MENLO PARK, Calif. — Imagine paying $1 million or more for a home — and then destroying it.
That’s what’s happening in some upscale San Francisco Bay Area communities as homeowners and wealthy buyers have no interest in upgrading aging houses but instead want to start from scratch and build all-new custom homes stocked with the latest features.
While the demolition and rebuilding trend is heaviest in the most affluent areas, it extends to anywhere it makes more sense financially to tear down the existing structure and start fresh. That includes sought-after neighborhoods with no vacant lots, where prices of small, aging 1950s-era houses have soared.
Interviews with architects, contractors, and homeowners make clear that tear-downs are becoming more common.
“We’re wrecking 3,000-square-foot houses and erecting 14,000-foot houses,” said Hal Nelson of O. Nelson & Son excavating and demolition company in Woodside, Calif. He said he has 20 tear-downs scheduled in nearby cities. Business was up 20 percent last year and up 15 percent in 2012, he said.
Last week, Mr. Nelson supervised the destruction of a 2,600-square-foot suburban ranch in Menlo Park, Calif., as owners James and Teresa Bergeron and their four children watched from across the street.
As an excavator’s demolition claw bit into the roof, the Bergeron children cheered. In the new house, they’ll each have their own bedroom.
“It started as a remodel,” Mrs. Bergeron said. “We were going to add one more bedroom.”
They lived in the house for two years trying to make it work. But after finding major termite damage, problems with heating and plumbing, and a persistent tobacco smell from a previous owner, they decided to tear it down.
A full-blown remodeling job with a second story would have been just over $1 million, and even then, it wouldn’t have been their dream home. Their new 3,551-square-foot residence will have four bedrooms and a 1,884-square-foot basement. Mr. Bergeron declined to say how much it will cost.
“For just a little bit more, you get everything new,” Mrs. Bergeron said.
“This house was built in 1947,” said Mr. Bergeron, a former Silicon Valley CEO who now coaches chief executives and serves on several San Francisco Bay Area company boards. “It wasn’t built for modern families. If you build a brand-new house you can build 9 ½- to 10-foot ceilings. You get the physical and emotional spaciousness that I think our generation is looking for.”
Along the I-680 corridor east of San Francisco Bay, buyers of homes in upper-end towns are “pretty much razing them and building larger homes,” said Eric Icay of AAA All in One Removal. “It picked up in the last year or so.”
“Demolition is booming,” said Zali Lorincz of ZL Construction in Walnut Creek, Calif., a family-owned company that tears down houses and rips out swimming pools. “It seems to be easier nowadays to completely eliminate a house rather than remodel.”
But Palo Alto — on the south end of the bay — may be the epicenter.
For the last three years, 50 to 100 homes a year have been razed to make way for new houses in Palo Alto, said associate city planner Scott McKay. “It seemed like things slowed down a few years back, but it’s been going up again.”
The city granted more than 80 demolition permits for single-family homes in 2013.
“In many ways, the city is built out,” Mr. McKay said. But, he said, some houses are ripe for replacement. The homes built in the ’50s and ’60s “weren’t built to last like the homes built with old-growth redwood at the turn of the century,” he said.
Even old, elegant homes fall short of expectations. “Living has really changed from the 1930s until now,” said Palo Alto architect John Northway.
“A lot of the rooms are pretty small and relatively dark, even in wonderful old Palo Alto houses. Now people want to have bathrooms for each bedroom. A lot of times, both mother and father work at home, and each have an office. The audiovisual stuff is in another family room. All this drives reasons to tear them down and rebuild them.”
That’s what Maxine Loh, a retired computer programmer, learned when she tried to remodel a house in Palo Alto’s midtown district that she and her husband, a retired engineer, had bought in 2009. She wanted to add a room and a wheelchair-accessible bathroom and raise the ceilings. But it would have involved knocking out several interior walls and removing the roof. She was advised to tear the house down.
“All I had left for my remodel was the slab foundation,” she said. “Then the general contractor said there are cracks in it, and it was better to take the whole thing out.”
No neighborhood is immune. A vintage mission-style house across the street from the home of the late Steve Jobs of Apple Inc. was torn down by a software executive who bought it in 2012 for $9 million with plans to build another house on it. Instead he sold the property for $11.4 million. The lot has approved plans for a one-story, 6,000-square-foot home with a 5,570-square-foot basement for a total of 11,635 square feet.
Investors are responsible for some of the scrapped lots.
Mark Wong, an agent with Alain Pinel Realtors in Saratoga, Calif., said a tear-down in Cupertino, Calif., that costs $1.2 million can be replaced with a 3,500-square-foot custom home for about $1.9 million. “Eventually, they can sell it for $2.5 million to $2.6 million and make $500,000 to $600,000 profit in 6 months or less. Not a bad return, and they will repeat this flip process over and over again.”