"It was a golden age for condo conversions in the Chicago area in the 1980s and 90s, but the financial crash of 2008, changing demographics and a hot market for rental units has sent the pendulum swinging in the other direction. The real estate trend is now toward condo deconversions or bulk sales – where condo buildings are being converted back into rentals – also is taking place in Oak Park."
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And in addition to a stronger market for rentals, the trend toward deconversion is driven by the failure of condo associations: "The challenge we see now on the condo side are non-functioning condo associations," he said, adding that they often "don't have the money to pay for the work that's needed." Hess said CIC is in the early stages of determining whether to establish a fund to lend to these troubled condo associations."
Another interviewee, an attorney, pointed out other problems: "Planek said tenants are steering away from condos in favor of rentals for a number of reasons: high taxes and assessments; increased desire for mobility; and lack of interest in being involved in condo associations."
Another interviewee, an attorney, pointed out other problems: "Planek said tenants are steering away from condos in favor of rentals for a number of reasons: high taxes and assessments; increased desire for mobility; and lack of interest in being involved in condo associations."
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It’s worth repeating some things that have been repeated many times on this blog over the years:
Six years ago, some guy named Evan McKenzie — you may have heard of him — said that :
“The condominium…it's kind of almost a fictional real estate interest. These things can only exist by statute…Condominiums can only exist where statutes authorize them to exist. So we've had them since about 1960.”
(“Private Community Associations…”. Urban Institute. 06/30/2011. video)
Ten years ago, Steven Siegel wrote that :
“Before 1960, the condominium form of ownership was unknown in the United States. Beginning in the early 1960s, the states began enacting statues authorizing the condominium form of ownership, principally in response to the enactment of the National Housing Act of 1961, which extended Federal Housing Administration mortgage insurance to the condominium form of ownership. See McKenzie, supra note 2, at 95. By 1967, all fifty states had enacted condominium statutes. Id. at 95–96.”
(“The Public Role in Establishing Private Residential Communities”. Urban Lawyer. Fall 2006. footnote 23 on page 869.)
1967 was fifty years ago. But as that McKenzie character — there he is again! — observed
“Housing cooperatives are not popular with the real estate industry, bankers, or title companies. They love condominium ownership because it creates many individual units that can be bought and sold, creating a whole lot of business for everybody involved in real estate transactions. But most of the people who live in co-ops find them a good living and ownership arrangement.”
(“In France, A Retirement Co-Op…” 03/26/2016).
and that
“The condominium as a form of ownership is so fragile that it can't survive without all this endless ‘clarification’ that is really complication, and constant gimmes and goodies for banks, vulture capitalists, developers, lawyers, managers, and so forth to induce them to somehow keep this institution held more or less together with duct tape and baling wire. When you look through all the verbiage, all these schemes come back to one strategy: more responsibilities and less power and freedom for the unit owners.”
(“H319…” 02/18/2012).
Too many special interests are making too much money -- and even some well-intentioned but misguided folks promote the condominium pyramid scheme as "affordable housing" -- for our public officials to anything about this mess that federal, state, and local governments have helped create and perpetuate for the past 60 years. After all, it's how the current President of the United States made his fortune.
If Republicans really want to "Make America Great Again", or at least return to the economic conditions of the 1950s -- when "real estate" meant land and not airspace between walls you don't own -- they would acknowledge that perhaps our predecessors who didn't legalize condominium ownership for 200 years knew something we don't.
> condominium pyramid scheme
Then there is the whole issue of Tyler Berding’s death spiral, named after the author of “The Uncertain Future of Community Associations” (2006).
Regular readers of this blog are familiar with the condominiums death spiral. But for those of you new here, I’ll try to summarize. It’s been a while since I’ve read the whole thing, so I’m doing it from memory (and hastily), so anybody feel free to correct me if I get something(s) wrong:
- all buildings and infrastructure have a limited life span
- in the case of single family housing, the homeowner also owns the land, which has inherent value. There is a financial incentive to maintain the house. Even if the house is destroyed (say, in a fire), the homeowner still owns the land and its value. In some cases, buyers will buy houses just for the land, and demolish the existing house to build a new one.
