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Are Teardowns Good for the Real Estate Market?

Teardowns fuel the economy by employing local contractors, architects, electricians, plumbers, and other local specialists.We’re seeing more teardowns in 2012 than we’ve seen in years. Because of limited available land to build a new house in the Greater Boston area, the only options for homeowners are to move farther away or tear down an existing home. Densely populated, desirable areas close to Boston such as Lexington, Newton, and Needham are experiencing an increase in demolition permits for single-family homes.  It’s one sign that confidence is coming back into the real estate market.

Why Teardowns Are Increasing

According to the U.S. Bureau of Labor Statistics, the unemployment rate in Massachusetts is one of the lowest in the country at 6.5%. With the increase in jobs, especially in high-paying biotech and high-tech industries, comes an increase in home buyers looking for new homes close to Boston. The problem is most of these towns are nearly built out, with relatively few homes for sale and even fewer vacant lots.

These homeowners want more spacious homes that are well appointed. And they want the desired amenities that come with new homes and aren’t usually found in outdated capes or ranches. Builders almost never tear down a home that is updated and in good condition. They replace homes that are in disrepair and in need of drastic updates. Older, functionally obsolete homes are being replaced with larger homes that have features such as great rooms, kitchen islands, spa bathrooms, walk-in closets, home offices, media rooms, and multi-car garages.  They also want to live in towns close to the city that have excellent schools, well kept streets and town centers, and cultural attractions.

Return of the McMansion?

Some homeowners worry that more teardowns mean more oversized, architecturally unappealing “McMansions” being built in their neighborhoods. Efforts to increase zoning restrictions that determine height, size, and proximity to other homes in these communities, however, have been met with resistance. Though neighbors may not like the look of the new homes or the noise and traffic disruption from teardowns, they’re reluctant to impose increased restrictions. When it comes time for them to sell or rebuild their own homes, they want their options open. More often than not, we see neighbors who initially oppose the teardown and rebuild end up liking an attractive new home on their block. They also realize that a new home in their neighborhood brings all the surrounding home values—including their own—up.

Not all homeowners opt for “cookie-cutter” McMansions when they rebuild. The National Association of Homebuilders recently ran a story this month about a couple in Wellesley who tore down their 2 bedroom bungalow and built a Victorian-style home with modern construction and amenities. This beautiful energy-efficient home fit in with the architectural style of the surrounding neighborhood. Yet it was built with modern features as an open floor plan, custom maple kitchen cabinets, a showpiece shower with custom tile, and a finished attic with skylights.

Cost of Doing a Teardown vs. Renovating the Home

On average, the cost to renovate and repair a home per square foot is higher than the cost of new construction. The risk of unforeseen problems during remodeling is higher as well.  For instance, updating a room to accommodate new appliances may also require you to update the electrical system, too.  Understand the value of the renovations as well. Does it make sense to add a bathroom to your home rather than a garage? Homeowners can lose money undertaking such projects that can’t be recovered when it’s time to sell.  Some home renovations conflict with existing zoning laws, and may end up costing you more than you had planned. For example, you may not be allowed to add an extension to your home. If you begin renovations without checking your local zoning laws you could be forced to tear it down and start over.

How Teardowns Help the Local Economy

Teardowns fuel the economy by employing local contractors, architects, electricians, plumbers, and other local specialists. It also increases revenue for local home furniture, appliance, and supply stores.  And it isn’t just affluent communities that are seeing this increase in teardowns. Middle-income communities that were hit hard by the foreclosure crisis are also seeing an increase in teardowns and can actually benefit from them. An abandoned foreclosed property that falls into disrepair can bring down the home values in the entire neighborhood. But when the property is purchased, torn down, and rebuilt, the whole community can benefit. Not only will the new home improve the home values in the neighborhood, it can increase the tax revenue for the town.

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