For the past century, the American dream has often been associated with a single-family home and a garden. However, as land prices escalated, condominiums became the most viable housing option for the urban middle class.

Since the 1960s, condominiums offered the quickest path to homeownership. Data from Zillow in 2022 revealed that in Portland, the price of a condominium was 36% cheaper than a single-family home, with this difference rising to 47% in Seattle.

The condominium boom peaked in 2005 when nearly half of new multi-family units were sold as condos rather than rented out as apartments. However, after the 2008 Great Recession, this market entered a "clinically dead" state.

Condominiums in the US. Photo: WSJ

The first reason for this decline is zoning laws. Most US suburbs prohibit condominium construction. Even in urban cores, less than one-fourth of available land allows for this type of development. To obtain permits, developers must engage in lengthy negotiations for individual unit subdivision and often have to self-fund road and park expansions, significantly increasing costs.

A second factor is tax disparity. If developers construct multi-family units for rental, they face a maximum capital gains tax rate of 20%. However, if they build condominiums for sale, they bear an income tax of up to 37%.

However, the true "fatal blow" comes from construction defect liability (CDL) laws. In the US, buyer protection regulations are so stringent that they push developer risks to an extreme level. The law stipulates that condominium association boards face personal financial risk if they fail to protect residents' interests. This inadvertently forces them to constantly sue developers for even minor defects to recover compensation before warranties expire.

In this litigious environment, insurance companies are uniformly wary. Insurance costs for a rental project constitute about 1% of total capital, but for condominiums, they surge to 3,5-4%. Unable to bear the risk, contractors are forced to prioritize building rental apartments or only develop ultra-luxury condominiums. In Colorado, the fear of lawsuits has led to an 84% decline in the number of condominium developers over the past 15 years.

To address this bottleneck, experts propose a "right to repair" framework. Under this, instead of immediate litigation, contractors would be given the opportunity to directly rectify any defects, reducing court costs and ensuring a safe living environment for residents.

Furthermore, loosening capital mobilization policies also presents a solution. In British Columbia, Canada, developers are permitted to use buyer deposits (typically 25% of the value) to cover construction costs. Conversely, Washington state in the US allows a maximum of only 5%. Some states, like California, have recently begun to pass bills adopting similar relaxed mechanisms, but the path to easing difficulties for homebuyers in the US remains very long.

Bao Nhien (According to Atlantic/Up for Growth)