There is no doubt that the COVID-19 pandemic has resulted in increased demand for housing in Southern California. More people are working from home (with many expecting that to be permanent), are home-schooling, or are housing more people under the same roof. As a result, many households are reassessing their current living situation, and finding it lacking. Sales agents across the Southland are telling us that buyers of all types are searching for more space, and even if they aren’t able to step up in home size when they move, they want a new home with more rooms.
The increase in demand for added rooms has pushed the premium for an extra bedroom up substantially today compared to pre-pandemic days. To quantify the value attributable to an extra bedroom, Clarity Real Estate Advisors evaluated thousands of home sales in Southern California, comparing the sales prices of similar size condominiums and townhomes with 2-bedrooms versus 3-bedrooms closed in the 12 months before mid-March 2020 (start of pandemic shut-downs) and over the six months ending in March 2021.
· In the year before the pandemic hit, 3-bedroom condominiums and townhomes versus the same-size 2-bedroom home achieved premiums averaging just $3,000 to $5,000.
· Over the six months ending in March 2021, the premium for a 3-bedroom condominium or townhome versus the same size 2-bedroom home increased up to the $22,000 to $27,000 range.
· On a percentage basis, premiums for a 3-bedroom home vs. a like-size 2-bedroom home have shot up from an average of just 0.9% pre-pandemic to 4.6% today.
Remember, all of these premiums are for the same size home. While this analysis covered only 3-bedroom versus 2-bedroom condominiums and townhomes, we are hearing that premiums have also increased for 4-bedroom versus 3-bedroom single family detached homes, as well as other higher versus lower bedroom counts. Sales agents tell us that additional room functions such as dens, home offices, study centers and lofts are also generating increased value, although not to the extent as a full bedroom.
More of today’s homebuyers are valuing additional room functions over open-concept plans. When designing new homes, finding a way to squeeze in an extra room into the same square forage could boost your revenues today by as much as 5%.
Clarity Real Estate Advisors is Southern California’s premier housing market consultant, offering innovative, timely, and nuanced market analyses and feasibility studies to answer your most pressing real estate market questions. Our comprehensive market-based guidance and our affiliation with the Land Advisors Organization allows us to provide our clients with a competitive decision-making advantage grounded in years of market experience.