Revisiting stories: condominiums as a tricky land tenure form, as maintenance costs rise over time
In 2007, I testified before the Zoning Commission on updating the city's zoning code, after the approval of an updated Comprehensive Land Use Plan at the end of 2006.
One of the points I made is that there are unintended consequences of adding housing to commercial districts, because as housing ages it needs to be "refreshed" and maintained, and those costs increase over time.
Owner occupied housing--condominiums and cooperatives--can pose a problem if costs run higher than the owners willingness and ability to pay maintenance financial calls.
Past blog entries:
-- "Tower renewal: The Watergate and Southwest DC, and Toronto," 2011
"Deeper thinking/programming on weak residential housing markets is required: DC example, Anacostia," 2012
-- "The long term potentially negative aspects of condominium buildings as a dominant housing form in cities," 2016
-- "Revisiting the need for "Tower renewal" (multiunit) programs," 2017
This is an issue with housing in the UK too, where buildings need to replace cladding that has been determined to be a fire hazard ("Cladding scandal: flat owners fear bills of up to £45,000 for safety failings," Guardian). Units are unsellable if the building can't be certified as safe, and owners are left with nothing
I suggest that communities look to the Toronto Tower Renewal program, which provides a variety of loan and other support programs, to provide assistance to multiunit buildings as they age, and maintenance demands increase. Toronto created the program out of a recognition that almost 50% of the city's total housing is in multiunit buildings, and that deteriorating buildings lead to declining neighborhoods.
-- Tower Renewal Partnership
-- "Reassessing the Recent Past: Tower Neighborhood Renewal in Toronto," APT Bulletin: Journal of Preservation Technology, 2011
-- Tower Renewal and Retrofit Finance, Tower Renewal Partnership
Mount Pleasant DC. This has come up in DC's Mount Pleasant neighborhood. A resident of the Renaissance Condominiums, a striking set of historic apartment buildings that help to define the community, makes an abhorrent suggestion in a letter to the editor ("A gentrification test in Mount Pleasant") published in the Washington Post that the city's Historic Preservation Review Board allow the building--historically designated--to tear off its architecturally distinctive balconies because then maintenance would be cheaper.
It's unsound public policy to encourage a building's owners to remove significant architectural features, even if costly to maintain. Such action could negatively impact the value of individual units. It would definitely damage the architectural character of the neighborhood and the value of the historic district and historic designation.
Rather than encourage unsound building management practices, it's better to provide a wide array of financial support programs so that building owners and managers so that it's easier to make the right decisions about building maintenance.
Many cities, including DC, have such programs, but typically only for energy efficiency programs. Such programs need to be extended to address other needs.
And it does once again call attention to the long term effects of condominiums as a land tenure type as buildings age and the costs of maintenance may exceed the financial wherewithal of some or all of the property owners.
Labels: apartments, commercial district revitalization planning, historic preservation, multiunit residential, neighborhood planning
posted by Richard Layman @ 7:31 PM&Permanent Link
21 Comments:
A question appeared a few weeks ago on the Historic Washington group email asking if Historic Districts displaced Black people.
I was the only one to respond, saying that historic districts don't necessarily displace AfAms, there is a question about displacement of low-income persons. There seems to be very few resources to address how low income people who are owners (not savvy landlords), such as the condo owners are to maintain expensive architectural details.
In future, should the city not encourage tenants of historic buildings to not buy them, just to avoid situations like this? Should ownership be turned over to the city to make a sort of public housing, but then that creates more problems.
What I believe is being avoided is admitting that it is more expensive to maintain historic properties. Low-income people can live in a historic apartment building provided it is operated by a landlord who has figured out various tax incentives and ways to get money from sources other than their tenants (Section 8). There isn't a scheme for people with little money (and maybe minimal education) who own their property.
Hmm. A few months ago when my computer crashed, I didn't bother re-signing into my yahoomail account, as a kind of vacation, and that's where my HistoricWashington email goes.
Anyway, when I was working to create a historic district for the H Street neighborhood in 2001-2004, I advocated for the creation of a "revolving fund" to provide financial support to people who needed it to maintain their properties.
Because yes, maintaining properties to historic standards costs more money. And this is a hardship for people who make less money.
I still can't believe that preservationists didn't create a revolving fund in DC, as the best practice knowledge of such is c. 1975. I know my mentor educated me about them as soon as I got involved in HP around 2001.
