The number of new apartments being built has climbed to a record high, but there’s one type that remains in short supply: condos.
The construction of multifamily housing for sale is at a historic low. Developers are building more apartments than ever before — but they’re almost exclusively rentals.
A recent study by the Urban Institute found that only 3 percent of all multifamily units completed in 2018 were for-sale units. That’s the lowest share since 1980, when data on the subject began to be collected. It’s also well below the historical average of 15 percent. The decline seems to have accelerated over the past five years: In 2017, just 7 percent of all multifamily units completed were condos, down from 14 percent in 2014 and 12 percent in 2013, according to Urban’s research.
The relative scarcity of condos has driven up their prices and fueled worries about affordability. But developers say it doesn’t have to be this way: They could build more condo projects if they wanted to — but they don’t because there aren’t enough buyers out there willing or able to buy one right now.”
By looking at demographics, we need more condos!
The lack of affordable housing is one of the biggest issues facing the U.S., especially as our population continues to grow and age. In fact, there are more than 35 million Americans over age 65 and approaching retirement, who will need to find other ways to pay for living expenses once they retire.
But despite this demand and need for more affordable housing options, there are still very few condos being built in this country.
One reason for this lack of condo construction is that developers are often reluctant to build multi-family projects because they require less upfront capital than single-family homes do and therefore offer less profit potential for developers when compared with single family homes. Additionally, developers have been reluctant to build condos because it’s difficult to sell them on speculation (i.e., without pre-sold contracts from buyers).
However, there are some demographic trends that may help reverse this trend over time: First, millennials (those born after 1980) are now reaching adulthood and becoming homeowners themselves — which means that more people will be looking for smaller, more affordable homes.
Second, the population of empty nesters is growing—which means that there will be a growing demand for smaller units that are easier to maintain than larger single-family homes.
There are painful financing constraints for both the condo sponsor and condo builder.
The main obstacle is that most of the developers are constructing their buildings with private equity. But getting loans during these difficult economic times is very challenging, especially for condominium projects. And it’s even harder to get banks to finance condominium projects in which the units aren’t sold off-plan.
The other problem is that many lenders won’t lend on new construction condos because they think it’s too risky. The reason for this is because there are no comparable sales in most major cities where new construction condos are built, so there’s no way for them to compare prices when determining what a reasonable loan amount should be.
This is why developers in New York City are looking at pre-selling so aggressively, but it’s unclear if this will work or not in other cities like Los Angeles, Miami and Chicago where there aren’t as many buyers who want to buy before they see the finished product or have any idea what the price per square foot will be once completed (or how many units they’ll have to sell before breaking even).
Planning to build an FHA approved condo can make selling them easier.
If you’re planning to build a condo, you’ll want to know about FHA approval. FHA approval is important because it can make selling your condos easier, and the more people that are interested in buying your condos, the higher they will sell for.
What Is FHA Approval?
FHA approval is a special label that the Federal Housing Administration gives to certain types of condominiums. The purpose of this label is to help buyers find good places to live that they can afford. This makes it easier for these buyers to get into a nice condo without having to spend any money upfront on down payments or closing costs.
What Is an FHA Approved Condo?
An FHA approved condo is any condominium that meets certain standards set by the Federal Housing Administration (FHA). If you want to sell your condos under this program, then you’ll need to make sure that your building meets all these standards before you begin marketing it as such.
Download our Guide to FHA Approval
The condo market needs some help and we need to identify the steps to save it.
For decades, the U.S. housing market has been dominated by homeownership. And while that’s a good thing for the middle class, it has also meant that many Americans have missed out on one of the best ways to build wealth: buying a condo.
Condo ownership has long been popular in resort areas and urban areas. The problem is that condos have become an extremely important part of our economy — and we need more of them.
The condo market needs some help. What do you think the next steps for this necessary market are?