The Promises and Perils of Condominium Housing

Abstract

Condominiums comprise about eight percent of the current occupied housing stock in the United States; and a larger share (11 percent) in cities. Since 2001, the share of the condominium stock in cities has grown by more than 80 percent. Yet, they are an understudied asset, partially due to a lack of comprehensive data, with only a small body of research exploring the unique opportunities and challenges they bring to households and policymakers. Demographically, the U.S. is experiencing increasing demand for cities, decreasing household sizes, and an increasing share of aging homeowners who are over-invested in housing. These factors, coupled with recently identified needs for energy-efficient housing, supply-side solutions to increase housing affordability, and mixed-use development, all suggest condominiums could be a viable alternative to traditional single-family homes for an increasing share of households.The paper is divided into three parts, the first documents condominium unit and dweller characteristics using the American Housing Survey. This section also explores the different types of costs associated with condominiums, and documents housing quality and mobility trends for these units. The second section documents housing affordability for condominium occupants. It looks at a number of factors, including: the probability of a unit being purchased by a first-time homebuyer or a downsizing older household, housing-cost-burdened-status of occupants, and housing conditions in any given year. The last section looks at condominium loan performance. It uses Fannie Mae data on loan performance to look at the mortgage default probabilities for condominium properties compared with single-family homes over time. These data allow for further analysis of the condominium investor market, and the paper subsequently explores diverse behavior across owners, secondary homes, and investors in these markets to look at disparate outcomes across groups. Finally, using both datasets, the paper compares projected wealth outcomes for different unit-types over the past decade. From a housing policy perspective, there is very little research on this sector of the housing market, and the unique nuances associated with condominiums are important to understand. As an increasing component of the urban housing stock, condominiums have the potential to influence housing affordability, fill a gap in supply to address a specific segment of unmet housing needs, and reduce