Launch HN: Homestead (YC W20) – Lot-splitting to build new housing supply

[seanmp]

Hi HN, we’re Sean & Sam, the founders of Homestead (https://homestead.is). We enable homeowners to split their lot, build a new home, and sell it for a profit.

We’re taking advantage of a new California law called SB9, which is designed to expand housing supply (https://cayimby.org/sb-9/) in the state. SB9 allows homeowners to split their single-family residential lot into two separate lots and build up to two new housing units on each. It just went into effect on January 1.

The new development opportunity opened by SB9 is only available to homeowners, most of whom are under-resourced to take advantage of it. That’s where we come in. We take care of splitting your lot, financing the new development, managing construction, and selling the new home. You receive 80% of the net profit. You can see whether your property qualifies here: https://search.homestead.is.

We’re a couple of architects who have been working on large scale urban plans, affordable housing financing, and increasing housing supply for a while now. Our first idea was to help homeowners create lifelong revenue streams by building ADUs (Accessory Dwelling Units) on their property. We figured out how to manage builds that finish up to 5x faster than normal builders and are 2x faster than prefab from first touch to a turnkey unit. Homeowners have used the income from our ADUs to start a business, move to a different country during the pandemic, become cash flow positive on their mortgage, house grandparents, and move out renters to reclaim their home for the first time in a decade.

The problem was that over 70% of our leads could not afford the upfront costs of construction. With Homestead, our latest iteration, we solve this by taking on the risk of funding the project. We provide a way for homeowners to finance $400k+ of construction without risking their home or credit as collateral. We split the lot, bring financing, and our expert team of architects and project managers oversee the project until sale.

In high value markets, that means a homeowner could make over $1M without risking, or spending, a dollar. Under normal circumstances, this would be too good to be true, but that’s how crazy the housing market has become. SB9 represents a $6T (!) opportunity in California alone. For example, a 1-mile radius of San Fernando Valley has $3.35B in untapped development equity—4,600 opportunities to add new homes and duplexes through SB9.

Capturing the opportunity of SB9 requires developing new financing products, development expertise, and customer-facing sales. Development is an incredibly regulatory-heavy and location-specific industry. Homestead is based in Los Angeles (by far the best market for SB9) and we have sold 80 ADUs (59 since March) with 10 built and 17 projects underway.

Here’s an example (https://www.zillow.com/homes/4511-Sally-Dr-San-Jose,-CA-9512...) of how this could work for a typical San Jose home — footsteps away from one of our customers. The new house on the split lot has a sale value of $1.5M, based on a same-sized new-build home on the block. The total cost for building the new unit, including permitting, local fees, and financing, is $700k. That’s a net profit of $800k, of which the homeowner’s 80% share is $640k.

Our mission is to increase the housing supply in California. In contrast to the develop-and-flip approach, we add new housing while sharing profit and keeping communities in place. We want to change the lives of teachers, nurses, social workers—doubling or tripling their liquid net worth—so they can do things like early retirement and paying off their kids' student debt or helping them make their first down payment.

We know that a lot of you share our passion for the housing supply problem, so we’re looking forward to a good discussion. Please share your questions, feedback, ideas, and experiences in this area!

[a1pulley]

It says my lot isn't qualified because of high fire risk: Properties that are located within CalFire's "Very High Fire Severity Zones" are not eligible for SB 9 (unless excluded from the specified hazard zone by a local agency).

The real reason it doesn't qualify, though, is that my HOA—my entire city of ~650 SFH homes exists behind an HOA—has stated it won't approve SB9-related lot splits. The city itself wrote SB9 language into its bylaws, as required, but the architectural review committee in the HOA won't approve requests.

Moreover, all homes in my city are on septic systems, and LA County has a min lot size requirement for approving new ones. Some lots are large enough to split without dipping under that threshold, but most aren't; that means we have a sanitation reason to reject lot split requests too.

I imagine that similar developments will block lot splits in these ways. Have you run into similar issues? Have you successfully split any lots yet?

[sam_schneider]

Hi! Great questions and let me see if I can answer them:

HFZ: Yes, sadly—though i think there is good logic to prohibit more density in fire prone area, and HOAs are already dense, so in your case it doesn't make sense.

HOA: yes, for now that is a blocker. This was also initially a problem with the 2017 legislation enabling ADUs, but in 2019 the state expanded the law to overrule HOA's. We'd like to see that as well, and can easily give you the resources to contact your legislators (coming soon on the search tool, we can help at [e-mail] for now)

LA County had relatively liberal interpretations of the ADU law, we hope they will reform some rules to make lot splitting easier!

All and all, there are still millions of ideal SB9 lots—I am very sorry your's isn't—and i think HOA restrictions are a load of crap!

[dragonwriter]

> HOAs are already dense

Very often not, and a central part of their purpose is to prevent densification that might otherwise be allowed by law.

[a1pulley]

This is correct. My city has two zones: min 1 acre SFH and min 2 acre SFH.

[thrwn_frthr_awy]

Dense in the sense of land to building use, not people per square foot. You have a 3-5,000 square foot home for a family of four on a quarter acre lot.

[dragonwriter]

> The real reason it doesn't qualify, though, is that my HOA—my entire city of ~650 SFH homes exists behind an HOA—has stated it won't approve SB9-related lot splits.

So get together with other homeowners around that and any other dissatisfaction with the HOA and disband it. Or take it over, either way.

[ethbr0]

Put signs in your neighbors' yards listing how much value there is, were their lots to be subdivided. Might get some people thinking before an HOA board election... ;)

[asdff]

It's no secret to homeowners you get money upzoning your parcel in California. They don't care. The whole purpose why somewhere like Ranchos Palos Verdes or wherever else in LA county that fights development and remains a suburban, SFH enclave is because the locals want it that way. They bought in specifically because it was this way. And they will elect officials that fight on their part to preserve it in this way. They don't want to approve split lots in the palos verdes peninsula, that would generate traffic in the peninsula that they don't currently have. They already limit public access to public beachheads as much as possible to nonresidents, over fears of traffic.

[hellbannedguy]

They would probally fine him for the sign.

[prawn]

Do they mean literally putting a sign in someone else's yard, without their permission? Is that a done thing? Wouldn't you just drop a note in their letterbox?

[diordiderot]

IIRC, using a letterbox without a stamp is illegal

[short12]

That must be a coast thing for HOAs. A lot of the Midwest specify minimum acre(s)

[halpert]

Now that SB9 is in effect, shouldn't the ability to split a lot and build on it be priced in to the price of the original lot? It seems like you would just be extracting your 20% from wealth the owner already has, leaving them poorer. I guess this could be good if they really didn't want to move.

[sam_schneider]

Great Q! For a sb9 lot split, the homeowner legally must intend to stay in place on one of the lots for 3 years—we haven't seen a measurable price hike for SB9 eligible lots. We've built a lot of ADUs and they rent about 40% above market, so combined with our better pricing and more efficient & automated processes, we'll definitely create more value for the homeowners than if they did it on their own. If they do elect to do it on their own—it's a full time job—they'd have to price in that labor in a cost-benefit analysis.

[halpert]

That makes sense. The value of the land will probably increase once you show how profitable it can be. Best of luck.

[TimTheTinker]

I'll be interested to know if "SB9 eligible" becomes a popular detail to include in NMLS property descriptions. If so, I bet it's not long before SB9 eligibility gets priced into properties, causing even more price hikes (at least in the short term).

Would you pay 20% more up front for an SB9 eligible lot if you're guaranteed 20% overall profit from living in the residence for 3 years while doing a lot split and sale of the second property?

[ericd]

Hopefully the supply coming online would counteract some of that via supply/demand.

