The condominium culture is a uniquely recent form of housing in American history, born well after the end of World War II. Modern legal condominiums began in the United States in the late 1950s and early 1960s. The Commonwealth of Puerto Rico passed the first horizontal property statute in 1958, and the first mainland U.S. condominium, Graystone Manor, was built in Salt Lake City, Utah, in 1960.
But the new housing concept really took off when Congress passed the National Housing Act of 1961, allowing the Federal Housing Administration (FHA) to insure mortgages for individual condo units, which caused the concept to spread nationwide. By 1969, every U.S. state had established its own statutory framework for condominium ownership; millions of units were sold in the decades that followed, and it became the preferred housing lifestyle in markets like South Florida, western ski resort cities and urban centers like Chicago where they became the lifestyle of choice.
Tragedy
But then came the Champlain Towers South tragedy in Surfside, Fla., in 2021, when 98 residents died as the building collapsed in the middle of the night, despite signs up to two weeks earlier that loud creaks and groans were occurring and went unaddressed by everyone involved.
A new, modern high-rise condominium is planned for the site, but so scarred are South Florida residents by the stigmatized land, buyers are hesitant to purchase new condos on a site marked by mass tragedy. To date, not a single unit has been pre-sold, and the developer has stopped construction mid-stream.
But the collapse created a major event and was the single match that lit a fuse nationally, turning the existing economics of condominium living on its ear nationwide. Virtually every mid-to-high rise condominium building in the United States has either voluntarily undertaken structural and deferred maintenance studies by qualified engineering firms — or they have been forced to by their insurance companies.
The result has been that fees and special assessments have skyrocketed, and in cities around the country, the market for condominium units constructed more than a decade or two ago is in a deep slump, and those increased monthly fees and potential special assessments are to blame.
New Study
A recent national study found that owners of older condos pay more than double the annual fees that newer condo owners do. Median fees for a condo constructed before 2000 were $11,431 per year, compared to $5,012 for a condo built in the last decade.
Older condos tend to sell for less than more recently constructed units and single-family homes. Historically, their lower cost made them appealing to first-time homebuyers and older downsizers. But the higher fees and risk of special assessments are changing the math according to real estate agents around the country.
After the Surfside tragedy, many older condos needed to spend heavily to catch up on deferred maintenance, cover rising insurance costs, and meet higher reserve minimums imposed by either new state laws or their insurance companies. Those costs ended up being passed on to owners in the form of fee hikes and special assessments.
In the last year, nearly 12% of pre-2000 condos levied a special assessment, or one-time extra fees that typically go toward major repairs or deep reserve shortages, with the median bill coming out to $2,041. Condos built between 2000 and 2015 also saw similar special assessment rates and bill sizes, while condos that were less than a decade old avoided them entirely.
And What’s More
Fee increases and special assessments have been particularly aggressive in recent years after mortgage giants Fannie Mae and Freddie Mac tightened lending rules for condos in response to the Surfside disaster. In the last five years, the median regular assessment on condos built before 2000 more than doubled, special assessment rates tripled, and the median special assessment bill ballooned from $244 to $1,801.
Condo construction is a key component of the new home sector and plays an important role in aggregates consumption. When the moribund new home market comes back to life, expect to see new condominium construction rebound and add to aggregate demand.