What Is Killing the Condominium?

• In Event: The Policy and Politics of Housing Supply

Abstract

For roughly four decades, condominiums provided a vital step on the ladder to homeownership. In most metropolitan areas, on average, condominiums are substantially more affordable than single-family homes. But, since the Great Recession of 2008, condominium development has stagnated. In 2006, roughly 105,000 new apartment units were condominiums – about 37% of the national total. This was the peak of condominium production in the twenty-first century. From 2009 through 2023, annual multifamily condominium production never exceeded 24,000 units, even as rental multifamily production surpassed its 2006 levels. 

 

Researchers have attributed the decline of condominium construction to two principal causes: (1) state laws giving residents expansive rights to sue builders and developers for construction defects and (2) financing challenges due to federal lending requirements imposed in the wake of the Great Recession. In response to the decline in condominium development, several states have launched defect liability reform efforts intended to protect consumers without chilling development. This paper quantitatively and qualitatively assesses whether such efforts are likely to yield more condominium development in the absence of federal financing reform. 

 

Using property assessment data, I compare  multifamily condominium and rental development in three areas: thirteen northern New Jersey counties in the New York metropolitan area, Los Angeles County, and the Minnesota Twin Cities metropolitan area. Condominium development in these three areas is governed by substantially different construction defect liability regimes. Reform advocates have long viewed New Jersey’s regime as a model that supports condominium development while protecting residents from shoddy construction; Minnesota adopted major construction defect reform in 2017; California has long been viewed as having an unusually burdensome construction defect liability regime. 

 

If construction defect law reform is sufficient to spur condominium development, then one would expect that – holding all else equal – the probability that a new multifamily unit is a condominium unit (rather than a rental unit) would be higher in northern New Jersey and the post-reform Twin Cities than in Los Angeles County. I test this hypothesis using logistic regression models, where the units of observation are new multifamily projects, the outcome variable is the tenure type (i.e., rental or condominium), and the covariates include neighborhood characteristics and project size along with region and year fixed effects. 

Author

• Nicholas J. Marantz, University of California Irvine
  Presenting Author