[lazide]

Uh, not really? They have to stay there anyway for SB9 - this gives them a tractable (aka actually) doable way to get more wealth now without having to leave, and still retaining their home as-is in many cases. And it means SB9 like densification and additional housing is more likely to actually happen.

99% of homeowners could not actually do what you need to do for this densification - the planning, paperwork, and execution to get everything done is very difficult. 20% of net profit in exchange is pretty good actually. You’d need some truly crazy levels (several million+) of pure gain before it would make sense to try it yourself IMO.

I’ve done a decent amount of permitted work and far smaller projects can easily burn a year of nights and weekends.

[halpert]

But you wouldn't actually have to do the work. The value of the land should increase because the work could be done. It really comes down to whether or not the 3-year provision of SB9 can be enforced, because then there is some value in the homeowner staying in their home while the work is done. Apparently, this is enforced by making the home owner sign an affidavit and then charging them with perjury if they lie. It will be interesting to see if that holds up in court.

[lazide]

That value increase is theoretical, not cash in the bank.

People sometimes need cash in the bank.

Sometimes theoretical is fine.

And since it takes awhile for a buyer to turn the theoretical value into cash (and risk, and work), the theoretical value is also going to be lower than you might think.

[linuxdude314]

If the value increases the owner should be able to tap into that equity by doing a cash-out refinance.

[lazide]

Not if they don't have income.

They could do a reverse mortgage, but a lot of people are adverse to those for their own reasons.

[halpert]

Or just selling their home.

[frakkingcylons]

That extra value of the lot isn't exactly liquid on its own. That's what you get in exchange for 20%.

[dragonwriter]

> Now that SB9 is in effect, shouldn't the ability to split a lot and build on it be priced in to the price of the original lot?

Once the market has a consensus.on what the change is, sure; it's fairly speculative what it will be, though; it's not like homes are a fixed price per housing unit and, because who can afford to live nearby also affects value in a positive feedback way (because people pay a premium to not live near poorer people), the relation is not simple or easily predictable.

[metadat]

Yes, it's mostly only good for the company owners / YC. Doesn't seem in most individuals best interest unless they really need the funds and don't want to move.

[sam_schneider]

We disagree! Most people do not have access to the equity underneath their feet—they do not have the income to utilize it as cash, and so it amounts to golden handcuffs. We enable middle and lower income homeowners to access it without moving—a huge plus for communities.

[toomuchtodo]

I think you’ve got first mover advantage until someone with deep pockets (Zillow, OpenDoor, SVB, Rocket Mortgage) copies this, FHA 203k style (this is sort of, but not quite, like a construction or rehab loan). Best wishes for the endeavor if you can scale fast and stay ahead of competitors. Anything that provides more housing with minimal negative impact is welcome.

The riskiest part is extending credit (imho) to marginal borrowers (low to middle class), but the value of the land is proven, so the rest is logistics.

[theptip]

I’d guess the new house is collateral, and there is some Joint Venture vehicle (LLC?) that the financiers invest in and that owns the new house, so no credit needs to be extended directly to the homeowner. You don’t need to structure this with credit risk on the original homeowner.

The investment risk would presumably be mostly if the owner moves and the subdivision becomes inegligible. Or of course if they aren’t as good at building as they think and can’t clear 20%, or housing market tanks…

[toomuchtodo]

The land is the collateral. The risk is the homeowner forecloses while you're mid project (or the title is otherwise impaired, making it difficult to unwind the transaction or recoup any funds).

[pempem]

First mover is definitely an interpretation.

There are tons of places offering this service, they just dont post on HN.

[nrmitchi]

> they do not have the income to utilize it as cash

I take it by this you're specifically targeting individuals who can't qualify for a HELOC or other (very common) methods of accessing home equity?

I assume you have data to suggest that "most people" with SB-9 eligible lots are incapable of opening a heloc?

[celestialcheese]

Can't pay off your house with a HELOC.

If your goal is to pay for college or buy a boat, HELOCs can be great.

This is super appealing to me because its a path I hadn't considered to becoming debt free with your primary residence, which is a large goal for many people, including myself.

[nrmitchi]

That's a bit of a goal-post-moving response. The statement I responded to was that people can't "use their equity as cash". Saying that you can't use a heloc to pay off your home is *true*, but not really related to using equity as cash.

[metadat]

Sam, do you personally plan to live in the kind of community y'all are aiming to create?

A scaled denser version of the house linked in your post doesn't seem like particularly appealing scenario for individuals, in the long run.

OTOH, I can see the appeal from a pure capitalist perspective. You guys won't be the only ones seeking to take advantage of the new rules, it's not personal and I can't fault you for it.

[sam_schneider]

I am doing it as soon as I purchase a house! I couldn't afford one until SB9—I could make the down payment, but because of my low income (obviously its relative) it would be hard to make loan payments. With SB9, I can develop with Homestead, and use the sale value to reduce my payments, so I can focus on adding more housing with Homestead!

Most of the homeowners who wanted ADUs were lower income & couldn't find financing (likely not HN community). These are multigenerational households where the children live in the house their parents bought with them and their kids. They work two jobs—their yard is rarely used—no one stopped to mourn it.

They wanted to make money to help lighten the economic burden of living where they grew up, and maybe not work the night shift, or have to provide their own childcare while working full time.

I imagine a large subset of HN and the tech community will not want to lose their yards-and its a free world, we aren't going to take them away!

Most of our team is signed up for our buy product. If you think people you know would be interested, send them our way!

[metadat]

Well, in this case I apologize because my assumptions were clearly incorrect. Sometimes I'm wrong (more often than I'd like, clearly). Thank you for engaging and I'm sorry Sam.

I grew up in a real estate family and while I don't think we personally engage in nasty behavior, I'm all too familiar with the games and schemes people play to get ahead. The large sums of money frequently attract unsavory and selfish actors. It makes for a rather ugly business sometimes, instead of being able to focus on the goal of helping people find a good living situation.

Wish you all the best, we're all stuck on this rock (and more frequently on HN, around the Bay Area) together, whether we care to think about it or not - we're all more connected than we may realize.

[jelliclesfarm]

ok. you are young and not a home owner. i mean this sincerely..please pivot. increasing housing stock almost always makes the cities unaffordable in the long run. this is how we have landed in the current predicament.

true to the name of your startup. consider collective homesteads. high density housing is definitely a sustainable solution, but high density without also scaling infrastructure is a bad idea.

like everything, it is a numbers game. and the only numbers that make sense here is in $$$$ that makes sense for investors and the taxman.

not everyone can own homes. and its ok. building affordable rentable communities that are sustainable is also a laudable effort. and it definitely is a profit maker. first infrastructure, then housing. otherwise, its set up for failure.

and the state of california has a really bad record when it comes to how counties are run. their mismanagement over decades have made the state highly taxed and yet unaffordable to most of the population.

[dionidium]

I live in Providence, RI, which, like my hometown of St. Louis and every other pre-war U.S. city, contains a diverse mix of building styles co-mingled on small lots. The home I own is a two-family; I live upstairs and rent the bottom unit, just like many generations of owner-occupiers in Providence have done before me. My neighborhood is a mix of single-family homes on small lots, duplexes like my own, some great examples of the vaunted triple-decker, and all kinds of other buildings, besides.

This is a very natural way for cities to develop. So natural, in fact, that it's how every city in the country did develop before planners made that development pattern illegal via zoning. SB 9 isn't some kind of radical new way of doing things; it's a partial unwinding of rules that prevented the kinds of development that occurs when the market is allowed to meet the demands of buyers and sellers.