- in the case of condominiums, the homeowner (or homeowner in name only) owns only the airspace between the walls. The homeowner does not own the land, nor the commons walls or any other commons property. This seems to puzzle some people, but think about it: how can a person who owns a condo on the 2nd or 3rd floor own the land underneath it? Real estate ownership is merely a legal fiction (see my comment above)
- in condominiums, individual owners don’t even have ownership nor control over the maintenance of the infrastructure, which is delegated to another party (the H.O.A. corporation). In theory, the homeowners control the H.O.A. corporation, but regular readers of this blog know how well this privatized form of corporate communism works in practice.
- for various reasons, condominium owners don’t have the same incentives (or ability) to maintain the building and other infrastructure that owners of single family housing do.
- inevitably, the cost of maintenance and repair of the buildings and other infrastructure costs more than they are worth to maintain, and/or greater than the individual owners can afford. Especially in the many instances where the owners are low income and/or seniors living on fixed incomes.
- “I have been saying forever that many associations are going to go under because they don't have enough money in reserves to pay for inevitable repair and replacement of major private infrastructure for which they are responsible. People buy into associations with no understanding of the financial risk. Eventually things wear out, and the people who happen to own the units when that happens get stuck with the bill. This is why associations are supposed to get reserve studies done. It's tragic to see these situations, but unfortunately we will be seeing a lot more as the years go by. And this is why the whole subject of private infrastructure needs to be viewed as a public policy issue.”
(Evan McKenzie. “Calverton Homeowners Sue Suffolk…” 10/18/2017)
- at some point, it makes more economic sense to demolish and rebuild than to maintain — because the land (which the homeowners do not own) does have value to somebody. While this “creative destruction” may be good for business (and the economy as a whole), it can be devastating for the individuals affected. In many cases, owners divested of their “property” are left with the obligation to pay the mortgage. This is not hypothetical, this has actually been happening.
- the problem is exacerbated when a single investor (or group of investors) own enough units to control the condo corporation's 1 unit = 1 vote model of corporate governance. The interests of investment owners don't necessarily align with the interests of resident owners. Again, this is not hypothetical, but has actually been happening.
But as that McKenzie character — there he is again! — observed
“Housing cooperatives are not popular with the real estate industry, bankers, or title companies. They love condominium ownership because it creates many individual units that can be bought and sold, creating a whole lot of business for everybody involved in real estate transactions. But most of the people who live in co-ops find them a good living and ownership arrangement.”
(“In France, A Retirement Co-Op…” 03/26/2016).
I remain on the fence about housing cooperatives. It seems to me that there are different types of co-ops, and they are not all resident-controlled entities.
First of all, there are market rate co-ops - mostly high end buildings with an exclusive club aura. Entry into one of these co-ops is highly competitive, and available to few.
Then there are all the “affordable” limited equity co-ops. But since return on investment is limited, so is the shareholders’ motivation to maintain and repair, beyond the most basic necessities. Seems to me, it would be similar to the condo death spiral, only without the investors hovering like vultures to pick off struggling associations.
A contact of mine sent me a link to one developer of senior cooperatives http://www.villagecooperative.com
But when you read the hype on the website, it speaks of “joint ownership of property” and growth in equity. But shares in a corporation are NOT the same as real property ownership. When you read the fine print on this website, you find the words “limited equity.” Therefore, how can any return on investment be guaranteed? It cannot. So why the deceptive language? Reading between the lines, it is clear that Village Cooperative is a developer-centered community, where the developer is also the perpetual manager of the property. I do not think this even remotely resembles the original concept of housing cooperatives.
Co-housing, previously discussed by Evan McKenzie, might have better potential for individuals that are truly committed to the lifestyle. http://www.cohousing.org/ At least with this option, members are prescreened and they should fully understand the concept and expectations. If the residents are in control even prior to development, and make decision by consensus, there is no room for a developer or community manager to lord over the residents. Seems similar to a commune in some ways, but with more private space in individual homes.
I wonder how many people really find co-op housing suitable for more than a few years - if at all.?
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