New condominium projects, once a mainstay of the nation’s homebuilding market, have largely remained on the downside for most of last year, according to a new study released by the Washington-based Urban Institute.
The report, Housing Finance at a Glance, notes that such properties have been generally decreasing for the last decade, and adds that the decline may be due to “construction defect litigation and related insurance coverage issues.”
In some states, that defect litigation has been pervasive enough to lead to the passing of legislation requiring greater proof of structural defects before a lawsuit against a builder can proceed.
Colorado passed such legislation in 2017.
The overall decline in condominium sales represents a loss for the first-time homebuyer market. In fact, says the Urban Institute report, “loans for first-time buyers of condominiums and cooperatives” have traditionally been “more likely to go to one-borrower applications, a rough proxy for single-person households.”
Adds the report: “Condominiums are an essential purchasing target of first-time homebuyers largely because they are typically considered more affordable than single-family homes in many jurisdictions.”
At the same time, the “share of one-person households has climbed in recent decades,” says the report, noting that recent figures put this segment at around 28% of the total national homebuying market.
While condominium construction has proven sluggish, there are some bright spots: Forbes reported that the sale of luxury condominiums in Manhattan saw an increase in 2021, reaching levels not seen in 13 years.
Despite the litigation and insurance coverage issues, the Urban Institute report suggests that a future increase in condominium construction could prove lucrative due entirely to one factor: demographics.
Noting the nation’s declining marriage and fertility rates, along with the “increasing age of first marriages,” a renewed emphasis on building condominiums “could be the key to helping younger households achieve and benefit from homeownership.”
By Garry Boulard
