Rich millennials are spending millions to knock down beautiful houses in the NYC suburbs to build mansions as housing wars rage on

Priscilla Reynolds, a New Jersey-based sales associate, represented a seller that sold their home in Ridgewood for $2 million to a millennial couple from New York City. She listed the center hall colonial home in March of last year and wasn’t all that shocked when she found out the couple wanted to tear it down. The couple, likely both in their mid-30s, Reynolds guessed, have since knocked it down and are in the process of rebuilding. They’ve even run into problems concerning lot coverage, likely because they wanted to build an enormous home in place of what was previously a property under 4,000 square feet, Reynolds told Fortune.

Christina Gibbons, a real estate broker with a team that’s based in Ridgewood, typically serves Bergen County, which is just outside of New York City. Following the pandemic, she noticed that buyers coming from New York City had more to spend, and they wanted to live in these so-called desirable locations with easy commutes. Sometimes that means buying a home just to knock it down. But it isn’t always going to cost $2 million for the original property purchase, instead it’s likely going to be close to a million dollars. That’s because the value of property and land has gone up, largely because of how tight inventory is and the lack of vacant land in these markets. Gibbons said a half acre of land on the west side of Ridgewood “is going to be close to a million dollars easily, no matter what’s on it, so people are having to spend more to tear them down.” Gibbons represented a buyer that closed on a property on West Ridgewood Avenue around two months ago for $900,000, and after tearing it down they’re building a more than 4,000 square-foot home, which is twice the size of the original “very old victorian” property that sat on the lot, Gibbons said. She added that once their home is done, it’ll likely be valued around $3 million. 

On another occasion, Gibbons worked with a couple in their early 30s with kids that moved from New York City. They purchased a colonial-style home in Ridgewood, in the summer of 2020 for close to $1 million with “every intention of tearing it down,” Gibbons said. The couple even rented for around a year in the same neighborhood while their home was being built, so their kids could attend school and they could oversee the project. The couple just moved into their finished, very modern home last summer—in what Gibbons called “your very typical New York story.” 

But teardowns go beyond Ridgewood. Although they’re likely to be more expensive and grander in areas like it. As Fortune’s previously reported, knockdowns are happening throughout New Jersey, as “desperation is becoming a bigger part of the marketplace,” Curtis Counts, a New Jersey-based real estate sales associate, said earlier. He shared examples of teardowns in Scotch Plains and Atlantic Highlands, and like Gibbons suggested, the trend is centered on location and preference, with the money to back it up. Although in Counts’ cases, they weren’t multimillion-dollar, or even million-dollar, knockdowns.

Matthew Bizzarro, broker and owner of his own real estate agency that serves New York City and Westchester, told Fortune that teardown buyers are “willing to just purchase the house to obtain a lot and then just knock it down and build the house that they want.” This is particularly true among buyers that are affluent—and he’s seeing it quite a bit. And again because inventory is tight, buyers “have to get creative to get the space that they want, and if they’re motivated enough or have the funds to do it, sometimes that means buying a house you would never buy and…knocking it down and starting over,” Bizzarro said. And because this process isn’t cheap, it’s mostly Gen Xers and older millennials who’ve already bought their first homes that are doing this—or buyers with family money, Bizzarro said. 

“Clearly they have bank, so do they have bank because they earned it? Or do they have bank because it’s just family money,” he said. Either way, buyers are “paying a premium to buy a house and to knock it down and build,” Bizzarro said. There’s a general consensus that more often than not, buyers will have to purchase a subpar home to get the land. Sellers know that, and it gives them leverage.  

Bizzarro is working with a client now that’s looking for a home in Westchester, but everything on the market is too small for their family, in their view. So his client is considering buying a home to knock it down and build new. They’re very well off, Bizzarro said, and already have a place in the city they’re selling. Still, the knockdowns he sees are closer to the million dollar mark, which is a bit easier to get your head around given you’re knocking down a home and paying to build another. 

Bergen County real estate agent, Joshua Baris, told Fortune that because the homes in these markets were built so long ago, they need to be torn down. His parents’ home in Englewood Cliffs, N.J., that they purchased during the 70s, is on a third of an acre of land. Whenever they ask him if they should remodel the kitchen or anything within the home, he tells them only if you really want to because “whoever is going to buy your home, regardless of what you put into it, is going to knock it down.” 

“There’s very, very few parcels of land that’s going to be available in the suburbs of New York and New Jersey,” Baris said. “I don’t know of really any, where they’re not going to have a house on them, and it’s going to be an older house…and they’re just going to knock it down.” It’s really the value of the land, not necessarily the value of the home, Baris said. 

Baris later shared that he knew a potential buyer that offered close to $7 million to the current homeowners of a property in Englewood, just to knock it down. The buyer loved the location but wanted a more contemporary home—Los Angeles style. The property’s current homeowners declined his offer, as they’d just bought the home a couple of years ago for slightly more than what he was offering. 

These buyers want new, Gibbons told Fortune, and they can afford it. Even in wanting new homes, they’re not willing to compromise on location, and in doing so, they’re taking on a huge project. Teardowns are costly and time consuming. To knock down a home and rebuild it, you’ve got to hire architects and engineers, aside from your general contractor, take zoning restrictions into consideration, and perform several tests. “Just getting to the knockdown phase of the home is very expensive,” Gibbons said.

But these knockdowns can sometimes speak to the disparity “between housing prices and who can afford it,” Reynolds said. In that, this segment of buyers isn’t looking for the affordable home, instead they’re overpaying for the home they want. “It isn’t the ‘I’m so grateful to have a home’ or ‘yay we could afford a home now,’ it’s like we want to afford the home that we want—we want to afford the home that we like,” Reynolds told Fortune.