The Changing Condo Market: Growth, Challenges, and What’s Next

The condominium—or condo—has made homeownership feasible for many who would otherwise be forced to rent. While co-ops dominate the residential market in a few places like New York City, condos are far more common elsewhere across the United States, and they have become the model for multifamily homeownership globally. What about the condo model has made it such a ubiquitous form of property ownership?

In this article, we’ll explore the history of condos and discuss their future.

The Birth of the Condominium

To understand the rise of the condo, one must understand the economic pressures that gave rise to it. Condos didn’t exist until the mid-20th century, but their roots go back much further. The concept of shared property ownership can be traced back to ancient Rome, where families owned separate units within large apartment buildings known as insulae. These buildings were often built from a combination of brick and wood—with the lower floors being made from brick and the upper floors wood. The first floor was often reserved for merchants and businesses as is frequently the case today (though less so than in Roman times). Unlike today, however, the wealthier families tended to live on the lower floors which had better access to water and toilet facilities. That said, the condo as we know it has its roots in 1920s Belgium.

Belgium pioneered shared ownership with a 1924 law that allowed individuals to own units while maintaining collective responsibility for common areas. This framework facilitated urban apartment ownership and efficient land use in dense cities. Belgium’s model influenced similar laws in Europe, spreading to countries like Germany, Austria, and France by the mid-20th century, helping shape the modern condominium concept.

The United States adopted the condominiums out of necessity. After WWII, the Baby Boom created immense demand for housing, pressuring officials to provide more affordable housing options. Urban land values skyrocketed, making single-family homes unobtainable for many. Worse yet,  Co-ops, the most common shared ownership structure in the US back then, generally required large down payments, often as high as 50%. These pressures set the stage for a new kind of housing arrangement.

The first US condominium law was passed in Puerto Rico in 1958, providing the framework for other U.S. states to follow suit. Soon after, the first condo building in the continental U.S. was built in Salt Lake City, Utah, in 1960.

Inspired by Puerto Rico’s successful legal innovation, the US Congress codified the legal structure of the condo in 1960 with the passing of the Federal Housing Act (FHA), which enabled multi-unit properties to be legally divided into individually owned units. Each owner held the title to their individual unit, while also sharing ownership of common areas like lobbies, pools, and gardens without the exasperating demands of a co-op board. This new American condo model would allow for the maintenance of shared amenities without necessitating the intense involvement in condo oversight and maintenance that the co-op and Belgium condominium models required—it was better suited to the American desire to be left alone. 

The Condo Explosion: A Global Phenomenon

The appeal of condos was not limited to the US and Europe. Canada, with its close ties to the US, soon followed—adopting the condo model in the 1970s. Today cities like Toronto and Vancouver are known for their skyline of high-rise condos.

The condo boom then spread to Asia. Hong Kong, Singapore, and Tokyo, where space was at an even greater premium than it was in the US at the time, saw condos (often referred to as “flats” or “apartment complexes”) embraced condos for largely the same reasons the US did. Here is a breakdown of the percentage of the  

Fun Facts About Condos

Let’s take a break from the serious and look at some interesting and quirky facts about condos that you might not know:

• Condo Cities: Miami, Florida holds the crown for the city with the most condos per capita in the United States. Over 90% of residential buildings in Miami are condos, driven by the city’s popularity with foreign buyers and real estate investors.
• Vertical Living: The world’s tallest condo tower, Central Park Tower, located on Manhattan’s Billionaires’ Row, rises a staggering 1,550 feet into the sky. Condo units in this tower sell for tens of millions of dollars, making it a playground for the ultra-wealthy.
• The Most Expensive Condo Unit Ever Sold: The most expensive condo ever bought was a penthouse in New York City’s 220 Central Park South Tower, which sold for $238 million in 2019. The condo was purchased by Ken Griffin, the founder of the hedge fund Citadel. The condo offers 360-degree views, with Central Park below and the New Jersey and New York suburbs in the distance.

The Future of Condos

In emerging markets across Asia, Africa, and Latin America, condos are becoming a key part of their housing landscape. Cities like Bangkok, Nairobi, and Santiago are seeing rapid development of condo projects aimed at middle-class populations who want access to urban amenities without the high costs associated with single-family homes.

While the adoption of the condominium ownership model continues across the world, US condominium building has slowed as have condo sales. In many parts of the U.S., legal challenges and shifting market preferences have deterred new condo development, particularly in states with stringent condo defect laws. Builders are increasingly opting for rental units to avoid the legal liabilities associated with condo projects.​ 

The following graph from the urban institute illustrates this point: The Housing Market Needs More Condos. Why Are So Few Being Built? | Urban Institute

However, the concept of owner-occupied multifamily housing remains a fixture in urban areas. In cities like Miami and Honolulu where condos continue to play a pivotal role due to limited land availability and high demand for ownership​. Elsewhere in the US, reforms to condo liability laws, like those in Washington, could help revive the market and balance the need for financially feasible long-term housing options​.

Conclusion

Condo building development may have slowed in the US, but they will remain a fixture in our real estate market nevertheless. Outside the US, the condo model is still gaining ground. As cities worldwide continue to grow and space becomes ever more precious, condos are poised to remain a critical element of housing solutions, offering a flexible and sustainable option for both residents and investors alike. The key challenge ahead is finding a balance between legal frameworks and market demands to ensure consumers who wish to own their units can do so: Policy-makers and legislators need to address condo defect law. While it is important to ensure building quality, the current balance is off. 

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published October 24, 2024