At some point in Providence's history they changed the rules here, too. My building is "non-conforming." It'd be illegal to build a two-family home on this lot today. Further, my building has a generous side lot, which was at some point combined with my own lot into one, leaving a conspicuous gap between my house and its neighbor. I would love to sell this land to a developer and would welcome an SB-9-style law in Rhode Island.

[seanmp]

I personally live in this kind of density and really enjoy it. I have great relationships with my neighbors. I think you'd find that many people use their backyards much less than they would initially plan to, and many would happily trade it for income if they had an opportunity like this.

[sokoloff]

I don’t judge a developer of high-density housing for wanting to live in a low-density location. If you’re creating or financing the creation of housing, it’s an overall contribution to the solution. I don’t blame you for doing that but living in a lower density area any more than I’d judge you for creating a bunch of small, affordable housing units and living in a large, expensive house.

[d_burfoot]

I wish you well and I hope you win.

I am pessimistic though. I don't think people really understand how much current homeowners do not want additional housing to be built. It makes sense if you consider that the net worth of a typical homeowner is very substantially made up of a highly leveraged long position in real estate. If that position goes south - because of an increase in housing supply, or because of undesirable new people moving into the neighborhood - the homeowner's net worth could be decimated.

Now, most people will not come out and say directly that they are opposed to new housing for the obvious economic reason, because they don't want to seem selfish and greedy and maybe racist. So they have to find a socially acceptable cover story to oppose new housing - environmentalism, concerns about safety, etc etc.

[williamsmj]

It's sadly true that many people think like this, but it's not relevant. SB9 is a law. My house is eligible and my neighbors cannot stop me if I choose to do this.

[linuxdude314]

Oh but they can. Municipalities don’t always play by state laws. I’m in a legal battle with mine over and illegal owner occupancy clause they want to enforce for my addition of an ADU.

[nedwin]

Thankfully in this particular case folks like CARLA are helping fund lawsuits to force municipalities to play ball.

[caslon]

Obvious warning to all reading: The catch is "net profit."

This is used to harm actors all of the time. Basically, the company is heavily incentivized to get really creative with their accounting, so even on lucrative projects they don't have to pay you much of the value reaped from you. One of the oldest scams in the book, and the incentives are such that the company (Homestead in this case) would be acting irrationally if they didn't practice it. It's a no-win situation. Either they're acting irrationally, in which case why trust them? Or they're acting rationally, which means that you lose if you trust them.

https://en.wikipedia.org/wiki/Hollywood_accounting

https://en.wikipedia.org/wiki/Creative_accounting

[sam_schneider]

We pass through building costs, there is perfect alignment in our incentives, which is to maximize sales price.

[alephnan]

There is no such thing as perfect alignment of incentives.

If this were the case, real estate brokers wouldn’t on average have their property on the market longer, and sell for a higher price, then their clients. The classic Freakonomics example.

80/20% profit split is a nice round number, it’s unlikely that this is where perfect alignment is found. If the split was 100/0 or 0/100, we definitely know incentives are not aligned, and so reductio as absurdem there are split points at which the incentives aren’t aligned. In fact, there is likely at most 1 equilibrium of perfect alignment, and the rest aren’t. Furthermore, if 80/20% is fixed as your company changes and administrative costs, production/resource cost changes, then the incentives for each party is constantly changing.

[iso1631]

In theory you could choose a building firm you own that charges 500k instead of a different one that charges 400k (and even subcontract it to the 400k firm).

If you sell for 1M that means you keep the extra 100k from the building firm and 100k from the land.

If you go with the cheaper builder you only get 120k

[sam_schneider]

I mean, in theory me, who has spent their whole life working on solving problems in the physical world at scale—-for the last 4 years working on housing—- could run a scam that was horrible for homeowners and then get sued for price gouging, and expose myself to personal lawsuits, legal persecution (imagine how unsympathetic the jury would be).

This is true with any product that is new and requires mutual trust.

Or we could just deliver a product people want, and make much more money at scale than trying to optimize for a short term scam!

[treis]

How do you account for the reduction in value of the existing home?

Also, how do you deal with existing lein holders? I.e. the current mortgage.

[sam_schneider]

Great Q! As of now, the homeowner has to refinance on the smaller lot. We have a partner that will do it at the time of application, and underwrite it in consideration of the future income.It hasn't been a problem to date, though it may hold up some projects.

In theory banks could approve the transfer—certainly they could split the lot, but the current lien would be spread between the two lots, and we couldn't finance the property today.

A crazy insight: Many of the customers we work with don't have mortgages.

They intrinsically don't trust debt, because of either low income, job insecurity, and/or their long tenure of homeownership (often intergenerational). They do like the ideal of selling their yard for money, and don't have the risk appetite/ability to go it alone!

We're working on a solution that will allow the existing lien-holders to stay on title until sale--making a refinance less burdensome for the current homeowner.

Down the road, we'd like to provide the owner to keep some ownership interest in the property with homestead, if they'd prefer long term income. In this arrangement, we likely wouldn't

[sam_schneider]

For home value: It's about 5-12% decrease depending on the setup--in extreme cases as bad as 15%. We haven't had a pre-assessment come in lower than 15% (the homeowner still going to make a lot——it's a large property). Most are around 7-8%. Usually there is 50%+ return, so that previously illiquid/non-existing capital has a much higher value, but there is real depreciation.

Lower value homes depreciate less, higher value more--but are offset by larger returns!

It will likely re-appreciate in a few years, and so the loss is temporary/the other capital could be deployed to quickly outpace any depreciation.

[lhorie]

> The new house on the split lot has a sale value of $1.5M

Maybe I'm just not understanding this right, but does this mean that that example house which currently is estimated at a $1.3M value would be split into two, each with a market price of $1.5M, despite both having half the lot size? How does that work?

And shouldn't the house next door then logically sell for 3M based on lot size?

Sorry if I'm missing something.

[turtlebits]

The new house has a value of 1.5M. The existing house would be worth less because of the smaller lot (but not by a substantial value).

[baskethead]

This is probably untrue. Why would someone pay the same price for half a house? I think the market prices would readjust very quickly.

[yholio]

I think the 1.5 million price is a snapshot of the current market, with low availability of housing and most people unable or not knowing they can split the lot. So houses are priced for their livability.

If it starts to happen in mass, either the supply will depress prices or the existing houses with splitable lots will close to double in value to internalize that unrealized gain.

[menage]

That's 1.5M for a brand new house on the half-lot, versus 1.3M for the existing 60 year-old house on the original lot. Since the new house cost 700K, then in theory the lot next door could sell for 1.6M if you're assuming that you can split it via SB9, build two 700K houses, and sell them for 1.5M each (one of them after waiting 3 years for SB9 requirements).

[notahacker]

Coming from outside California's property market, it still seems odd that faced with a choice of [A] a 60 year old suburban home with decent-sized gardens front and rear or [B] a brand new property which must be squeezed into a garden space taking up less than 1/3 of A's plot with essentially no space left over for anything that isn't floorplan, people would typically value the latter property more highly? Is the build quality or design on older homes that iredeemably bad?

Seems an awkward example of a plot to split without demolishing the original house too, but I guess that's more common than a plot that's easy to split.

[burlesona]

This isn’t just happening in California, in Austin lot splitting has been a thing for a while and the new houses that get built in the back yard of the old house often sell for as much as the original house would have.

It’s actually not hard to understand. People have a certain amount of budget per month they can afford, which converts into a certain mortgage value. Then they look for the neighborhood they want to be in, and whatever they can get inside that mortgage budget is on the table.

So they see two options:

Old house from 1960, 1800SQFT, 2 bathrooms, low ceilings, needs tons of renovation but has a nice big yard. $700k.

Same neighborhood. Brand new house. 2400 SQFT. 3.5 bathrooms. High end finishes. Almost no yard (it’s a half-lot). $700k.

