The Future of Condominiums

Bodies are still being found in the rubble of the Champlain Towers condominiums. Those who escaped are having a rough time. Many ran out of the towers with nothing but the pajamas they were wearing. They’ve lost their homes and everything in them. Neighbors and charities are stepping up, but the newly homeless are left wondering if they still have to pay off mortgages (surely  not!). They are getting help replacing driver’s licenses and getting their utility bills stopped.

I confess I’d never given much thought to the issue of building upkeep for condominiums. There’s a monthly association fee, and out of that the common areas of the building are maintained, right? The concept of condominiums dates to the 1950s, but they didn’t really take off until the 1980s. I believe most coop apartments in the New York City area are converted apartment buildings, many built before World War II, but most (not all) condos are new construction. And now the first condo buildings are aging. The Champlain Towers complex was built in 1981, for example.

There are still stories coming out about flawed construction and missed warnings, but the most obvious problem was that the building required $15 million in repairs, and the complex’s owner-residents were balking at paying the assessment. Possibly some of them couldn’t afford the assessment. (That was my issue with the coop apartment I owned for a time. In ten years the management-maintenance fees went from $500 a month to over $1,200 a month, on top of a mortgage, which was not what I signed up for.) If the building were owned by a corporation that could draw on bigger resources for repairs, perhaps it still would be standing.

I’m thinking also about Brooklyn, NY. In the year I lived in the temple the Brooklyn skyline was all high-rise apartment buildings under construction, mostly luxury condos. One downtown condo tower is 720 feet tall, which is hard to miss. Another, 680 feet tall, has a swimming pool on the roof. That makes it the highest swimming pool in the western hemisphere. I have no idea what individual units cost, and the websites don’t tell you, but I’m guessing some number in seven figures.

And the issue here is twofold. One, there is a desperate need for decent affordable housing in New York City. I’ve known people in white-collar jobs who live in little rooms with a “kitchen” consisting of a microwave and a coffee pot, because rental of a real apartment would eat most of their paychecks. But the builders want to build luxury places, often for extremely wealthy people who have other homes, because there’s more profit in it. Yay, capitalism. (I have little hope that the new Democratic nominee for mayor is going to do anything about housing. But we’ll see.)

And I have to say that if somebody gave me several million dollars to afford an apartment in one of those buildings, and if they could guarantee that the building will never deteriorate or suffer power failures or the swimming pool on the roof won’t leak and there will be no fires, I’d take it. But reality is that if I’m several stories up and the elevators break down I’d be stuck. And global warming, rising seas, bigger and badder hurricanes, are going to challenge those buildings in the years to come. It wouldn’t surprise me if in 40 years the rich people will have cleared out, and any towers still standing will have been taken over by squatters.

And, of course, affordable housing isn’t just a New York City problem.

And the other problem is whether this condo-coop housing model is really what we need for the long haul. If you live in a city there have to be apartments, although maybe the increase in remote jobs and telecommuting will relieve some of the pressure to pack large numbers of people into urban areas. Whatever the solution, it’s madness to assume the “free market” will provide it. We need government to step in, somehow.

See also Condo Buildings Are at Risk. So Is All Real Estate at The Atlantic.

Update: I just found this. This is from January 2020, pre-covid.

In Manhattan, the homeless shelters are full, and the luxury skyscrapers are vacant.

Such is the tale of two cities within America’s largest metro. Even as 80,000 people sleep in New York City’s shelters or on its streets, Manhattan residents have watched skinny condominium skyscrapers rise across the island. These colossal stalagmites initially transformed not only the city’s skyline but also the real-estate market for new homes. From 2011 to 2019, the average price of a newly listed condo in New York soared from $1.15 million to $3.77 million.

But the bust is upon us. Today, nearly half of the Manhattan luxury-condo units that have come onto the market in the past five years are still unsold, according to The New York Times.

There is no reason to imagine that’s not true of the new condo towers in Brooklyn, also. Most of them are only a twenty-minute or less subway ride to Wall Street. But most of these luxury condos that are all over the place were built with foreign investors and corporations in mind, not New Yorkers.

From any rational perspective, what New York needs isn’t glistening three-bedroom units, but more simple one- and two-bedroom apartments for New York’s many singlesroommates, and small families. Mayor Bill De Blasio made affordable housing a centerpiece of his administration. But progress here has been stalled by onerous zoning regulations, limited federal subsidies, construction delays, and blocked pro-tenant bills.

The cost of housing has made New York City nearly unlivable for all but the very wealthy and long-time residents who bought their homes years ago or live in rent controlled apartments. The article says that at the time the city was losing 300 residents a day.