Later the city created a program that remains mostly unfunded, except for Anacostia. But it is geographically based, and I argued from the time before it was created that it should be income based, not geographically based, for obvious reasons.
Anyway, in a strong market like DC, the cost of maintaining historic properties comes back in higher property values.
That's the opposite of the case in a weak market like Detroit, and in a place like Baltimore it depends. In a weak market neighborhood (Pigtown, to some extent Bolton Hill), the housing prices aren't high enough for the extra costs to come back in higher value, whereas in a stronger market neighborhood like Reservoir Hill or Charles Village they are.
In Cleveland, the Cleveland Restoration Society will fix up houses and sell them at a loss, but with a maintenance easement, out of the desire to stabilize historic neighborhoods.
But be that as it may, if you're not interested in selling your house, it doesn't matter if the value goes up, when it's an economic hardship to pay the higher costs. (Taxes rise too.)
(E.g., our bungalow isn't in a designated neighborhood but it dates to 1929. In the fixing it up to rent it, I had a window rebuilt. It cost like $450 but it could have been double that, where I probably could have bought a vinyl window for under $200--sadly the previous owner did replace some windows with vinyl windows, something we'll have to deal with at some point).
Again, to maintain economic diversity in historic neighborhoods, for almost 20 years I've advocated for revolving funds.
The thing about HP that often criticized on sociological grounds -- HP is gentrification, etc. -- is the failure to recognize that in weak market cities, you need various "confidence mechanisms" (Rolf Goetze _Building Neighborhood Confidence_) to get people to stay in otherwise declining neighborhoods, and not just stay, but reinvest in and maintain their properties.
(I argue too that "right to the city" arguments often fail to acknowledge that the city isn't just for people who already live there.)
For city governments, the creation of historic districts does this pretty cheaply. The primary costs a city bears are administrative--creating some laws, having a regulatory process and staff. And some signage, maybe printing brochures, etc. Oh and if they go all out, maintaining historic street furniture like street lights.
Otherwise the most significant costs -- fixing up otherwise declining properties -- are borne by the property owners.
I argue that HP saved the city during the many decades that residential choice trends did not favor city living, by providing stabilization mechanisms for otherwise declining neighborhoods.
And something people like us don't necessarily recognize too is that mortgage interest was so much higher. Eg a mortgage in the 1970s in Capitol Hill could be 15% or more. Nothing like now. People really sacrificed, maybe not so much in neighborhoods like Dupont Circle or Georgetown, but in Capitol Hill definitely.
So all those various people saved neighborhoods of historic building stock but not always designated (eg Columbia Heights) and kept those neighborhoods going, and then bam, around 2000 trends changed where living in the city was seen as co-equal to other choices and demand increased significantly.
Of course, with a relatively fixed housing supply and increased demand, prices shot up. And the only color that really mattered was "green".
Over time, people of lesser means were displaced, regardless of race. Unless people owned their property. While some may have been forced to sell, for many who did sell it was a matter of cashing out.
https://www.flickr.com/photos/rllayman/49760822316
The thing about the race issue is that in a neighborhood like Manor Park, as households aged and wanted to sell or move (there was the whole "American Dream" of PG County too), the next generation wasn't interested in living in the city, and in those neighborhoods ("that's where my grandma lives, why would I want to live there?").
And wrt displacement, people who moved to the city who weren't motivated to get the highest paying jobs, are the next group to get displaced, as higher income households bid for houses.
Eg on our block on Quackenbos, fully renovated houses depending on the size of the lot etc. can sell for between $850,000 and $1 million -- in 2008, prices were under $400,000. Granted the lots tend to be pretty big (ours is 1/6 acre).
There is no f*ing way we could buy there now. And that's likely the case throughout DC, except in the distressed neighborhoods in Far Northeast and Southeast (and neighborhoods like Hillcrest technically are Far Southeast and not cheap either).
But now the people who move into the city aren't interested in the volunteer social and community investments that people like us made. They just want things to work and to get their meals delivered and for the Whole Foods to be down the street.
(Terrible I don't have my 6th St. NE house anymore. It's now 4 doors down from Whole Foods.)
Multiunit buildings are a whole other ballgame.
I first got clued into this when I fell in with some artists who got to buy units in the Mather building across from MLK Library.