Most of the people buying this are coming from rentals where they probably didn’t have a yard in the first place, and they are already stretching to the limit to afford anything so they won’t be able to remodel after purchase. So, no yard? No problem.

[dionidium]

Something I've noticed with gut rehabs and new construction in my hometown is that a) people routinely express disbelief at the asking prices for these homes; and b) they easily sell at those asking prices (or above).

The market seems to be saying that people really value new construction relative to older homes, even if that's surprising to some people.

[kristianp]

If you imagine that the new house might have more bedrooms and bathrooms than the old house, and more modern design. I can see why the new one would be valued higher.

[notahacker]

The example says it's a "same-size house" which I assume means the same numbet of bedrooms and bathrooms. A more modern design is a given, but I'm still perplexed by the notion a modern design might be expected to be so superior that a house squeezed onto a front lawn would be worth 15% more than a same-sized house in the same location with a front lawn, and a back lawn, and a whole double garage and driveway rather than maybe a share of it.

[thrwn_frthr_awy]

In my HCOL area houses are mostly prices by price per square foot. Lot size obviously has a affect on price, but not to the same extent.

[thebradbain]

Have loved working with Homestead so far! My lot is already zoned as multi-family, so I can't take advantage of SB9 lot splitting, but they're currently in the process of building an ADU in my backyard, and I couldn't be more pleased – both from a price/design perspective and from a customer service perspective.

[reducesuffering]

In your example images on your landing page (most CA SFH have this layout) only the backyard 1/2 lot will be developed into a new SFH? And this is accessible by an extended driveway, with the new backyard SFH barely facing the street because it's covered by the original front SFH? That sounds like it's going to be aesthetically awful for neighborhoods compared the typical townhome-type development where the original SFH would be split in half so that it's developed into two street-facing homes equally distant from the street. However that would cause 1 old SFH to be into 2 new SFH, so more construction cost, but higher prices on each lot. Is this not covered under SB9 or is too prohibitively expensive?

In your original homestead way, it also sounds like it only applies to lots where the SFH is very near the street, so that the backyard is > 1/2 of the lot. That seems unusual to me in most of the SFH I see where the SFH is quite squarely in the middle of the lot and would need to be partitioned to split the lot.

[manesioz]

This sounds awesome. A few questions: What were some of the biggest insights which lead to a 5x faster build process? And how do you afford to provide the liquidity upfront?

[sam_schneider]

To date, every infill residential project is custom. Even if its a pre-designed plan on the internet, its a different city, different material supplier, different local architect, different contractor--every time.

We just put the whole process on rails--a few material options and designs still have exponential customization, but represent drastic reduction in overall project complexity and project-to-project variance.

With a kit of parts we can automate design and management, and with 3d scanners in everyone's pocket, we can mostly offsite QC with similar or better quality outcomes.

Because we're a repeat provider, we offer builders, cities and suppliers consistency that's only been available to date in tract housing, which is incredibly environmentally destructive.

One specific example:

When an affordable architect specs a house, they almost never spec a shower valve (let alone cabinets, specific flooring providers, etc). When you buy a shower fixture, the valve doesn't come with it. This means you or the contractor has to either drive to home depot to buy a 6 dollar valve, or install the wrong valve to pass inspection and then wait and reinstall the correct valve.

If they spec the materials themselves, it isn't much better: their preferred suppliers never get shop drawings, often are out of stock, and are not able to scale with them.

We make sure there is always an interchangeable backup part, that any specific finish material or fixture is on site before the time it's needed. Designs specs are updated in real time to deal with supply chain disruptions.

That is just for a shower valve—it compounds as custom plans are changed, materials are out of stock, items don't fit as planned.

Prefab solves for a lot of these issues, but because of transportation costs and capacity constraints, it usually is costlier and longer to delivery from start to finish, even though the install is quicker.

We can scale with demand: because their cashflow velocity is so much quicker than working with homeowners, contractors always want to bid on our projects.

For Sb9 we'll use prefab where it makes economic sense—we are solution agnostic!

For existing homeowners, our liquidity is provided by in-house debt backed by the future lot asset.

For purchasers, we own part of the purchased home & that interest is transferred to the new lot when it is split!

[treis]

>When an affordable architect specs a house, they almost never spec a shower valve (let alone cabinets, specific flooring providers, etc). When you buy a shower fixture, the valve doesn't come with it. This means you or the contractor has to either drive to home depot to buy a 6 dollar valve, or install the wrong valve to pass inspection and then wait and reinstall the correct valve.

This is kind of an eyebrow raising statement.

You definitely can buy a shower fixture with a valve.

They're not $6. Cheapest is like $40 retail and they can be hundreds for fancier models.

Nobody is installing a valve and then reworking it after passing inspection. It's pointless and will cost hundreds in wasted material and labor.

If your desired trim kit is out of stock you're only going to find out after the wall is waterproofed & tiled. Nobody is ripping out thousands of dollars of work to change a valve. You'd just buy a different trim kit that matches the installed valve.

I dunno, maybe they do things differently in California. But what you said there doesn't match any sort of construction experience I've had.

[coryrc]

Somebody still needs to pick that trim kit (has to match the other fixtures) and buy it and get it to the location. You can't install mismatching parts in a new $1.5M home like you can doing a repair in your old house. What GP says makes perfect sense to me.

[jermaustin1]

What are the risks for the homeowner? The wording seems too good to be true.

It seems like it would be better for me to just sell you the land for $640k, then you take on the risk of developing and selling it, but if that was how much the land is now worth, it might still be better for me to hold on to it and let it appreciate for a while without neighbors spitting distance from my back porch.

[dzink]

You can't undo the split. One of the caveats passed in the same vote states that you can't reduce housing density - so if you build two units, they can't be reunited into one lot again.

[chrisseaton]

How does this work in law?

Can't I just own and use both lots at the same time? Would I need to technically 'reunite' them? Can't I just use both of them at the same time?

[fortylove]

I'm assuming for future construction, you'd have to treat each lot as separate with regards to setbacks from the property lines. So no building a house that straddles the old property line, I suppose

[b112]

Higher property tax, as the downside, for two vs one lot?

[sam_schneider]

There is a non-zero chance—-very unlikely: it would require a 50%-60% decrease in housing prices—-that they could lose the backyard without making income. The weighted probability might lower the Expected Value 1k. That said, foreclosure would still be beholden to the profit split agreement should the lot be profitable.

[baskethead]

As house prices drop, more people will try to buy full-sized single family homes and the least desirable houses fall faster. You could get a 10% drop in house prices, but these split lot houses could fall 50% or more, just like condo prices.

This happened during the housing crash of 2009. I know first hand, my own condo dropped by more than 50%, which I did a strategic default on.

[treis]

Can you share numbers from completed projects?

[jelliclesfarm]

Here is another weird SB9 restriction: No AirBNB's. Homes created by SB9 can be sold or rented. However, if rented, the minimum rental is 31 days.

Why? Why should the state of CA slip in something like this if the lot is split as two APNs?

[aspenmayer]

There may be a grey market opportunity here. Rent your property to a company you control which exists solely for the purposes of exploring business opportunities with people you know from Airbnb, and as you are friends, you might allow them to crash at your place anytime they need or want in exchange for a modest sum.

[jelliclesfarm]

If you really believe that this is a market, what do you think the valuation of said market opportunity would be..

[aspenmayer]

I don’t know, but I’d speak with a friendly real estate agent and my lawyer before advising this. This is not legal or real estate advice. I am not a lawyer or real estate agent.

What do you think the market opportunity is?