At the site of the collapsed Champlain Towers

5 thoughts on “The Future of Condominiums

  1. Outside of NYC and Miami, buyers in the house market are getting screwed. Major investors are grabbing up anything that hits the market for cash at any price for rentals. 'For cash' means above what the appraised value is in many cases. Appraisals will usually keep price creep in line but the jump in prices (like 20%) portends a rent hike in excess of 20%. Who are these speculators? They are only starting to ask.

    https://nypost.com/2020/07/18/corporations-are-buying-houses-robbing-families-of-american-dream/?utm_source=facebook_sitebuttons&utm_medium=site%20buttons&utm_campaign=site%20buttons&fbclid=IwAR1–4eeG_y7tQwWTHcMHa5U_Q_s-tm7SdD7Zgh2YxLO-uygGz89hn_hff8

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  2. Fortunately, when I lived in NYC as an adult in the 80's, you could still find some decent apartments without exorbitant rents.

    BUT NOT IN MANHATTAN!!!!!  

    You had to make (or have) some serious money for a Manhattan apartment. 

    A lot of times, on top of paying a month or two of rent as a "deposit," you also had to pay "key money."  Typically, that was for subletting a condo or coop from the owner.  Basically, it was an open bribe.  I know people who paid $5,000 and $10,000+ in "money" for the "key" to their apartment.  And even then, many times, subletting an apartment was against the rules, so you could never consider it "your" apartment.  You throw too loud a party, or otherwise attract attention to yourself, and it was "'Bye-bye" to the apartment!

    I had a boss who let me use his 2-bedroom in Peter Cooper Village – on 23rd Street, by the East River – for FREE!  FOR A WHOLE YEAR!!!

    THAT year, with no rent, phone, electric, or cable bills, I lived like a prince!

    But that pad was technically an "illegal" sublet.

    But then, when I finally had enough of this autocratic Donald tRUMP Lite moron, I threw a weekend-long party on my last weekend there.

    It was, if I do say so myself, A HELLUVA GREAT PARTY!

    And when the complex started getting complaints, it's security guys came in, and I knew them all, so they were just more partiers!  What was for them not to like?  See some beautiful Slavic women, drink some great booze and beers, and a enjoy a few tokes or hits of illegal pharmceuticals, and they left us alone for another few hours.  And then they WANTED complaints so they could come over again.  And this part went on from Friday afternoon, until dawn on Monday!

    We cleaned up my asshole boss's pad at the end, so he couldn't complain.  But his board came down hard on his ass a few months later for having sublet his apartment.  But I was loooooong gone by then!

    Ah, great times, great times…

    Hopefully, apartment prices come down to earth.  Because people can"t pay more than 1/2 their income for rent.  

    Because in that case, neither Peter nor Paul will get fully paid in every given month – because you also have to pay John, Mark, and the rest of the crew you have to pay to live until the next month.

    Something's gotta get done!

    I want to move from assisted dyin… Assisted living, to my own small apartment.

    But even here, 90+ miles north from NYC's Broadway, 1-bedrooms cost around $1,000 a month.

    Oy.

     

  3. With any shelter, maintenance is quite the issue,  No shelter, built on unstable ground, condo or not is a potentially high maintenance dwelling.  Here, as the "story" of the collapse slowly emerges, we will get the unwinding of "what went wrong".  It will be a story of instability.  Part of that instability will involve government and politics.  We have the same problem with congressional gridlock on infrastructure today as that Florida building.  Our political system is unstable.  We know we have a problem yet we cannot agree on what needs done, and more specifically who and how is it going to be paid for.  It would not surprise me that the fatal flaw here was giving a building permit to a proposed project that could not be maintained over a reasonable period of time.  How many time bombs do we have out there?  So far, at great expense, we have not located all the presumed dead.  The living are in an unenviable position at best, with haphazard social services for people in severe distress.  More political instability.  

    I bet that some people in responsible positions knew in 1980 that this building project was unsustainable and said just that.  It is a little too late for them to even get the satisfaction of an  "I told you so".   As for those who approved and inspected the design and construction, time has gotten them off the hook of responsibility or liability. 

    All of us need to get a political lesson from this.  This is why showmen and idiots do not make  good politics.  We continue to pay for the errors of decision makers of the past, some long gone and some still causing more destruction.  Destruction caused by their denial of probable future reality.  Destruction caused by their gross overestimations of Capitalism and it's limitations.  For many quarters this structure was considered an asset.  Some wise people probably knew 60 years ago it was a liability and a disaster waiting to happen.  Unfortunately they got overruled.  Let that be the moral of this story we need to learn.

     

  4. I’ve worked as an actuary for more decades than I like to think about sometimes. Whether qualified as claim, contingency, risk based capital, or whatever, there are things called reserves. They are liabilities that must have balancing asset accounts funded if the company is to be considered solvent. The problem here is the cost of that funding cuts both cuts into the developer’s profit, and raises the price of a unit. Without such prefunding, when the event for which the reserve indicated the expected value occurs the cost is usually short term unaffordable. 

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    • I’m not sure what you’re refering to here. In the case of most older condominiums, the developer is long out of the picture. Costs are the responsibility of the homeowner association, and in the case of the 40-year-old Champlain Towers, the association didn’t have the reserves to fix the problems. If you’re talking about new construction and why developers in New York City have oversaturated the expensive luxury condo market while there is a screaming unmet need for less expensive housing, I’m not following your point.

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