The housing market needs more condos
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Start incentivizing treating housing as, you know, a place to live rather than a financial instrument and you'll see plenty more condos.
This is fine. I don't buy a condo with the hope of recouping my money. I buy a condo to have a roof over my head. I couldn't care less if my condo loses 80% of its value. It would lower my property tax bill in fact. I don't expect a ROI > 0 for the furniture either.
For my retirement, I contribute to a 401k and a Roth IRA.
To illustrate my point, most German landlords fail to beat inflation. Some 20% are losing money.
The homeowners I know chose a slightly worse location, because they couldn't afford to buy in the places where they actually want to live. Since a mortgage is a 30 year affair, they bought more than they currently need. They end up paying more and getting less (for now). Inflation and rising rents will work in their favour eventually, but it's far enough in the future to make me question the move.
I meant to write about buying a home in Germany (I write about adulting in Germany), and the conclusions from my extensive research are the following:
- Buying a home is not a financial decision, it's a lifestyle decision
- Everyone who writes about buying a home has a financial incentive to recommend buying a home
- Home ownership is also throwing a lot of money away: closing fees, taxes, interests, maintenance, opportunity cost...
However, in terms of building equity (not to become a small-time landlord), buying an apartment is a safe bet - the housing market has been in a bull market for a long time, and the last few years have been especially good. I suspect we're closer to a long-term top than many think, but that's another matter. Even if the market crashes, your house remains yours and keeps providing shelter. On top of that, selling is tax-advantaged whereas stocks aren't.
If the market crashes, your house will not remain yours if you can't afford making payments. If things go south, I see unavoidable payments and illiquid assets as a liability, not an asset.
Selling is indeed tax-advantaged after a few years though. That's a good point.
The main pro for me is that it's a hedge against rent prices and inflation. However that's assuming that housing prices are reasonable, and that there are no better investments.
It doesn't matter how much overhead it has in a vacuum. What matters is how much goes to overhead when compared to renting, which is the only other choice (other than being homeless).
depending on your local housing market, it could be much more risky. where i live, for the last few years renting has carried the real possibility of being unable to find a place to live, for any amount of money, when your lease ends.
the big upside to a condo is that nobody is going to kick you out.
If something major fails with the building, a repair bill could be so large that you have to take out another mortgage to pay for it, no matter your current financial situation.
Plenty of significant problems with condos that can force you to be kicked out.
Most of all, incentives are misaligned. Condos are designed to be marketed and sold. I’ve lived in several high end condos, as well as high end apartment buildings, and the apartment buildings always were built better and didn’t have weird custom made shit breaking.
If you own and can afford your fixed-rate mortgage, you are much less likely to be in this situation, or worse, homeless.
In France there's a maximum amount you can increase a tenant's rent with, defined yearly based on market prices. Combined with one of the most popular investment vehicles, which is a buy new ( thus incentivising construction) to rent (at defined affordable prices) programme which gets you tax breaks for 10 years, and after that most people usually sell. Alongside that cities are mandated by law to have a certain percentage of "social"(affordable) housing available, so when private construction adds housing stock, cities have to add on top of it. That helps keep renting affordable while also making sure new construction appears.
The US has almost no tenant protections except for a few urban areas that passed municipal laws. I would prefer to rent if it provided almost as much protection as homeowning, and if it weren't so financially disincentivized in the US.
IMHO we need to eliminate the capital gains exemptions for homes, and also add on local capital gains taxes in addition to federal, to disincentivize real estate speculation.
Renting is far more risky. You never know when and how much it will increase every year.
If you buy something (condo, or house) you now know what your "rent" will be for the next 30 years, it's never going up.
So, there are real differences aside from the lack of a yard.
Also banning children is illegal in the U.S. unless you have a 55 or older community.
I don't know why you wouldn't desire rules about noise if your home is attached to another home where loud neighbors would bother you.
But at any rate that concern has nothing to do with condominiums, your HOA in a planned development with detached housing can also serve you noise complaints.
The quality of construction has nothing to do with whether the project is a condo. Unless you think single- family detached homes can't have bad construction.