Do you have any ideas about how to improve housing accessibility in HCoL areas, or ideas for how to improve tax bases and social services for current and future residents? I can tell from your posts in this thread that this issue is important to you, and I hope we can discuss alternatives and improvements to the status quo.

What about these issues do you think should stay the way it is?

[jelliclesfarm]

> What do you think the market opportunity is?

I didn’t say there was one. You did. I will wait.

[aspenmayer]

> I didn’t say there was one. You did. I will wait.

I said there may be one, but that’s neither here nor there.

[dzink]

One of the other regulations that passed at the same time has a caveat that you cannot reduce housing density in the future - so any units added or lots split cannot be reunited again. Each new lot must be at least 1,200 square feet and the new lots, plus likely the old one (if heavily modified), may acquire a new assessed value based on current market prices increasing the owner's property taxes.

[dionidium]

> In high value markets, that means a homeowner could make over $1M without risking, or spending, a dollar. Under normal circumstances, this would be too good to be true, but that’s how crazy the housing market has become. SB9 represents a $6T (!) opportunity in California alone.

This hits on something really important. There's a lot of talk in housing circles about how "greedy homeowners" block new supply to increase the value of their homes, but this is a bit confused. Blocking supply can be good for landlords, in some cases, who command higher rents in constrained markets, but it's not clear why that's good for homeowners; the value of the land underneath their houses increases in value because it's in high demand and, crucially, the land remains desirable even as density increases [0]. Upzoning increases the value of a lot, because it means the lot is more attractive to developers. And lot-splitting gives homeowners a tool for unlocking that added value that doesn't require them to sell their land and move to a cheaper market. For existing homeowners, upzoning is an opportunity, not a cost.

[0] This is why upzoning can reduce the cost of individual units even as it increases the value of the land underneath those units. That's a win-win.

[jelliclesfarm]

the problem with this business model is the lack of understanding of mass psychology. in san jose, if someone has a SFH lot/home, they are not hurting for cash. people who can afford homes want their backyards.

and if an ADU is renting 40% above market..isnt this exactly why housing is becoming unaffordable in california.

plus: where is the water for the dense housing? right now, bay area gets water from hetch hetchy aka little yosemite..which was completely razed down for our water needs. how many new schools are being built? how many new teachers will be needed? how much road infrastructure? how will law enforcement increase to provide safe neighbourhoods? fire stations? power loads? traffic woes? and how much more will the state's tax liabilities increase? are we going to keep exporting our trash to poor countries?

we dont need to increase housing stock. we dont need to increase california population over the current 40 million. we need to take care of californians who have paid taxes for decades and decades..and are losing quality of life that is fast becoming unaffordable.

[analyte123]

Where even are teachers, construction workers, and firefighters going to live if nobody ever builds any homes? This list of common, basic public services that you keep listing out like they are some impossible tasks, somehow other cities can grow their population rapidly and still maintain them. If Californian cities with flat populations have trouble with them, maybe it's because nobody who does those things can afford to live there.

[jelliclesfarm]

Where do you think they are living now?

Are all Apple employees living in Cupertino?

The solution is efficient public transport. Not increasing housing stock.

[chrisseaton]

Have you heard of public transport?

[itake]

What about the "californian's who have paid taxes for decade"'s kids? Where do they live? Their parent's attic?

[jelliclesfarm]

are you saying tax benefits should be inherited? are they disabled? why pay for schools for all if the kids still want to live behind their retired parents resources meant for their old age. children already inherit their parents homes without paying market rate tax rate. even though that isnt relevant to my point. driving out californians who have build cities by creating more and more unaffordable housing is a ponzi scheme.

perhaps if housing stock is increased for those who dont use public utilities and said homes are fully sustainable for utilities and trash, power(solar), water...and they submit to using roads only 2-3 days/week..well..then it would make sense. but thats not possible.

people who live in homes need utilities/services. infrastructure has to be scaled along with population increase. children need to go to school. schools need teachers. housing stock increase without a proper plan for utilities and infrastructure just seems like a plan that is set up to fail. and the only ones who lose are the tax payers.

[woah]

I feel like you're about to make a "modest proposal"[1] for a possible solution to this terrible problem

[1] https://www.gutenberg.org/files/1080/1080-h/1080-h.htm

[woah]

Are you saying we need to "build the wall" around California? To protect those saintly old timers paying property taxes for an assessed value of $100k on a house worth $2m?

[tagami]

If you have equity, you could also refi and build w/o the lot split to rent the completed building. With current interest rates and construction costs coupled with rental prices in California, this should pencil out nicely and home owner keeps 100%

[jelliclesfarm]

This makes most sense.

I wouldn’t recommend any construction unless it’s an emergency. Lumber prices have skyrocketed beyond belief. Not to mention supply chain bottle necks. This is really a bad time for new construction.

https://www.businessreport.com/business/lumber-costs-spike-a...

https://www.wsj.com/amp/articles/sky-high-lumber-prices-are-...

https://www.globest.com/2022/01/06/heres-how-developers-are-...

We should be building new tech, hardware and put that STEM muscle behind figuring out new materials.

Software is done eating the world. The world is stripped down to bare bones now. Nothing to scavenge here.

[aaronblohowiak]

New materials? There is no shortage of trees for dimensional lumber.

[jelliclesfarm]

no shortage of trees, agreed..but lumber futures in the last quarter of 2021 went up real high. we also have wildfires in CA(PG&E wont be made accountable) RSG panels(https://www.rsg3d.com/) seem to be fire resistant..to a certain extent. no rain or termite issues. we can build more efficient homes now.

eta: not dated(lumber futures went nuts in the last quarter of 2021 only)..a good read: https://time.com/6046368/wood-steel-houses-fires/

[eugene_vugo]

A friend sent this link and he seemed excited about it to the point that thought it was important i read it. Checked your website and the only projects you have there are garage flips. There is nothing new there. My another Armenian friend who lives in LA was telling the people were flipping garages to rent as studios even 20 years ago.

so idk. your story doesn't make sense compare to your website and your 'case studies' :)

any construction company can do what you do today, flipping garages is not a rocket science :) doesn't really need 2 architects, needs one Jose who knows how to do drywall and another handy-man who can do electric, plumbing etc.

Good luck!

[badbot5000]

This is an amazing mission! Good luck! You're making California a better place.

[jfmatth]

Sorry to say, i hope this is unsuccessful for you. I'm not a fan at all of this bill and will only make single family homes and non-SB9 neighborhoods more expensive.

[loosescrews]

How big does a lot generally need to be in order to be split?

[sam_schneider]

Amazingly, the state minimum is 2,400 sq ft. If you can split into two 1,200 sq ft units, you are allowed to build 800 sq ft single unit or two 800 sq ft units as-of-right! Tiny homes for everyone!

[nicoburns]

According to a quick google, 729 sq ft is the average property size here in the UK.

https://www.housebeautiful.com/uk/lifestyle/property/a354052...

[georgeoliver]

Wow, the minimum lot sizes for SB9 are really interesting! We build DADUs in Seattle and I thought our rules were progressive, but we're still at 3,200 SF minimum lot size to build one. Does SB9 mean you can split a 2,400 SF lot and have two houses?

Besides DADUs and small houses I'd like to see a lot more duplexes and triplexes zoned in as well.

[pempem]

Brilliant however in many cities in California this legislation has not yet been applied.

By that I mean the local building and safety offices, city planning offices, and others do not have memos on how SB-9 will work in their cities.

Until then, wonderful lead gen.

[xrd]

Is Oregon next (https://www.oregon.gov/lcd/UP/Pages/Housing-Choices.aspx)?

[newman8r]

Good louck on the venture - I'm curious if the founders are also licensed contractors, or if they just refer the homeowner to a contractor in their network.

