In the early years of this century, developers built thousands of condominium units in King County. Since the housing bust, few have been built.
New construction of single-family homes, town homes and multifamily rentals has rebounded. Why haven’t new condominiums rebounded?
Condo developers find challenges at every turn.
- Condo development has been slammed by tough rules on condo mortgages enacted after the housing bust.
- For five years, developers of new condos can expect to face extraordinarily expensive lawsuits from homeowner associations for defects in construction of the building envelope, defects that permit water penetration.
- There has also been stronger demand among young people for rentals.
Construction of new multifamily rentals has rebounded in the absence of condo development.
- Construction financing for rental properties is readily available.
- There is strong demand now from investors for apartment buildings
- On the entry-level end, tepid job growth early in the recovery and the younger generation’s affinity for flexibility have fueled demand for rentals.
Working around the mortgage restrictions, some developers have converted their project to town homes, where each unit comes with its own parcel of land and there are few common components.
At some point, we can expect the tide to turn again in favor of new condo development.
- Many developers would rather be building condominiums. With condos, the developer is paying down debt with every closing and then putting money in their pocket right away.
- Condos play a critical role as entry-level housing for young buyers, who use them to start building equity they can use toward later home purchases. Delays in home ownership mean less wealth accumulation for these households, given that housing is the primary source of wealth for most middle-class households.
- Rising apartment rents provide renters more reason to buy instead of renting.
- Job growth is improving for young would-be buyers.
- Real-estate lobbyists say they are making inroads in Washington to build support for easing the FHA restrictions on condo mortgages.
Many of the people I speak with are unaware of the post housing bust status of new condo development. If you have any questions about this, feel free to drop me an email.