The building was renovated around 2002.
https://www.washingtonpost.com/archive/business/2001/08/29/mather-building-renovation-set/352e44ee-3eff-4764-a5e2-e2e8caa98cef/
There was artist preferred housing units as part of it, as part of the Downtown Arts Plan.
Anyway, over time as costs increased to maintain the building, there was tension between the owners of the full price units and the artists over constantly increasingly the monthly condo fee, because the artists income couldn't really handle it.
It made me realize that fractional ownership forms for housing are problematic, that they work best only at the outset of a building's useful life, when everything works. It's when things start breaking down and need to be fixed (just like WMATA) that it becomes very costly.
Although plenty of new buildings have big problems too, like the super duper condos in NYC.
https://www.theguardian.com/artanddesign/2021/feb/07/supertall-skyscraper-new-york-432-park-avenue-rich
(And that's what the great book _Condominium_ by John McDonald is about, wrt Florida's housing boom.)
And people of lesser means don't have the ability to withstand those higher costs. Plus they aren't usually amortized, you're supposed to pay the cash call in one payment.
And you see this problem crop up with condo buildings in weaker markets, like Prince George's County or Southeast DC.
That's with crappy buildings in weak markets.
Historic multiunit buildings in successful neighborhoods are another issue.
Well there isn't a revolving fund for low income homeowners not in Anacostia so that doesn't help them. Regardless if there should be, there just isn't and I think that reflects a disinterest to address that problem.
Condos have issues. I don't know if it is still a problem, but my aunt's condo in PG, people weren't paying the $65 monthly fee. So they would park their cars on the adjoining street, creating a hazard, to avoid getting towed for failure to pay. Cars still park along the street, but I don't know if the nearby apartment complex is also partially to blame there.
I own a rental in Pigtown. I put more into it than I think I can sell it for (and the market is currently good). Because we are looking to buy a new primary house (still haven't found one yet) I'm playing with the idea of selling the Pigtown house just to expand our possibilities. If we had $70K more to play with we would have gotten a certain house we wanted. It's almost impossible to build equity in B'more like DC.
I don't know if the buildings need to be publicly owned.
But people need to set aside more money than they do for longer term maintenance.
This is an issue with coops in NYC, etc. I guess it's one of the reasons that coop boards have a bias for high income owners.
https://cooperator.com/article/maintenance-increase-strategies/full
And assessments of the building's maintenance history and the planning out of future costs need to be a part of the process. (Maybe it is, I've never looked to buy a unit in a multiunit building, let alone an older, historic building.)
I argue that there need to be more types of public financial assistance programs in place to help the individuals and the buildings.
Broader than the Tower Renewal program.
This is justifiable on the basis of maintaining historic architecture as an element of a city's uniqueness.
Econonmics of Uniqueness: Investing in Historic City Cores and Cultural Heritage Assets for Sustainable Development
https://openknowledge.worldbank.org/handle/10986/12286
This is an interesting case of a kind of market dysfunction (although it isn't really a dysfunction) in a strong real estate market.
It's not market dysfunction but the fact of the market, that some building features generate independent ROI and others don't.
Maintaining certain architectural or building elements in a historic district when it's a multiunit building doesn't necessary have a positive ROI in terms of housing value.
It's like the articles about what types of housing renovations pay off in terms of returning close to, equal to, or more than what you paid for them (e.g. kitchen, bathroom, etc.).
Replacing the shingles, a water heater, even a furnace (although replacing a furnace is a different issue from A/C) is a basic maintenance function that potential buyers don't rate as a premium. It's something that the house should have anyway.
They feel differently about a Viking stove, or original windows, or a 1920s Seafoam Green double sideboard sink (and wrt that, some people see it as a value, others as something to tear out) or original wood floors, etc.
https://www.flickr.com/photos/rllayman/27688529553
Basic building elements like mechanicals or facade repair have to get upgraded every so often, but in the case of a multiunit building unlike an individual house, the increased costs for maintenance and/or maintenance to historic standards, don't come back in higher housing values.
It's like Maslow's hierarchy of human needs. A building's "physiological" and "safety" needs are seen as a basic requirement, not something that you should be paying extra for.
One of the reasons that apartment building owners have gotten their buildings designated is to be eligible for the historic preservation tax credit, which they use the money in credits towards the renovation cost.