[annoyingnoob]

Homestead says my property might be eligible. In fact, my lot is small and there is no more room to build. Plus the HOA would never allow it.

[sam_schneider]

You're right—we are limited in what is and isn't an HOA—the public data isn't great. We're working on it!

For space—you'd be surprised what we can fit, but there are certain lots where it will be impossible without demolishing and re-building a smaller home. We don't currently do that, so in that case, you are out of luck for now, but you can go it alone. We do love fighting with HOAs!

[turtlebits]

I'm not in California , but am wanting to build several ADUs (in the Seattle area) if that is a service you are providing consulting for.

[sam_schneider]

No, I'm so sorry! We'd love to one day, but we avoid consulting—we find that without an eye on the whole process, projects can still go very awry and the consultant is left with the blame. It's why we started homestead—these consultant solutions just don't solve end-to-end problems like we'd want them to!

You can reach out to [e-mail], let them know I sent you, and I'll try to carve out 10 minutes to point you in a good direction!

[lokar]

How do you add a second house without tearing down the first? Every lot I see around here the house is centered on the lot.

[bagels]

They're not all like that. Some have the house at the front of the lot. Some have big enough backyards for a 60-40 split.

[lokar]

I guess it really depends on the development patterns in each area.

[RhysU]

What happens to the property taxes on the lot?

[gremlinsinc]

Wish something like this existed for starting intentional/ecovillage communal living places...i.e. paid for the land, and maybe using a portion for glamping/etc and then using that to fund supplies for container homes, and setting up vertical farms, rainwatch catch systems, solar panels, etc... Then maybe charge residents like a $200 HOA fee, or something that is used to better the community's shared things. We'd have a library-like facility with commercial kitchens, maker space, shared tools, recreational vehicles to borrow (and rent to glampers), etc... in tiny homes space is king, so if we all don't own every tool/power tool etc...and share more we can utilize less space which is also better for the environment and means less to build.

We can add recreational things too so we don't have to go far from home to have fun...like a climbing wall that converts to a drive-in movie screen.

If this could become repeatable...could factor in some sort of travel program too where all intentional communities could have glamp sections and give free or cheap access to traveling members of other communities..so if you go to disneyland you pay like $10/night for your whole family instead of $100. Or nomads could relocate and stay in semi-permanent housing for the same $200/month rent/hoa fee. (fee could be like a flat $100/person in household, or $200...the goal being make it so anybody can access these as an alternative to normal rents that are exorbitant).

TLDR: my idea is essentially being to make more resilient, community strong, vibrant and affordable housing developments in rural areas backed by income producing assets/resources (glamp camps), and rental fees (not free, but affordable enough for McDonald's wages).

Increasing homes/rentals also has the added value of raising supply, lowering demand and everyone's rent goes down...

[jelliclesfarm]

I like the gist/outline of this idea. Not sure about the details. I would have to look at those numbers(numbers are relative anyways).

Homestead should probably pivot to this..they would still be profitable and it would be meaningful. It should be a rural focused program.

This is how we bake a bigger pie instead of sawing a small pie into thinner slivers.

I strongly urge them to pivot. Splitting urban lots is a terrible idea. California and esp Southern California is a sprawl. And cities in demand are already stretched. And it’s likely that will be profitable only in zip codes that are already overburdened.

[l33tbro]

How do you guys ensure the character of a neighbourhood remains in tact? That's the only thing I see wrong when people do this. Banging up a cheap white/grey box that just looks so incongruous with all of the older surrounding homes.

[Pxtl]

"character of the neighborhood" is hollowing out the bottom of Maslow's hierarchy of needs to decorate the top.

[aspenmayer]

Totally quoted this for truth, will delete/remove mention upon request!

https://twitter.com/aspenmayer/status/1479760958859927554

[mythrwy]

I don't know if you came up with that but very well put! (copying it into my list of witty and true sayings).

[Pxtl]

It's mine but I admit I use it constantly when discussing NIMBYism.

[seanmp]

Historic conservation areas (as determined by the local municipality) are exempt from SB9, and cities are allowed to put in place "objective design standards" that apply to SB9 as well as new single family housing. But, we're also a team of great designers developing many unit types that will complement what's already there.

[opportune]

Don’t care at all. Neighborhood character in California almost always either means McMansion from 90s/2000s or cheap 50s-70s ranch with some additions.

[woah]

"Neighborhood character" is a NIMBY dogwhistle

[l33tbro]

Lol - I can see how that could be construed that way. No, I'm definitely no NIMBYist. But I think character of neighbourhood is really important, and I think it is definitely possible to do these kinds of developments in harmony with the existing landscape environment.

Probably well exemplified by Frank Lloyd Wright in the mis-century who created what he called 'usonian' homes. These were small block specific homes intended for workers that were completely in keeping with the surrounds.

[woah]

NIMBYs are not against new housing, they're just against new housing that doesn't meet 100 different conflicting requirements that are impossible to satisfy at the same time.

Meanwhile the most famous picturesque neighborhoods (in SF, Paris, NYC, etc) were built in a disorganized way to make a quick buck for property developers and landlords in an era before zoning codes even existed.

"Neighborhood character" is a historically unprecedented concept which exists only as an excuse to block new housing.

[mistrial9]

> "Neighborhood character" is a historically unprecedented concept

you are probably right for the situations you have thought of, but really over all of the world and all of history, this is really not the case.. start to narrow that down, of course, and you still find contradictions and edge-cases.. too much a generality for the real world

[chrisseaton]

> "Neighborhood character" is a historically unprecedented concept

Nonsense. For example the UK has been protecting our built environment since Ancient Monuments Protection Act 1882. The movement to strengthen protections it is a reaction to cultural artefacts being irretrievably lost in the 20th century.

[jelliclesfarm]

Paris and NYC. London and even Tokyo, Shanghai, Mumbai have fantastic reliable fast public transport.

That comparison doesn’t hold water. California is a joke when it comes to public transport. Newsom shut down the HSR after collecting millions. Just like that. Shut it down. As voters and tax payers, we don’t demand enough accountability from our elected ‘leaders’. It’s unconscionable how they keep repeating the same clown trick again and again…and we just keep clapping our hands and ask for more.

[chrisseaton]

Some neighbourhoods are historical and cultural artefacts and should be preserved for future generations. That's not NIMBY-ism.

[oldsecondhand]

Those neighborhoods are architecturally unique make up a tiny amount of the housing supply. Trying to place mass produced random crap under historical protection is just another form of NIMBYism.

[datavirtue]

Please mention that this is for California in the title.

[sam_schneider]

This law actually exists in Oregon and parts of Minneapolis. ADU laws were only in Oregon and Washington until recently, California's State-wide ADU push was part of a nationwide reform towards ADUs. The same is happening for SFRs.

Our federal governance structure doesn't provide enough $$$ for housing that isn't single family homes—until we change that, infill single family development is inherently subsidized by fannie and freddie -> I anticipate that other desirable areas will have to do this to stop out-migration and stay affordable.

[datavirtue]

Gotcha. I was squinting forever trying to figure out how your model works until I saw it was being used in greatly inflated markets. Simply wouldn't work in my region due to the prices. There would be no profit opportunity for you.

[datavirtue]

Ok...due to down voting...please keep exposing your keys so we can pwn your system then.

[ishan_chhabra]

Thank you for doing this.

A slight variation of this is a very common model in New Delhi in India.

Builders contact Single family owners proactively to convert their residence into 4 units at 4 levels with a car parking at the 1st floor.

Builders: 1. Find an equivalent rental unit for the owner, relocate them and pay their rent for a year. 2. Finance and build the 4 floors. 3. Owners relocate back to one floor and rent out 2 floors. 4. 1 floor is taken by the builder as fee for the project.