The level and type of noise that reaches nuisance levels is highly subjective, which leads to conflict between neighbors. You also have no control over your neighbors, so you might be able to practice your guitar for a decade and then suddenly your neighbors move and the new ones don't appreciate the sound as much.
It's the same issue all of these types of organizations have; HOAs suffer from the same problems. The rules tend to be defined by those most sensitive to them, who are generally those the most willing to waste a bunch of their own time screwing around with the HOA/condo association.
I personally refuse to own a condo or HOA home. It's worth it to me to exchange the equity for renting and being able to get out easily if I want to. I also find "ownership" to be a bit of a misnomer for either type of housing, since the rules can be arbitrarily changed and they can place a lien on your home. You live there at the grace of the HOA/condo community.
I get the reasons why those processes exist, especially for condos, but it's just not for me. I grew up in a rural area, so my idea of ownership is probably tainted by space being a non-factor and enforcement of any kind of laws, much less non-governmental ones, being sparse.
I'm hanging on to hope that remote work will become a major factor in the job market so that I can move back to the country without having to resort to the rural IT job market.
It depends on where the condo is. My condo in Boston has increased in value 2.5 times in the 20 years I've owned it. My friend's home in a wealthy suburb of Boston increased by 40% in almost the same amount of time. That's taking into account the last two years of the pandemic where we saw housing price increases slow or stop in the city while suburban prices rose much more quickly. Before that, the difference in appreciation was even greater.
My parents condo in Manhattan, which they bought 45 years ago, has probably appreciated close to two orders of magnitude.
I think overseas buyers, who like the fact that an association takes care of the repairs and services like these type of properties. Even those that moved and rented have ended up selling to those that have never seen the property except in photos. Our building has no rules about %owners living in the building so its gone from about 80% 20 years ago to 30%.
https://i0.wp.com/arizonarealestatenotebook.com/wp-content/u...
This graph only goes up to 2019, so it is probably higher now, but that is one heck of a drop.
Also, it isn't strange that a lower cost market appreciates faster than a higher price one. If say houses were $100k in Phoenix after the crash in 2008, now they are $400k, that is 4X! At the same time, a $1 million dollar house in Boston after the crash is only $1.4 or 1.5 million now, only 1.5X.
The flipside is that a lot of people spend a big chunk of their lifetime earnings on rent with no return simply because the barrier of entry to home ownership is so high.
I agree that housing shouldn’t be an investment first or by default and I agree that condos would be an excellent vehicle to bring more into home ownership by lowering the cost of entry.
This happens in Japan, but happens mainly as a result of:
a. No one sees real estate as a sure shot after the excess of the 80s.
b. Declining population means even Tokyo has a lot of extra housing.
c. It is easy to rebuild housing, so people rarely buy "used" homes, leaving on the land as a real estate vehicle for appreciation (the structure is overhead). Condos are almost worthless speculative assets in that sense.
Developers will often skimp on construction quality as a result, since they know that nobody will actually be living in them.
Thats just a link to a page on ghost cities.
Don’t count new housing growth in Tokyo if you aren’t counting housing destruction as well, otherwise the numbers aren’t comparable to other cities (where new housing usually means “new” housing, not just rebuilt housing).
That sounds ominous. Are there good comparisons of how excessive the real estate market is in the US today vs. Japan during the 80s?
https://www.scmp.com/magazines/style/news-trends/article/309...
But. From when I lived there, my general observation was that in exchange for keeping the cost of the house fixed, rising property values is dealt with by making property lots smaller. Where 1 house stood now stands 2.
I would like to add
D. apartments are plentiful and cheap. I paid ~300USD a month for a small apartment in an outer suburb of a mediumish city. I was making ~2500USD a month.
