Are we witnessing the demise of the condo model?
The condo model, a mainstay of entry-level homeownership in the past 50 years, which has provided a gateway to homeownership for many first-time buyers, is now facing significant scrutiny. A confluence of factors, including skyrocketing insurance costs, poor long-term planning, deferred maintenance, and stringent new legislative measures, is exposing vulnerabilities that could spell the end for the traditional condominium model. Coupling those issues with the rapid decline of new condos being developed over the last 15 years and we could have a serious issue on our hands. To learn more about the decline in development of condos, click here.
Recent natural disasters and tragic events have led to a steep increase in insurance premiums for condo owners. Unlike single-family homes, condos depend on Homeowners Associations (HOAs) agreement to manage and maintain the shared structures properly. This reliance on collective budgeting and planning makes condos particularly vulnerable to insurance fluctuations based on inaction from boards and the inability to agree on what is best for the community. With recent increase in costly natural disasters, insurers are significantly hiking rates to cover past losses and potential future claims, leaving condo owners to shoulder a hefty burden if they can not show they have been properly maintaining their community.
Decades of inadequate planning and budgeting by HOAs have compounded the issues. Many condos are now struggling with deferred maintenance and insufficient reserve funds to cover necessary repairs and upgrades. As a result, condos are "behind the 8-ball," with little financial flexibility to address these pressing needs. This “broken condo model” has placed enormous pressure on current owners to fund the necessary improvements through hefty special assessments.
New legislative measures aimed at ensuring the safety and structural integrity of buildings are adding to the financial strain. HOAs must comply with these regulations, often necessitating costly inspections and subsequent repairs. The only way to meet these obligations is to impose special assessments, forcing homeowners to pay large sums of money unexpectedly. Selling the condo becomes challenging because potential buyers will likely demand a price reduction to offset the assessment costs, leaving current owners trapped in a difficult financial position.
According to David Podein, a partner at the Wynwood-based Haber Law, “We’ve seen a lot more stress in the lower to middle market where buildings have put off repair projects and have maybe waived reserves for many, many years and have been kicking the can down the road…You are seeing a lot of economic stress where maybe the units are worth $400,000, $500,000 or $600,000, but you have unit owners potentially facing $50,000, $100,000 or $150,000 special assessment.” – (2024) REBECCA SAN JUAN, Miami Herald (click here)
The challenges don't end with assessments. Lenders are increasingly wary of financing condos with a history of poor maintenance and high risk. Champlain Towers South collapse was a “wake up call” for both insurers and lenders. Without proper upkeep and transparent documentation, conventional financing options may become unavailable, further complicating the buying and selling process. This lending hesitation adds another layer of difficulty for current and prospective condo owners, exacerbating the already unstable market. To learn about the Fannie Mae Blacklist that’s concerning many condo owners, click here.
These issues create a perfect storm that threatens the traditional condo model. The unpredictability of ownership costs, driven by previous owners' actions, inaction from past boards, and developers' failure to provide clear “instruction manuals” as to what should be inspected and maintained and when, raises a critical question: Is condo living still worth it? For many first-time homebuyers, condos have been an accessible entry point into the American Dream of homeownership, offering a foothold to build equity and progress in their financial journey. However, the current environment presents numerous challenges that undermine these advantages and are even straining those who have retired and moved into condos. One condo owner stated, “Instead of enjoying my retirement…I have to work hard to keep my salary up to make a payment on this building.” – (2024) REBECCA SAN JUAN, Miami Herald (click here)
As a result, the once-reliable pathway to homeownership for many is now fraught with uncertainty. Whether condo living remains a viable option will depend on addressing these systemic issues and finding sustainable solutions to maintain the balance between affordability and safety.
(2024) REBECCA SAN JUAN, Miami Herald https://www.aol.com/condo-hoa-fees-jumped-60-090000798.html