Builder got paid, owner has a new home, and has lifelong rental income as well. All round win-win situation.

This is what happens when governments and local authorities get out of the way and let capitalism work.

[iso1631]

> https://search.homestead.is

So this is an Icelandic site?

[gruez]

Yeah, just like all the artificial intelligence companies operating out of Anguilla.

https://en.wikipedia.org/wiki/.ai

[jelliclesfarm]

This!!! Exactly this! I can think of half a dozen loopholes. You cant pay me enough in cakes or marmalade to go down this rabbit hole, but due to my sins from another lifetime..my first thought was Trust owned properties! finally i gave in and did a search and this came up. (and actually even more.). This is going to down a predictable path and end result is going to be an even more unaffordable california.

San Jose:

https://sanjosespotlight.com/san-jose-lawmakers-implement-co...

[...]Councilmember Pam Foley grilled city staff on details for how SB 9 will be enforced, such as making sure corporations or family trusts don’t violate the law by purchasing adjoining lots for development.

“How are you going to follow up on the trust to know there isn’t a violation occurring?” Foley asked.

Staff explained the city will at minimum develop a tracking program to monitor purchasers. But staff made it clear some provisions of SB 9 are murky, such as the requirement for developers to attest they intend to live in a property for at least three years. City officials said they hope for clarification on several issues from the state early next year.[...]

more...expect more can of worms following this..one more party making money will be attorneys because there are going to be a lot of law suits. : https://www.mercurynews.com/2021/12/22/cupertino-sb-9-ordina...

[..]The council opted to restrict new homes built under SB 9 to be no larger than 2,000 square feet.

“I don’t want people to abuse this process to build a mansion,” Vice Mayor Liang Chao said.[...]

[..]“The misunderstanding on the 2,000 square foot limit is particularly unfortunate given the work Cupertino has done to implement SB 9 to accommodate the additional density that the statute allows in a manner that has a high degree of community support,” Jensen added.

Aside from size limitations, Cupertino will ban accessory dwelling units on subdivided lots, second-story balconies and basements.

The city is requiring that the shadow from new homes not cover more than 10 percent of an existing solar panel on an adjoining property — a regulation that’s not in place for the construction of new single-family homes. Property owners will have to hire a licensed engineer to conduct a shadow study.

Cupertino will also prohibit condominium conversions so that individual units in duplexes cannot be sold.[..]

[..]“If we don’t have any type of limit, then essentially all 20,000 homeowners in Cupertino could immediately send their lot split request into the city with no intent of splitting it as long as they’re living in the structure,” Willey said. “But they’re going to sell the property at some point with this advantage for higher prices, further elevating the value of the homes in Cupertino.”[..]

Los Altos Hills: https://norcalapa.org/2021/12/los-altos-hills-passes-urgency... [..]“Mayor Kavita Tankha defended the rules as accommodating residents’ desires to maintain their privacy, preserve open space, and reduce fire risk.

“[YIMBY Law] Executive Director Sonja Trauss … said a lawsuit could pertain to the emergency rule-making, which requires an imminent threat to public health and safety, as well as a belief that the restrictions illegally reduce the amount of new housing that can be built, in violation of another state law.

“Representatives for the California Department of Housing and Community Development … and Attorney General Rob Bonta … said they are monitoring the situation.”[...]

https://www.sfchronicle.com/politics/article/California-citi...

[...]“We’re seeing once again an example where many local governments seem more interested in using their local control to exclude people,” said Aaron Eckhouse, regional policy manager for California YIMBY, a group that lobbies for policies to build more housing. “The Legislature did leave cities discretion under SB9 and they’re abusing it.”[...]

its funny how YIMBYs(Yes In My BackYard) are always looking into someone else's backyard and want them to open it up for them.

[...]At least 150 cities formally opposed the bill as it moved through the legislative process.

Under the law, they will have to approve applications for lot splits and at least two units on each property if the projects meet size requirements and local design standards, fall outside historic and environmentally sensitive districts, and do not require the demolition of housing that is rent-restricted or has been occupied by tenants in the past three years.

Those design standards, which are up to cities, and other exceptions within the law have provided a last stand for local officials to push back on SB9 in the final weeks before it takes effect. A growing number are scheduled to vote on emergency ordinances at upcoming council meetings, temporary rules that would nevertheless be in place by Jan. 1 and give them more time to adopt permanent regulations next year.[..]

This whole game is just an excuse for the State of California to escape scrutiny and accountablity for their mistakes..which is NOT setting up systems and infrastructure in place even with all the high taxes they collected. This is abuse and gaslighting every tax payer in california.

[mistrial9]

thinking of all the ways this won't work and then cursing everyone involved, basically leads to zero new ADUs.. meanwhile, an alcoholic lie in writing, with all the wrong people enforcing it, badly, leads to many actual ADUs being built. Am I wrong in that, factually?

[jelliclesfarm]

I don’t know what you mean. Please rephrase?

[causality0]

Our first idea was to help homeowners create lifelong revenue streams by building ADUs

If I recall correctly quite a few HN commenters pointed out how dystopian it was to turn middle class people into landlords by building poverty shacks in their back yards. Very happy to see the company has pivoted to a business model that's less depressing.

[theodric]

This is just adding more cancer, not solving a problem. Great for the people who get to cash in, bad for society as a whole

Leave California. Stop privileging it. The world is large.

[iso1631]

Doesn't this increase properties available, making it good for society as a whole?

[analog31]

In my view it only does so incrementally. At best you can double properties. Society would benefit more from joining lots to create a footprint for multi family dwellings, rather than dividing them.

[patja]

It also seems like a bit of wishful thinking. When you ask most people, they want to live in a single family home. And that's what these guys are building. They're building to capitalize on the market, not to the overall benefit of society necessarily. But the latter makes great marketing so it gets woven into all the messaging, whether it's really maximizing social benefit as opposed to maximizing developer profit.

[sam_schneider]

We aren't solving the affordable housing crisis in one fell swoop.

We are bending/slowing the insane growth in SFR prices and slowing/ending homeowner displacement.

As we scale we'll make a meaningful impact, but the solution to affordable housing is not just loosening artificial supply constraints, and is bigger than any one private (or public) organization.

[analog31]

I certainly admit to preferring a single family home myself, though it's never cost me more than about $1k/month for rent / mortgage / taxes. My current home is paid off.

But a lot of people are willing to make tradeoffs, e.g., the younger people passing through town, the elderly, and the poor, all have different housing preferences.

[haltingproblem]

Why would you post something like this and that too on HN?

[jonathanehrlich]

Excited for you guys. You've worked so hard.

[jelliclesfarm]

I am not sure increasing housing supply is a good idea in California. Taxes are increasing as well as cost of utilities. We are in perpetual drought and there is now mandatory residential rationing of water to at least 15% lesser consumption(or into $500 fine). But with increased rates.

That’s just the tip of the iceberg. Schools are over crowded and Unions are becoming more and more demanding that state pension liabilities keep increasing without any improvement of quality of life. There are road diets and traffic jams on the highways to hell making multi hour commutes an economic drain. There are power cuts and wild fires.

We are 40 million. It’s time to consider drastically reducing population and housing. We need sustainable housing and better infrastructure for walkable high density cities. Perhaps when we have figured out infrastructure, they we can consider increasing housing stock.

We need public transport, a cut in wasteful spending, better schools and roads. Taxes must be diverted provide free utilities for all. And free internet. That should be a right. Instead of paying for pension liabilities of union employees of public sector , I would rather have our taxes go towards creating a better California and towards free utilities, healthcare and environmental protection/conservation and public transport.

I cannot support your startup and the sector is set up to fail and will be damaging to Californians in the long run.