My condo is noiseless. The codes in my country are strict on this. I got families with children all around me, only hear them when sitting on my balcony during summer. And codes in general makes sure that buying a modern condo is safe. Here it's 5 years where the builder has to fix stuff that's not as it should. (Just avoid buying from small shell companies, but that goes for houses as well)
Not having to care for anything but the inside is nice. Pay a small amount each month that takes care of everything. No crazy HOA stories, actually never heard of things like that here. Being 100 families in this block, actually gives us lots of power when it comes to negotiation, the fixed start-up costs for repairs etc are split over so many. My parents spend at least 10x the amount of money I do caring for their house, while I don't even have to think about it.
Price of condos here has increased much more than houses, as it's central and not possible to build that many more. Can't see why a condo inherently should appreciate less than a house? If there is demand there is demand.
Probably depends on city maturity. In most North American cities, there is plenty of room for more condos. In your case, it is not possible to build more condos either.
People shop for monthly payment and not for the sticker price. On a condo the payment includes the HOA fee so for the same monthly payment you can get a more expensive house than a condo. As the property grows older and becomes more expensive to maintain, the HOA fees raise to reflect this and that reflects on the appreciation speed too.
I do think it's important now more than ever with remote work to build more duplex / 3 bedroom condos. I'm 33 and I have no desire to move out to the burbs, but marrying and starting a family in a 2 bedroom condo isn't totally appealing to me.
I think the main issue is not the condo itself but where the condo is.
From my experience living in an apartment but with walkable area around me and several large parks within walking distance felt very much equivalent in life quality than now living in a house with a garden. If anything large park areas are usually a lot more interesting for kids than your garden.
I do think urban planning should incentivize "village" building. For x square meters of construction you must build y square meters of green spaces and z square meters of local commerce. Otherwise you just get Truman show suburbs.
Once you have an HOA you don’t own your home in the way you would otherwise.
At that point I would start doing the math carefully about buying versus rent + investing.
Renting has the huge luxury of being able to leave with minimal hassle, and not deal with any maintenance.
Let's say you have a 3% mortgage and the interest component on your loan is 20% lower than the rent you're paying on a similar property.
Sounds like a no brainer, until you consider the opportunity cost of carrying the repayment part. It's earning (really saving) you 3%/yr instead of the 5-10% you could earn long term in the stock market.
Sure if house prices rise just 1% a year, the equity you're building is nice, but that is not guaranteed going forward, especially when you're buying in to an area where median house prices could already be 10x median earnings.
People won't be investing the difference between rent and their mortgage, they'll be using it for other expenses. Especially for anyone that's at the median or below, you're not making enough to actually save much, so the mechanism here is effective.
The most important thing is that a mortgaged house is a hedge against rent inflation, as it locks in a flat housing payment for the next 30 years. Then when you're paid off and you retire , you only have to worry about maintenance + property tax, which is cheaper than the mortgage ever was.
With a condo I pay to own it, but also pay a monthly HOA fee forever, and I can only do approved modifications, but I'm also responsible for anything that breaks.
If I own property I should be allowed to install a giant mailbox on a whim, or break a whole in the wall because I dreamt there was treasure in it.
If I have to pay monthly and follow someone else's rules, I shouldn't have to finance and organize maintenance on my own.
As for the trolley analogy, it gives up the capacity of the train, but can't drive around an accident like a bus.
A trolley(bus) is just a bus with overhead wires for electricity. It's more eco-friendly and cheaper than buses ( in the long term), and it requires drastically less infrastructure than trams or other forms of rail because there's no rails to build and maintain. Oh and it's close to silent.
Said in another way, it's useful in certain scenarios where you don't need the capacity of a tram or heavier method of transportation but still don't want to pollute/depend on fossil fuels. Battery-powered buses are starting to change that equation but i have no idea which one is more interesting ( in price vs flexibility ( the batteries need to be charged, and replaced after some time; overhead wires need little maintenance)).
Not everyone wants to chose between a 2000sqft McMansion or a 500sqft shoebox in the sky
American towns are going bankrupt because federal/state subsidies (e.g. the Highway Act) allowed them to make inefficient decisions like creating financially unsustainable suburbs instead of intensifying urban areas
If you're looking for a wealth store fungibility is a net positive. McMansions and standardized condos are known quantities that can be valued accordingly.
