'Underground rentals' grow in suburbia

Underground activities are stirring within the current real-estate market. In some areas it has almost reached the boiling point. A vast "underground rental housing market" is growing in communities throughout the US and is composed of thousands of rental units which are being incorporated into single-family homes.

Already there are an estimated 500,000 illegal rental units in homes where local zoning calls for single-family residences only, according to data from the US Bureau of the Census.

Many of today's home-remodeling projects are not motivated by a desire to make the home more livable and comfortable. Also, the projects are not alternatives to buying a new home in a tight market to satisfy the needs of a growing family.

Rather, much of the remodeling is designed to create new rental units. It's a means of generating income for the owner-resident to help cover the increasing cost of owning and maintaining the property.

In many cases, such units are illegal even if there is little effort to enforce the law and stop them.

Everyone recognizes the owner's need to generate money to make ends meet as well as the need for more rental housing units.

Clearly, housing is a vital necessity of life.

This new breed of bootleg rental unit can be anything from tiny basement or attic apartments to the full downstairs area of two-story or split-level homes, points out Dr. George Sternlieb, director of the Center for Urban Policy Research who recently concluded a study on the subject.

"Often these units rent for modest rates, considering the neighborhoods," Dr. Sternlieb asserts. "Because it is primarily an underground market, no real-estate agent is usually involved." He notes, however, that the situation may soon change once communities face up to the reality of what is happening and ease their zoning regulations.

"What you're dealing with is nice clean suburbia where many people have decided to rent out their homes either because they are 'empty nesters' or older people who like the security of someone living in their home. Or they are younger householders who need the money because they've gotten in over their heads."

Dr. Sternlieb says he is convinced that changes in local zoning laws soon will permit an increasing number of conversions of single-family houses to rental units.

"In general, law follows custom," he notes. Many new zoning laws will first take the form of "mother-in-law" ordinances, he predicts.

"Those laws will probably change," he adds, "since there's no way you're going to enforce being related by blood."

There are only a few communities in the US that now have reasonable zoning laws for conversion of single-family homes into rentals, he points out. So far only relatively affluent locales have adopted conversion ordinances that allow owners of single-family houses to rent out a unit within their homes provided the owner occupies the rest of the house.

"These communities do not seem to be worried about their status, so they've legalized rentals."

The legislative pendulum is swinging, however. More rental units are needed to satisfy the housing needs of the country. Also, homeowners need to generate money to help cover the rising cost of utilities, upkeep, and property taxes.

The pressure is building, Dr. Sternlieb concludes.