My advice is for you to pivot. Self sustaining tech supported ‘villages’ within Dunbar numbers or anything that creates little townships away from the tyranny of Sacramento will be a better loftier goal, imo. Create homesteads with large farms that are businesses. Look into 3D printed structures and creating high density tech-eco cities.

Making housing better in California is useful. Increasing housing stock is like scratching a bleeding itch when there is no doctors or pharmacies around for miles. Please reconsider. I cannot wish you success…it sounds mean, but I am being honest..regretfully. But I wish success for you if you can make California better. Regards.

[sam_schneider]

Uh... do you want this (https://www.neom.com/en-us/regions/whatistheline) ? There is a prince in Saudi Arabia who'll do it for you!

Interestingly, California is one of the lower direct carbon footprint per capita states. With drastically less heating and cooling in the Bay, LA and SD than national averages, and denser areas, it's a net positive to build more housing here than Phoenix, Austin, Houston, Dallas, etc.

[badbot5000]

This is an insane comment. how would reducing population not reduce revenue source for taxes for pensions and public transport? Crowded schools? Build more schools! Traffic on highways? Maybe reform your shitty environmental laws that cripple public transit project and have dense housing so people don't have to drive. Doesn't take a high IQ to solve these problems. Also California doesn't have a real drought. Water is being used for things like farming almonds which consume a lot of it.

[dang]

Could you please make your substantive points without name-calling and swipes? Posting like this is not only against the site guidelines, it has the opposite effect of what you presumably want, because it discredits the point of view you're arguing for.

https://news.ycombinator.com/newsguidelines.html

[jelliclesfarm]

shitty environmental laws? we should all suck in toxic fumes in california because everyone wants to come here? we are in the middle of a drought.

a couple buys a home in 6000 sq ft and takes on a 30 year mortgage. they expect to have two or three kids. property taxes go towards 24-36 years of public education, infrastructure and law and order/utilties management. and they expect to retire in a fully paid off home in their old age when they dont have any income.

maybe those who cant afford to move into a place, should work with the state to build infrastructure and well networked public transport instead. how many sardines can you keep stuffing into the same little tin can?

[iso1631]

A 6000 sq ft house seems ridiculously large, about 6 times the size of the average UK home, hardly a "little tin can"

[jelliclesfarm]

6000 sq ft lot. the house will likely be 1200-1800 sq ft. regardless, this is america. we can live in large homes.

california is 1.7 times bigger than the UK. we have 40 million vs 68 million population of UK. we are not the united kingdom.

[namdnay]

So there’s still lots of space then!

[sam_schneider]

Seems like a by your own logic comment here.

[panzagl]

I think 6000 sq ft is the lot size.

[iso1631]

That's more reasonable.

That said 3000 square feet is still 20ft x 150ft, 280 square metres, bigger than the plot of the 3 bed detached house I grew up in, bigger than the plot of my 4 bed semi I lived in recently - both of which above average prices for the region.

[ohyeshedid]

> It’s time to consider drastically reducing population and housing.

Ok, are you leaving or are you staying?

[new_realist]

Increasing housing supply is like building more roads to reduce traffic: it doesn’t work. Humans reproduce to fill all available habitat. More humans, no tangible benefit, worse Earth.

[jjcon]

Have you seen Japan recently?

[sam_schneider]

I think this is sort of a memory bandwith/memory capacity metaphor mix.

[Plasmoid]

I'm pretty sure most people don't decide to have another kid because there's an apartment vacancy in San Francisco.

[jelliclesfarm]

'increasing housing supply' is code for 'colluding with the state of california to increase their tax monies and property taxes because they havent been able to do their jobs and manage state pension liabilities'.

[sam_schneider]

Well, voters capped their ability to make money on property tax, so is that the state's fault? (Also it has a budget surplus?)

[jelliclesfarm]

property tax is different from the rest of the budget. perhaps you should look into how the state of california manages its budget. there are paid professionals and researchers who will do the research the work for you.

[ericd]

I think a lot of changes in the state finances resulted from prop 13. There’s a great podcast interview series with Jerry Brown where he talks about the passage, and the chaos that ensued, worth a listen.

[jelliclesfarm]

Prop 13 happened in 1978 after thousands of senior Californians became homeless after retirement. It was meant to protect tax paying Californians from being evicted from homes.

[jelliclesfarm]

[..]Here’s an example (https://www.zillow.com/homes/4511-Sally-Dr-San-Jose,-CA-9512...) of how this could work for a typical San Jose home — footsteps away from one of our customers. The new house on the split lot has a sale value of $1.5M, based on a same-sized new-build home on the block. The total cost for building the new unit, including permitting, local fees, and financing, is $700k. That’s a net profit of $800k, of which the homeowner’s 80% share is $640k.[..]

so...this home when split will have two units..each valued at 1.5 million. the state will get taxes at about $40k/year instead of the current 4-5k they seem to be paying for the past several decades.

if i were the owner and i have lived there for 30 years..it doesnt make sense from the pov of taxes. if i am the child who inherited the home, everything is essentially free. so there's that. and you make 20% profit.

but as the neighbour..as someone who pays tax for the services the city provides, as a renter in the neighbourhood who has to deal with higher water charges, crowded schools for my children, bad roads, inadequately staffed police stations/fire stations/post offices etc.(all public sector jobs that have unions and whose employees receive pensions till they die), it is a lose lose proposition.

any digression into the 'unfairness of prop 13' is something i am not going to engage in..i dont see why a 75 year old resident who has lived in the neighbourhood for 30-40 years have to pay for schools his children went to decades ago. we owe our senior citizens more than envy and jealousy over their hard earned money.

there are plenty of land in california that can be developed sustainably. and can house people comfortably. the problem is with sacramento that makes housing permits and fees and costs so high..and the historical unfunded pension liablities of public sectors that need more and more and more californians to be taxed to death every decade that is the problem.

and not taking into account that we are a desert and we are in a drought and we havent developed infrastructure or affordable utilities or sustainable public education or public transport. all while being taxed to death.

those numbers make NO sense to home owners. especially if they are in san jose. i dont know how familiar you are with bay area. everyone has something to say about property taxes until they become home owners themselves. just like college kids talk about 'fair taxes' until they have jobs themselves and see what a huge chunk goes away without any discernible benefits or accountablity by the state.

[seanmp]

In your example, only the new lot would be taxed at the higher level. Our tax team and California precedent (you mention prop 13) advise that the existing parcel's tax burden would not change, just the new APN. So, in your example above: yes, the state and municipality would receive more income from the new unit, and yes the homeowner would earn a profit from splitting their lot, but no, their taxes would not dramatically increase.

[jelliclesfarm]

Will the proceeds for the home owner be taxed as capital gains?

[sam_schneider]

Yes.

[jelliclesfarm]

So that’s 20% capital gains as it’s probably going to be long term capital gains. There is no 1031 exchange taxes deferred.

Will it be before or after your 20%? It’s not the primary residence so would they still be able to claim the 250k/500k deduction?

[analyte123]

It sounds like you think the state of California has mismanaged taxes, pensions, infrastructure, law enforcement, and education, but you are not willing to consider that it has possibly mismanaged anything relating to housing supply or building laws.

[jelliclesfarm]

What are your thoughts?

[aspenmayer]

I think that you are not arguing in good faith, by your own admission upthread.

To wit:

> honestly, i am not interested in a debate. thats my opinion. take it or leave it.[0]

[0] https://news.ycombinator.com/item?id=29844719

[jelliclesfarm]

Was that comment directed at you?

[aspenmayer]

Yes, because we all share HN and strive to embody the HN values. And also yes, because I read it and wanted you to make better posts.