Make it legal to build more supply then speculation will move onto other assets
China has a similar problem which is why it has ghost cities - thats where the hoarding instinct channeled wealth.
Zoning laws are a red herring. They're the worst enemy of the property developer building yet more luxury condos to be shoved into a hedge fund's real estate portfolio but they dont address the underlying cause of not enough property.
We hear about it a lot because property developers have lots of money a significant financial incentive to drive public opinion, but that doesnt make it true.
Drive up either property taxes or institute a land value tax and the instinct to hoard property as a bitcoin like store of wealth will collapse, freeing up land for real people to live on.
Where? Source? If you were talking about the recent article about empty Canadian empty homes, it was already debunked since it includes cottages, student rentals, and unsold homes on the market.
It's also illogical an investor would leave empty homes unrented for prolonged period of time if rent could be collected.
> China has a similar problem which is why it has ghost cities - thats where the hoarding instinct channeled wealth.
Real estate in China is only reliable asset to invest in. The government also strongly encourages real estate as majority of public revenue comes from land transfer tax.
Nobody invests in the stockmarket unless they are high up in the CCP since they can literally destroy entire industries without oversight i.e. recent education/tech stocks losing their entire valuation overnight
> Zoning laws are a red herring. They're the worst enemy of the property developer building yet more luxury condos to be shoved into a hedge fund's real estate portfolio but they dont address the underlying cause of not enough property.
An investor trying to artificially pump up the price of an easily replaceable commodity will eventually will eventually run out of liquidity and everything will self correct. Thanks to zoning laws, the rate of new construction fails to meet demand. Even now, the demand for 1br condos are still unmet and why it's the only thing that gets built whenever developers win permits for dense non-SFH construction.
It's almost as if after you waste a lot of time and money fighting NIMBYs you'd want to build whatever provides the highest profit margins.
Without zoning laws, eventually the 1br demand will taper out and developers will need to build other unmet demands like 3br low rises to stay in business.
It all does come down to strong regulation, but instead of strong regulation to limit building, we should have strong regulation to prohibit hoarding and underuse of land.
You realize that just makes them even more expensive?
While the "American Dream" is to own a home with a backyard, it is logically easier if everyone lived in highrise condos and apartments in urban areas.
Homes would be cheaper, since you could scale up and not just out (e.g. avoid urban sprawl). Not to mention lower gas costs and we don't need to cut down as many trees to build homes.
My mom owns a home (which I rent the downstairs, it's cheaper for me), and it has a big backyard. That in expensive Seattle. Combine that with tens of thousands of homes (if not hundreds) and you have a lot of wasted land.
A lot of the housing problem isn't Amazon or Big Tech, its single-family zoning. Today's cities need high rise buildings to accommodate everyone.
It's possible to make high density housing that doesn't feel like that, but it's not as profitable so developers don't. That's why the vast majority of high-rise condos are one and two bedroom shoeboxes instead of spacious three (or more) bedroom homes. We won't get to that point until we either force developers to do it with regulations or good incentives, or if the government does it.
> but it's not as profitable so developers don't.
Developers can only build what is legal, and the size and allowed uses are dictated almost entirely by planners. And in places with discretionary approval, other power brokers like landowners and non-profits that turn out the vote for city council members get to make most of the decisions about what is built.
It's a fallacy to think that the only thing that could be built are homes for sardines.
So many benefits with so little downsides. I can’t ever imagine going back to a detached house.
Most places don't need high-rise condos everywhere when low-rise condos in a dense neighborhood orientation would work out great.
The US is blessed with plenty of space for single family homes. Sure you’ll pay out the nose for one in SF or other major cities, but it’s an option.
I’ve lived in dense cities where single family homes are out of reach for everyone but the top 0.1%. People get used to it, but condo living kinda sucks.
Presumably, if there was less exclusive single-family-home zoning, there’d be more incentive for family-suitable condos to be built.
https://www.google.com/maps/@38.0148717,-122.2775613,3a,75y,...
(Edit: there are also of course row house duplexes that would share a roof, front stairs, etc... But many are single family homes).