(You see this here and there across the city, with apartment buildings being singly designated while the area around them isn't a historic district.)
The Trump Administration's changes to the tax code f*ed up the program somewhat, making it less valuable up front in generating money for improvements.
In historic renovation of "white elephant" properties, historic tax credits and easements tend to be key funding streams.
2. With multiunit buildings that are owner owned -- cooperatives and condominiums -- I'd come up with a historic preservation tax credit program to reduce the costs for maintenance items.
Primary residences have never been eligible for the federal program. (They may be for state and local programs.)
Making multiunit primary residence buildings eligible would be a way towards dealing with this.
And making it not a one time program, but available for multiple applications, but only for substantive systems upgrades, like what the Renaissance Condominiums in Mount Pleasant need to do for facade renovations.
Origin story of Preservation Maryland's revolving fund dates to 1973.
https://www.preservationmaryland.org/the-origin-story-of-preservation-marylands-revolving-fund/
Lee Adler of Savannah (he merits a mention in the book _Midnight in the Garden of Good and Evil_) pioneered the concept.
https://www.csmonitor.com/1984/0531/053119.html
The thing about the various renovation programs supported by the Cleveland Restoration Society (and their regional affiliate) is that advocacy pressure by the city (even before the Kucinich years I think) on the banks led to the banks putting aside monies on "community reinvestment" grounds to help fund it. The city threatened to remove its bank accounts (like property tax receipts, etc.).
https://www.heritagehomeprogram.org/
https://www.heritagehomeprogram.org/what-we-do/loans/loan-details/
Forgot to mention brick sidewalks as a city cost, that isn't cheap.
And an element in housing turnover that appears like "gentrification" but isn't is when the owners die (eg our house was left to the owner's church). (Many of the houses on our block on Quackenbos turned over that way.)
________
Wrt "only Anacostia" that's because of DC race dynamics etc. I wish our Planning Office and preservation advocates were better attuned to the nuances in how all this stuff works.
Fwiw, when the program was first proposed I argued that it was way too narrowly construed.
But I probably didn't raise the Cleveland program, community reinvestment banking initiatives, nor revolving funds.
DC's historic preservation community isn't particularly network or innovation focused. Mostly I've talked into the wind for 20 years.
When NTHP did their conference in DC a few years ago, I argued that they really blew it.
That they should have positioned the conference as a deep dive opportunity to evaluate preservation practice in one city: the successes, failures, and missed/opportunities based on 35 years (from the creation of the local ordinance) to 65 years (the creation of the federally designated Georgetown Historic District) of historic preservation practice in DC.
DC has the strongest law in the US. But even so it's not perfect. And the law isn't enough, you need complementary programs, that distinguish between types of properties, strength of market, commercial district versus residential, etc.
Fwiw, in Salt Lake the State Legislature forbids the city to create new historic districts. And there are big tear down issues.
The condo fee thing is interesting. A problem not just with lower income or weak market properties. Was a big problem during the foreclosure crisis.
Most condos have the legal ability to seize properties for failure to pay fees. But that doesn't matter much if the properties aren't high value and able to be sold at top dollar.
From the Thaler/Sunstein "nudge" perspective, wrt the payment of condo fees I would
(1) require the payments be made on an automatic withdrawal program
(2) ability to shut off the water and cable (usually these are charged to the building, which then subcharges) immediately when condo fees aren't paid.
Otherwise the problem builds and builds.
Excellent piece and comments. My initial thoughts:
1) didn't the city help the owners purchase the bldg in the first place? It has been a rousing success, yes, but is ongoing subsidy the goal, esp of owners? It may well be, but is that fair? Should it be citywide subsidy of all persons under a certain income threshold instead? Ofc then induced demand, and you would also get like poor college kids or interns etc from wealthy families swept in
2) Mari's comments are very interesting. Baltimore is booming the last 6 months but still so cheap - and maintenance costs are the same there despite much lower rents etc
Why not house college students and "temporarily" low-income young people?
I went to London with a platonic friend (now husband) for a dance exchange. We stayed with a young man who lived in council housing/ public housing and his roommates in Wimbledon. Our host was working at some financial firm. From what I could gather these were former and current graduate students. I remember seeing a workman, get into his work van to go off to work from the kitchen window, which looked down on the building's parking area.
