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TABLE 2. COST AND REVENUE FOR CONVERTING A TWO -CAR GARAGE INTO
<br />A 400-SQUARE-FOOT APARTMENT
<br />Construction Cost
<br />Architectural plans
<br />Permit fees
<br />Construction
<br />Fixtures
<br />Total
<br />Monthly Cost
<br />Mortgage payment
<br />Maintenance
<br />Insurance
<br />Total
<br />Monthly Gross Revenue
<br />Monthly Net Revenue
<br />Low High
<br />$3,000
<br />$2,000
<br />$45,0oo
<br />$10,000
<br />$6o,000
<br />$474
<br />$50
<br />$73
<br />$597
<br />$5,000
<br />$3,000
<br />$6o,000
<br />$12,000
<br />$80,000
<br />$633
<br />$67
<br />$73
<br />$772
<br />$1,440 $1,440
<br />$843 $668
<br />Complete sources and methodology available In "Converting Garages Into Housing,' published In the Journal of Planning Education and Research.
<br />regularizing illegal conversions along with
<br />a limit to on -street parking. For example,
<br />Lawndale, California, requires an inspection
<br />and a report that "states whether the prop-
<br />erty is in compliance with the requirements
<br />for off-street parking" before any residential
<br />property is sold. A similar inspection -at -sale
<br />requirement in other cities would lead home
<br />owners to upgrade or remove conversions.
<br />Garages converted without a legal
<br />permit are surprisingly widespread in the
<br />U.S. To estimate the increase in the number
<br />of unpermitted single-family housing units
<br />in the io largest Metropolitan Statistical
<br />Areas (MSAs), we compared the number of
<br />new single-family housing units reported
<br />in the U.S. Census with the number of
<br />single-family building permits reported by
<br />the U.S. Department of Housing and Urban
<br />Development. (Detached inhabited garages
<br />are counted as single-family housing units
<br />in both data sets.) Column 4 in Table 1 sug-
<br />gests that, between 2000 and 2014, 37
<br />percent of new single-family units were
<br />unpermitted. In total, 1.7 million unpermit-
<br />ted housing units were added in the io
<br />largest MSAs.
<br />Column 5 shows the Wharton Resi-
<br />dential Land Use Regulatory Index, which
<br />measures the strictness of land -use
<br />regulation. MSAs with more regulation have
<br />higher values and those with less regulation
<br />have lower values. The MSAs with more regu-
<br />latory barriers to new housing (Boston, Los
<br />Angeles, New York, and Philadelphia) have
<br />high shares of unpermitted units in their
<br />metropolitan areas, while the MSAs with
<br />fewer barriers (Atlanta, Dallas, and Houston)
<br />have low shares. Providing a pathway to
<br />legalization can greatly reduce the number of
<br />illegal garage conversions.
<br />THE ECONOMICS OF GARAGE CONVERSIONS
<br />Converting garages into housing can have
<br />far-reaching benefits for home owners,
<br />including an improved financial footing.
<br />According to Pearl Remodeling, a company
<br />that converts garages into livable space
<br />in Los Angeles, the cost of converting
<br />a two -car garage into a 40o-square-
<br />foot apartment ranges from $60,00o to
<br />$80,000. If the home owner finances
<br />the conversion at five percent interest
<br />over a 15-year period, monthly loan pay-
<br />ments would be between $474 and $633
<br />per month. Using Craigslist, we surveyed
<br />rental listings of second units in Los Ange-
<br />les County in May 2016 and estimated that
<br />the average rent for a 400- to 450-square-
<br />foot second unit in Los Angeles is $1,440,
<br />so the rent from a garage apartment can
<br />cover the mortgage payments and give
<br />the home owner between $602 and $793
<br />a month in additional income. If the owner
<br />pays $6o,000 for the conversion with-
<br />out borrowing, the rate of return on the
<br />investment is 25 percent per year and the
<br />payback period is 3.9 years; if the conver-
<br />sion cost is $80,000, the rate of return is
<br />18 percent per year and the payback period
<br />is 5.4 years.
<br />Some owners may not want to borrow
<br />money to convert a garage, or may have too
<br />little equity to do so. A policy that can help in
<br />this case is being tested in Portland, Oregon.
<br />The government offers to build a second
<br />unit on a single-family property if the home
<br />owner agrees to allow a homeless family to
<br />live in it rent-free for five years, after which
<br />the home owner has unrestricted use of the
<br />property. The sites considered for the second
<br />units are close to public transit, schools, gro-
<br />cery stores, and day care, and the formerly
<br />homeless families receive full support from
<br />social services.
<br />The government's cost to build the sec-
<br />ond unit is around $75,000, about the same
<br />as the cost to convert a garage into a second
<br />unit —far less than the average $372,00o per
<br />unit it costs to build subsidized affordable
<br />housing in California.
<br />If a city wants to provide housing for
<br />homeless families, subsidizing second units
<br />can be cheaper than subsidizing the rent for
<br />existing apartments.
<br />Unlike rent subsidies, which increase
<br />the demand for affordable housing, subsi-
<br />dized second units increase the supply of
<br />affordable housing. After five years, home
<br />owners get the second units at no cost.
<br />If an agency is committed to provid-
<br />ing shelter for a specific group, subsidized
<br />second units can be a cost -neutral or even a
<br />less expensive alternative.
<br />For example, because the U.S. Depart-
<br />ment of Veterans Affairs offers a wide array
<br />of programs to help homeless veterans, it
<br />can also offer to pay for converting garages
<br />into housing in exchange for letting veter-
<br />ans occupy the new housing rent-free for a
<br />specified period. This offer seems especially
<br />appropriate if the home owner appreciates
<br />a veteran's service to the country and if the
<br />neighbors approve of (or at least hesitate to
<br />publicly oppose) allowing a formerly home-
<br />less military veteran to live nearby.
<br />ZONINGPRACTICE 5.18
<br />AMERICAN PLANNING ASSOCIATION I page 4
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