For an example of what I mean, take a look at SF's Outer Sunset district on street view.
Edit: it's possible that terminology and construction methods vary a bit between cities so all I can say is that you can certainly build a row of houses that share no structural elements.
The row houses I'm thinking about are in Philadelphia, and I think most other east coast cities. Occasionally you'll see one with the neighboring house(es) demolished, and there are usually remaining bricks from the missing house on the now exterior wall.
But SF has its own classification of “fully detached” which specifies a minimum space between homes.
https://thefrontsteps.com/2021/11/08/detached-home-san-franc...
Rowhouses typically share walls.
Row houses? You mean townhouses? That's the same thing as condos (shared structure, HOAs), with all the drawbacks.
Nothing illegal about them, tons and tons of those are being built in the bay area.
- Condo projects are uniquely sensitive to credit availability for first time buyers. Shifting credit towards established buyers naturally shifts housing starts towards SFHs since that is what established buyers want. I would imagine this would also be at play in the disappearance of starter houses.
- Developer warranty encourages HOAs to become involved in litigation right as the building starts to be occupied. You can’t get a mortgage in a building with ongoing HOA litigation. Once the developer has sold enough units to generate a lawsuit but not enough units to cover his costs, he gets stuck in limbo squatting on inventory until the lawsuit settles. You could imagine ways of fulfilling both intents without such an unfortunate interaction.
While it would be nice if more people could get a first foothold in real estate ownership & wealth-building by buying a share of a condo building, they just aren't quite there yet on the wealth curve.
I dunno, while I'm in no real rush to paint them all with a broad brush, there's certainly some validity to the some of the ire towards HOAs that the HOAs themselves rightly earned. The one I'm under certainly has. They wont be missed.
Apparently no one cares enough so we ate the cost of re routing. Fuck HOA’s
Ofc, occasional loud situations, but that is no different from monsters that have parties outside their house.
You are at the mercy of the average members of your group and the average person let’s things decay until it falls down around them.
My grandparents had a condo once and because the people in the association didn't want to pay, they endlessly deferred maintenance until it was 40K a unit. All because they didn't want to fix leaky windows 10 years beforehand.
My home city is filled with examples of this kick it to the next year approach to maintenance.
Most people are that way. They view a bucket as a solution to water dripping in through the roof.
Having a private garden is great, not crossing people when getting home is great, not hearing people around you is great, not having to deal with the useless administration is great, not having to pay them fees is great.
The thing that bothers me the most about where I live is that even detached houses don't tend to have big plots (makes sense in a developer driven market: buy a ton of land and cram as many houses as you can in there), so you're still too close to other houses.
I understand it's a luxury but it's one I'm happy to put all my money in
If you can't coordinate with your neighbors directly, and resort to the courts, you're likely to end up in the same place when you can't coordinate with your neighbors as HOA. Although, sometimes, having established procedures can smooth things over.
Single family detached homes without an HOA may not scale (probably doesn't), as you say in another comment, but that doesn't mean we only think we don't like the options that would scale. I haven't lived in a condo, or in an HOA, because I have had choices and I'm not going to pick a choice I've got enough information to determine I'll dislike.
You've been duped by the loud anti-HOA crowd and their scary stories, then. For most people, living in a condo is hassle-free. It's cheaper to be many when doing repairs. And someone else coordinates everything so one doesn't have to think about maintenance.
Is that someone else going to move my stuff out of the way when the repairmen come to fix the ceiling under the leaky roof? Will that someone else actually let me know when they'll be swinging by? Will they use a quality repairperson or their cousin? Will it take them so long to get someone out to fix the roof, that more rooms need ceiling repair? How are we paying for this coordinator's time?
Oops, I wasn't supposed to think about this.
But yeah, no one can stop you from dreaming up weird scenarios in your head. Doesn't mean you have a point, though..
1) They don't appreciate like houses do (and depreciate faster than houses do).
2) A lot of "condos" are converted apartment buildings. This sucks because the construction is much worse (hardly any sound dampening, etc.).