Metropolis

Condos Are in Uncharted Territory

The first generation of American condominiums is reaching old age. Are homeowner boards up to the task?

The partially collapsed Champlain Towers South condo amid other oceanfront buildings
Surfside, Florida, on Wednesday. Giorgio Viera/AFP via Getty Images

The cracks in the concrete suddenly feel like chasms. As South Florida reels from the tragedy in Surfside, condo owners across the region—and as far away as New York and California—are looking with new, worried eyes at rust, water damage, and spalling, a word we all learned this week. Anxiety is in the air at Champlain Towers North, the mirror image of the collapsed building, and at Maison Grande in Miami Beach. Surfside residents have called up the town’s mayor to ask if buildings on the ocean are safe, and the mayor of Miami-Dade County has ordered emergency audits of all older apartment buildings under the county’s jurisdiction.

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There’s a kind of paradox in the wake of the collapse at Surfside, which seems likely to become the deadliest building accident in U.S. history. On the one hand, a tragedy of this magnitude seems to demand reform. On the other, it is so rare an occurrence that it seems unwise to draw sweeping conclusions.

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Hopefully, the 2018 engineer’s report that warned of “major structural damage” to be dealt with in the “near future” does not ring any bells for most apartment owners. But the foot-dragging that followed that report, as the Champlain Towers South Condominium Association struggled to rally owners to pony up for a $15 million repair project? That speaks to a fundamental failure of condo governance—deferred maintenance and trouble raising money—that goes far beyond South Florida.

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If you’re wondering why you haven’t heard more about how those problems play out in deteriorating condo projects, it’s because there weren’t many … until now. The law that established the condominium as a concept in American law turns 60 this year. Champlain Towers South turned 40 this year. An entire generation of buildings is moving from middle age to old age, a time in life that requires complex and expensive decisions for condominiums just as it does for humans. And those decisions will be left up to people like you or me.

“Essentially what we’ve done is take some very sophisticated infrastructure and handed it off to laypeople, most of whom have no experience with maintaining it or determining the condition of it,” said Tyler Berding, a California lawyer whose firm works with hundreds of homeowners associations. The condo board is charged both with committing to repair work and raising the money to pay for it, often against the wishes of skeptical, penny-pinching neighbors.

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There are a few reasons condo owners and boards are likely to be bad at this. They are not professional building managers. Their interest is probably short-term—half of condos are resold in less than a decade. Social pressure and voting rules make it hard for neighbors to impose big assessments on one another or build up ample reserves for surprise repairs.

“What happened in Florida is a rarity,” Berding said. “Or at least it has been up till now. The kind of legal structure that makes up a condominium … there just hasn’t been a lot of experience past the 40- or 50-year point.”

We’re in uncharted territory because the condo is a relatively recent invention. The idea arrived in the states via the 1961 National Housing Act to encourage affordable homeownership in multifamily buildings, and every state quickly approved the concept. By the ’70s and ’80s, the country was routinely building (or converting) more than 100,000 condos or co-op units every year. More than 10 million Americans live in condos or co-ops, run by more than 120,000 associations. Florida now has more than 1.5 million condo units, more than any other state.

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A chart showing the number of completed co-op and condo units each year from 1970 to 2017 in the United States.
Growing old together. U.S. Census

It’s the first generation of condos—the great boom of the ’60s, ’70s, and ’80s—that is now reaching the age when serious repairs become necessary. And here is where things get complicated. The federal government and many states, including Florida, require that condo boards contribute money to reserves. But how big should those reserves be? That’s a hard thing to legislate. A Sarasota condo building that nearly collapsed in 2010 had more than a million dollars in reserves; the repair bill was estimated at $18 million, and owners had to find somewhere else to live for years while repairs took place. (In that case, the board succeeded in saving the building at the cost of $12 million, but only after a mandatory evacuation order that stretched into yearslong exile. Many owners could not handle the repair bills and were forced to sell to investors at huge losses.)

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However hard it is for condo and co-op boards to convince their neighbors to fund a new HVAC system, it is harder still to ask them to kick in for the possibility of a new HVAC system in 10 years. It’s not just a building-level marshmallow test in which tomorrow’s interests are sacrificed to today’s. Owners come and go, and while an ample reserve fund might increase your unit’s eventual sale price, every owner rationally wants the cash in hand until the moment it’s needed.

It’s not impossible for a collective to make forward-looking investments. Consider New York City’s labor-funded co-ops, which are approaching the century mark. Amalgamated Houses in the Bronx, for example, recently committed $47 million to repair work—more than $30,000 per unit. But co-op tenure is longer, and co-op boards have more power. Additionally, much of New York’s aging, collectively managed building stock has managed to stay in good shape because the people who live there are getting wealthier. Average annual maintenance fees per room on Manhattan’s West Side, for example, rose from $2,784 to $4,671 between 2001 and 2011. The city’s public housing is another story: The price of restoration for that bedrock social service is estimated at $32 billion, and there is no chance of such a sum being raised at a building, city, or state level.

