Is Florida’s condo market slump just the tip of the iceberg?
By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com
News of dramatically falling condo demand and drastic price reductions is spreading around the world.
According to the Daily Mail (a U.K. publication), Florida, Texas and California are bearing the brunt of the collapsing condo market.
Condo prices make record slide as crisis hits breaking point | Daily Mail Online
Nationally, condo prices have fallen 2.2% year over year. But prices in oversupplied condo markets in Florida, Texas and California have dropped 19% to 32% in just one year.
IAC has been warning readers of the inevitable failure of condominium housing for the past decade.
The reasons for the growing slump in condo sales are many but can be summarized in one word: risk.
When you own a condo, you share expenses and a host of liabilities with co-owners. While the condo real estate industry has been selling buyers on the myth of affordable, low-maintenance housing, owners are now realizing they have been deceived.
Condo maintenance is expensive
Multifamily buildings require just as much maintenance — often much more complex and costly — as any single family home.
The taller the building, the more it costs to engineer, build and maintain. Elevator maintenance and replacement, heating and air conditioning challenges, interior or exterior stairway maintenance, plumbing water pressure issues and leaks: these are just a few of the expensive maintenance issues for condo housing.
Exterior building envelopes — roof, siding, doors and windows — are much more expensive to maintain than for a single family home. Add into the mix structural inspections and repairs, especially if original construction was deficient.
Any building 3 stories or taller requires scaffolding and special equipment just to clean windows or repoint brick.
High rises require crane operators to haul materials to upper levels of the building.
Florida condo owners are feeling the burden of escalating condo fees as well as insurance premiums. The Governor just signed a bill (HB913) in an attempt to avert a crisis. But the primary “solution” is allowing condo boards to open up lines of credit to fund deferred maintenance and to make up for deficient reserves.
Is it wise for condo associations to create new debt? In the long run, it depends on how many owners can afford to repay condo loans through years of increased monthly fees. Right now, there are many condos on the market in Florida, due to sellers being unable or unwilling to absorb the increased cost of owning their condos.
Rising insurance premiums kill affordability for condo owners
Reflecting the higher risk of loss, insurance coverage for condominium associations and for individual units is getting more and more expensive.
In Miami-Dade county, according to a recent article published by MSN, commercial multi-peril insurance policies have increased by 164% between 2021 and 2024. Individual unit owner policies have increased by 44% on average over the same period.
Trapped by high costs and buyer’s market, South Florida condo owners are hurting
The closer a condo stands to environmental stressors, the more maintenance is required – and the more susceptible the properties are to costly damage or total loss.
Think corrosive salt spray from oceans, shoreline erosion along oceans and lakes, hurricanes, earthquake fault lines, flood zones, clay soils, wildfires and more.
All of these factors lead to an increase in insurance claims and a rapid rise in premiums.
Shoddy or defective construction creates future safety hazards and high costs for owners
Another common problem with condominiums, and homeowners’ association developments: conflicts of interest.
A recent investigative report out of Florida highlights the problems that arise when consumers are relying on private inspectors for new construction.
Florida new home buyers want more oversight of private inspectors
Now consider what can go wrong when a developer of a community’s infrastructure, and the builder of multifamily, multi-story buildings can essentially hand pick their own inspectors to sign off on construction in order to obtain certificates of occupancy.
What’s more, condominium owners who delay or botch maintenance of their building do so at their own peril. Deferred maintenance and denial of structural defects led to the building collapse of Champlain Towers South condominium building in 2021, resulting in the untimely death of 98 residents.
The problem is not limited to Florida.
Rising condo insurance premiums and condo fees for reserve funds and deferred maintenance also apply in other states, for example: California, Colorado, Virginia, and Maryland, as well as District of Columbia.
As insurers leave high risk condo and HOA housing market, Fannie Mae and Freddie Mac have blacklisted a growing list of underinsured, poorly maintained condominium associations in the USA. That limits the buyer pool to cash buyers or investors able to secure alternative financing.
Property values in some of the biggest condo markets are falling as a result.
With an aging housing stock in many states, maturing condominium and homeowner associations across the US will likely follow suit.
Below I include links to several source articles.
‘Mortgage blacklist:’ In these California cities, condo owners struggle to sell
The Condo Crisis No One’s Talking About: Insurers Are Walking Away From HOAs
Are America’s condos having a midlife crisis? – Greater Greater Washington
Blacklisted Condos: A Growing Crisis for Owners and Buyers | DarrowEverett LLP – JDSupra
Bottom line: Condos are not affordable to own
Given high carrying costs, current economic pressures, and increased risks for existing condo owners, it’s no wonder sellers are hard-pressed to unload their units.
Few buyers are willing to take on the risks and the high cost of ownership. Investors will only purchase at bargain prices.
So… why add to the condo crisis by building more condos?
I’ve noticed that there’s a vocal segment of the housing industry that keeps selling local governments on plans for new affordable or workforce housing for sale as condominiums.
Savvy homebuyers are starting to see that a lower purchase price is more than offset by a high cost-to-own condo.
Sadly, uninformed buyers with a fear of missing out on owning a home will still fall for the deceptive claim that a condo is and will remain affordable housing.
Creating smaller condo communities will only perpetuate the condo crisis
Consider that, even if condo associations are repackaged as smaller duplexes, 4- to 8-unit buildings, cottage courts or portions of a mixed-use neighborhood, the same core problems will remain.
With rare exception, co-owners still won’t agree on cost-sharing and maintenance protocols. They will continue to fight over who should do the work and how much they should pay for it. Many will simply ignore and defer maintenance until the neglect reaches a crisis point.
Something else to consider – it will be even harder to find affordable services for small condo communities. Most lawn, landscape and home repair pros are more interested in pursuing more lucrative larger commercial contracts.
On the other hand, it’s much simpler for a small business owner to deal with one owner of a single-family home than to contend with squabbles among 2-8 owners of a small multifamily condo or a group of cottage owners in a pocket infill community.
And if one or two co-owners don’t pay their share of condo fees, the few remaining owners have to pick up a substantial share of the slack.
Insuring and financing small condo associations will still be complicated and expensive. On a per-owner basis, costs to own can add up quickly.
Damage to local real estate markets
Let’s not overlook the obvious fact that prices for existing older condos will absolutely tank if uninformed buyers opt for the allure of a new condo. That’s the short-term damage.
What about the long-term effects of creating new condominium housing, despite a long, established history of decline in condition and value over time? Most people instinctively know that, in a decade or less, neglected and dilapidated infill condominiums can drag down the value of homes on their street or an entire block.
The industry can scoff at NIMBY-ism, but that won’t solve the condo crisis dilemma. Together, we must think about how to create housing at affordable price points, in a way that cultivates a proper balance between individual control over one’s home and consideration for one’s neighbors.
Let’s stop perpetuating the condo creation-to-crisis cycle.
The housing market needs less risky, more affordable alternatives to condos.
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