Did Someone Forget Condos for Affordable????

The Condo market offers great affordability for the investor who sees opportunity…Wenston DeSue

Fewer New Condos Built Despite Housing Crisis

The share of new condo units built over the last year was less than 5.4% – almost the lowest level in half a century, according to an Urban Institute report.

NEW YORK – While the multifamily construction market surged over the past year, the condo market hasn’t been part of it. The share of condo units being built for sale over the last year was less than 5.4% – nearly the lowest level in half a century, according to a report from the Urban Institute.

“This trend has persisted even though demographic patterns are boosting the need for condos, and the shortage is adding to concerns about the lack of affordability in the homebuying market,” writes Urban Institute researchers Michael Neal and Laurie Goodman.

Condos have long been associated as a path to homeownership for first-time homebuyers, and they tend to be a more cost-effective option for single households since they cost less than single-family homes.

The construction of multifamily condo construction for sale has been declining since the Great Recession. Production has been low due to financing constraints for both the sponsor and builder, as well as defect litigation that substantially increases the cost of insurance and riskiness of condo projects.

Neal and Goodman say that condo development requires sponsors who can sell units quickly to buyers who pay with cash as well as those who need to obtain financing. However, few owner-occupants, particularly in affordable buildings, are able to purchase the unit with cash. That uncertainty concerns sponsors.

Further, “because of the higher risk associated with condo development, the builder pays a higher rate to finance the condo construction than would be the case on a rental unit, and the lender demands a higher return for the higher risk,” the researchers say. “These federal financing constraints and local defect laws make it far riskier for multifamily developers to build rental housing than for-sale construction, and have limited the construction of condos and co-ops.”

Cited:  Florida Realtors

Wenston DeSue is a realtor, organizational consultant, design, construct, build expert and developmental networker.  Real estate is the business of exchange and affects every person on the planet.  Real estate on all levels represents resources, access, purpose and often times, power.  These articles represent aspects that affect the business of real estate.