By M. Nolan Gray and Muhammad T. Alameldin | The Atlantic (abridged)
If the U.S. wants to remain a nation of homeowners, it has no choice but to start building condos again.
The starter home isn’t what it used to be.
For the better part of the past century, most Americans became homeowners by purchasing a detached single-family house. But soaring prices are making that paragon of U.S. real estate less attainable, and many people have turned to condominiums as the only affordable option, particularly in expensive coastal cities. Now even that option has become endangered.
People often use condo as a synonym for apartment, but it refers to a particular arrangement: Residents own their unit and share possession of their building’s common areas and the surrounding property. Thanks to their efficient use of land, condos cost significantly less than single-family homes in nearly all major cities.
Construction of virtually every kind of housing plummeted during the Great Recession, but condo production has proved especially anemic in the years since. Large cities have generally stopped building them, forcing more and more urban families to either remain renters or depart for the suburbs.
Through our work at the housing-advocacy group California YIMBY, we have sponsored legislation that can help spur the condo’s revival. Policy makers have the power to reverse its decline; other countries show them how. If the U.S. wants to remain a nation of homeowners, it has no choice but to start building condos again.
Condominios were popular in Latin America long before they came to the United States. Inspired by their neighbors, Puerto Rican legislators enshrined condos in American law for the first time, in 1958. On the mainland, condos took off in Florida, where they appealed to affluent retirees by offering both on-site amenities and freedom from landlords. In the 1970s, single women helped drive national demand for condos, which provided them greater safety, community, and proximity to jobs than most suburbs could. The following decade, middle-class Americans without children moved to cities en masse, buying up condos and building wealth in urban areas otherwise dominated by rentals.
By the early 2000s, developers were constructing hundreds of thousands of new condos, expanding the national housing supply, keeping prices in check, and seeding a generation of urban homeowners in cities across the country. Production peaked around 2005, when nearly half of all new multifamily units were sold off separately rather than rented out by a single owner.
Then the condo boom collapsed.
Condos always faced an uphill battle. For starters, American zoning tends to prohibit multifamily housing, which is altogether banned in most suburbs. By one estimate, fewer than a quarter of the residential areas in many cities allow anything other than detached single-family homes. Erecting an apartment building typically requires a long and unpredictable rezoning process as a result.
Beyond the red tape that snarls any new apartment, condominiums confront an additional hurdle. In order to sell off individual units, condo developers need local officials to designate each one as a distinct legal parcel—a drawn-out process involving lots of open-ended negotiation. Many officials hassle developers into paying extra to upgrade nearby intersections, setting aside land for parks, or making ad hoc contributions to various local funds.
Consider two recent housing developments in West Los Angeles. One developer built four condos; next door, another developer built five rentals. The city forced only the condo developer to pay for widening the street. The demand likely added tens of thousands of dollars in project costs to the condo. When these added mandates push costs too high, projects either go under or get turned into rentals.
Condos also encounter discriminatory treatment in the federal tax code. If an investor finances an apartment and retains ownership, she pays capital-gains taxes, which top out at 20 percent. But if she finances a condo and sells it off, she pays income taxes, which top out at 37 percent.
Still, condos managed to spread despite these constraints—until the Great Recession. Along with the rest of the housing market, condo production plunged starting around 2008. But by the early 2020s, overall housing production had largely recovered in most U.S. cities, whereas condominium production remained a fraction of its prerecession peak.
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