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In short, maintaining old buildings is expensive, and hockey stick home price appreciation in good locations is what makes it possible. More than half of America’s multifamily building stock is now more than 40 years old. In a country less fixated on the eternal upward march of home prices, those buildings might move down the ladder to affordable housing until they are finally demolished and replaced with something new. But even in that event, the exit strategies are limited. In many states, including Florida, 80 percent of condo owners in a building must agree to a sale, with mandatory buyouts imposed on the rest. In some older structures, the decision must be unanimous. That makes it really hard to “deconvert,” or sell the entire complex to a single investor-buyer—as some older condos in Chicago have voted to do, faced with repair assessments that make up more than a quarter the value of the apartment. It’s hard to escape condo jail.

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We got a preview of some of these problems during the Great Recession, when condo boards found themselves dealing with unpaid dues from struggling owners or foreclosed units. In Hawaii, which has the highest share of condos among U.S. states, some buildings tried to execute their own foreclosures—a process later ruled illegal by a judge. “I’ve seen a number of situations, especially after the recession, where condo boards were reluctant to raise assessments and reluctant to build up reserves,” said Brian Meltzer, a lawyer in Chicago who has been critical of the condo governance model. “It’s systemic.” Compared with mortgages, property taxes, or insurance rates, condo fees are the bill you can control.

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In response to the problems that emerged during that recession, Washington decided it would only insure mortgages at condo complexes where the reserves were equal to 10 percent of the operating budget. That prompted some associations to fall in line, but left foundering projects effectively redlined. “A cycle of aging infrastructure, limited resources and foreclosure is putting these communities in a deep financial hole, threatening what traditionally has been an affordable path to homeownership for the working class,” the Washington Post’s Bill Turque wrote of dilapidated complexes in the D.C. suburbs.

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Today, contrary to popular perception, new condos are an endangered species: In 2017, the census counted just 14,000 completed co-ops and condo units, part of an extended lull that set in during the Great Recession. But the problem of good repair and collective action is not confined to apartment buildings; on the contrary, the Champlain Towers South condo board is American local governance in a nutshell.

Nearly 20 percent of homeowners in the United States are members of a homeowners association, for example, which like a condo board has the legal authority to collect dues from members. While the country’s 300,000-plus HOAs rarely negotiate life-or-death structural engineering questions, they are charged with providing a whole number of neighborhood services that closely approximate the things local government once did. In many places, local governments require that big developers form HOAs to relieve the public obligation to provide services.

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But when fortunes turn, HOA dues are the first payment a family doesn’t make. In the Great Recession, HOAs had to make tough choices between big assessment hikes or service cuts, including cheaper insurance, infrequent trash pickups, reduced mosquito control, fewer lifeguard hours at the pool, or delayed maintenance.

HOAs sometimes face more serious issues down the road, too. Developers have come up with clever and complex arrangements to pass costs onto buyers, the community equivalent of cheap fixtures that break after a few years. These might include sewers or flood prevention infrastructure whose upkeep, before you know it, falls to unprepared neighbors.

To some extent, this battle between tax and service is one that every government faces, from a building up to a state. You might think a tightknit community of homeowners would be more likely to assess itself to fund a state of good repair. But several countervailing factors separate condos, HOAs, and residential suburbs from larger jurisdictions. First is short-termism. Single-family homeownership lasts longer than condos, but it’s still much shorter than typical residence in a city or county. Second: diversity of use. Tenants and big corporations, for example, might be two groups present in a city that would lend support to, say, a property tax levy to fund schools. Third: politics. City councils have an easier time raising money than condo plebiscites, which sometimes require supermajorities of owner-neighbors—if you can get them to vote at all.

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But the most significant difference between these homeowner polities and old-fashioned cities, right now, may be that everything is synchronized: Everything built together falls apart together, and expensive repairs all arrive at the same time. Strong Towns founder Charles Marohn has written persuasively about this phenomenon in the suburbs, whose low-tax model only works until the end of the infrastructure life cycle, at which point sprawl becomes very expensive to maintain. In the king-size homeowners association known as California, it’s become common for even the richest jurisdictions to be unable to afford basic repairs to roads and bridges that are reaching the end of their useful life.

Nowhere does that comprehensive and sudden breakdown hit harder than at the level of one building, like Champlain Towers South, where a bad design and decades of neglect culminated in a whopper repair bill of $15 million. How many other buildings are in that position? Unfortunately, the country’s first generation of condos are all getting old at once.

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