real estate business. The trend has been labeled “Mansionization”, when an older smaller home is torn down and a super-sized larger home is built in its place. This trend proliferated during the last real estate boom. There were few size restrictions in place and large single-family homes, some out of character with the neighborhood, were built with little regard to how the new structures impacted homes on adjoining lots. In many cases the newly built larger sized homes reduced available sunlight to those smaller neighboring homes, obstructed views, impacted privacy and consequently reduced their value.
Residents in a number of neighborhoods protested the issue with their local representatives and as a result the LA City Council passed laws intended to restrict the size of homes that could be built on a residential lot. Allowable square footage was restricted to an area equaling 50% of the lot size. Included in the law however were several exemptions, which many now labeled loopholes that allowed the square footage to be enlarged by as much as 30%. It wasn’t soon after that builders and developers took advantage of this.
The recent economic recession followed and soon thereafter deterred many from building new homes as home values plummeted and the real estate market retrenched. Recently, however, the real estate market has seen home prices recover, with large price percentage gains over the past several years. Along with that recovery has come a return to building large homes.
Why the large homes? It’s a product of economics. Home values are usually predicated by their size and appraised and compared by their square footage; the larger the home the higher value. If a developer is to invest in the purchase of a property with the intention of remodeling or building a new home his return on that investment increases based upon maximizing the square footage of the finished home. It’s all rather formulaic. The developer knows their cost to build and this cost becomes significantly less when the size of the home is increased. Kitchens and bathrooms are the most costly rooms to build in a home while an expanded living room area or bedroom space represents a relatively small portion of cost. Considering the lot value is fixed, the developers know what their approximate total building cost is going in. They next look at what selling prices for new homes may be in a neighborhood and they do the math. In many cases building a reduced size home will not pencil out, so, in order to realize a profit the builder is compelled to build a larger sized home.
For some families inclined to build their own home it’s not a matter of building for profit but rather a desire to have and utilize more space in their home. Here, personal and cultural interests likely prevail.
Many neighborhoods have resumed their efforts to reign in the size of homes that can allowably be built on a given lot. The LA City Council has been in hearings trying to find a way to navigate this issue that will not negatively impact the real estate market, while at the same time addressing their constituents concerns. It is estimated that any new building ordinance will take approximately 18 to 24 months to fully enact. In the meantime the LA City Council is contemplating the placing of a moratorium on new construction in some areas of the city, allowing only a strict adherence to the 50% home to lot size ordinance and eliminating the loopholes. If this moratorium is to go into effect it will likely be lifted once the new ordinance is passed.
I happen to know my City Councilman and received a telephone call from his office this week. I discussed this issue with his director at some length and subsequently reached out to other real estate agents and developers to gather their input. One of the concerns I have had with the ordinance is its lack of discretion and strict adherence to a mathematical formula. I believe that our appraisal methodology is out of touch with other criteria such as the aesthetics and value of good design. In that context I believe homes larger than the restrictions allow for should have an opportunity of being built if we can find a way to incorporate other values into the process. The evaluation should certainly be considerate of how the property impacts neighboring homes.
Lastly, I had discussed this issue with one of my builder clients. He has been extremely considerate of neighboring homes and makes a concerted effort to understand and alleviate as many issues as possible during the design phase of his projects. Building to the max has not been part of his philosophy. He pointed out that if people want big homes they should be built on bigger lots. If they want more square footage, build basements.