An article/podcast presented by The Atlantic titled “The Truth About NIMBYs” brought together several thoughts and may actually imply increasing demand for condos. Like a podcast, the points made are slowly and casually presented. If you like to read, the long article is quite worth reading. If you like quick bullet points of ideas, you might not reach the end. There is an audio recording at the top of the article as an alternative.
One point made is that a person’s view of high-density housing is correlated to how urban centers were widely perceived at the time that person was 18. For Boomers, when they were 18, urban areas were often associated with crime and other problems. For other generations, urban areas were associated with numerous activities, parties, and nightlife. For others, suburbs were associated with resource-wasteful housing.
The difficulty of building new single-family housing tracts in Silicon Valley, along with government mandates for cities to build more housing, is leading to new condo developments but not new single-family housing tracts. Will condo demand increase faster than availability as younger generations dominate home buying?
Currently, Silicon Valley condo prices are flat, while Silicon Valley house prices are increasing. Increased mortgage costs mean most condo buyers are paying more than previous buyers, so don’t assume condo demand has fallen.
If you believe current and future generations of home buyers will increase demand for condos faster than supply, buying a condo in the future will be even more costly. Part of the reason for condo price appreciation lagging house appreciation may be a growing preference for larger homes. Condos are typically smaller than houses. Townhouses are closer to the size of houses and have appreciation rates quite close to houses.
The issue of low-income housing may distort the housing market. Currently, developments that claim to address low-income housing have proposed high proportions of studio and one-bedroom condos. It’s not clear if this is intended to house typically single, homeless people or if it is simply the cheapest housing that can be built. Significantly different appreciation rates are likely for small vs. large condos.
The article also points out that affordable housing mandates increase the cost of building and actually reduce the amount of new housing built. Condo and townhouse development projects are a for-profit activity. Increasing the cost of building will reduce the amount built unless the expected value rises even faster.
Hopefully, mistakes made in the past will not be repeated when considering what will be done about homeless people. Around the 1960’s the “Great Society” program built large low-income housing projects. When you hear about “The Projects” it is typically associated with drugs and crimes. It should not be surprising that a concentration of people having problems will be associated with drugs and crime. If housing is created for people with problems and it is not going to be 24 hour a day supervised housing, previous problems suggest the housing should possibly be widely dispersed and not concentrated, surrounding everyone with a thriving community’s benefits. Mandates to quickly build a large number of “affordable” homes have a substantial risk of creating problems while not helping reduce the cost a family must pay to buy a home.