This stay convinced me that low-income doesn't have to mean horrible and dirty. It seemed the building had a functional mix of low-income households (working, students, young people starting out). This is completely different from a visit to my sister's (before she moved into a house) in a low-income garden apartment which held a mix of dysfunctional and semi-functional (my sis) and filled with tiny roaches.
The problem with US public housing is removing households once they are no long low-income.
Baltimore is cheap for good reason. A functional minimally corrupt government would add value.
other themes:
1. There is a push for ownership by low-income people. The concept is 1) ownership gives you a chance to get "equity" and benefit from rising prices and 2) home ownership is some sort of magic secret sauce that will make you life good.
2. Pushing low-income people into ownership can be a disaster. The Columbia Heights is one example, plenty of others. "affordable condos" are another as you get to pay taxes and fees but your return is inherently limited as you can't sell at market price.
3. A lot of the complaints are finance. If you're low income - or rather if you are intermittent income, or your income comes from the government, you're cut off from almost all finance outside of 20% credit cards.
4. And for obvious reasons, a lot of low income people don't have a bank of mom and dad.
5. In terms of Mari's last point, I'd argue that the current affordable schemes in DC basically do that -- as the inspector general saw the best thing is rent to low income medical residents. I'd argue the problem isn't that public housing/afforable housing kicks out high income people but that there is zero turnover except for death.
But yes this is where a public bank could offer improvements loans. Even rates at 5 or 10 percent would help versus what you can put on a credit card.
Plus Baltimore's property taxes are roughly double DC's. Although you could argue in terms of not necessarily monetary value but actual value they are equal.
Wrt college students etc. Years ago dealing with H Street stuff, a mother if a college student wanted my help to get her son into a subsidized unit in the building on the 200 block of K Street NE. I admonished her, saying that isn't what the units are intended for. She sheepishly agreed.
3. Council housing, like social housing elsewhere in Europe, Singapore, and maybe Toronto, is for people of lesser means, not only for the absolutely poorest. But it got messed up some through privatization.
Neighborhood wardens schemes were developed afterwards because of a failure to manage social problems that had been managed when the housing was run ny the city.
Municipal Dreams is a blog and book on Council Housing in England/UK.
4. Charlie has mentioned Singapore social housing in the past. They run it as a way for individuals to develop equity.
One of the benefits of having your property is you can work from home, grow vegetables, etc. HUD rules mostly prevent all that.
And managers haven't been innovative. Sure some developments have homework help centers. But not "business centers", classrooms, conference facilities, catering kitchen that can be used by small businesses, workshops, etc.
I tried to interest public housing managers in bundling a bike, lock and helmet into a lease (complemented by highly secure parking) but I never got much of a response. Since bikes are a cheap form of transportation...
I've written entries about the high cost of maintaining owned properties for the poor. Mentioned Rebuilding Together (+surveys from the Joint Center for Housing Studies) and Neighborhood Housing Services (big in other cities, not so much in DC) as mechanisms providing assistance to low income and senior SFH property owners (not multunit).
In the late 1970s, DHCD published historic preservation manuals for Anacostia and LeDroit Park, I presume based on the assumption that lower income owners would need more guidance.
@Mari - I agree but i guess the issue is the city can't afford to subsidize the rents of every low income resident in the District? I have long advocated for shutdown of all benefits programs (and related bureaucracy) and instead give that cash directly to every poor resident. There are approximately 110k residents below the poverty line if you give them all 12k/yr that's only 1.32 billion a yr out of a 17 billion budget. Ofc Ward 9 would cry foul about losing all their city jobs tho
and yes Baltimore govt is a travesty! I was shocked to read this wk they are just now going to digital paychecks!
Because the discussion has veered into social housing. This is on Vienna. Their/there income requirements must be met only at the outset. Economic diversity within housing is a good thing.
https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_011314.html
https://www.depher.co.uk/
Free plumbing in Lancaster, UK for low income elderly.
2nd tier downtowns/inner cities jumping! Urban Baltimore up 34pct
https://www.bloomberg.com/news/articles/2021-02-09/housing-boom-sweeps-u-s-cities-that-aren-t-nyc-san-francisco?utm_campaign=socialflow-organic&cmpid%3D=socialflow-twitter-tv&utm_content=tv&utm_medium=social&utm_source=twitter
Thanks for this. It makes sense to me.
Yes, the absolutely highest priced cities have issues (so does London for example) although I see from an article in the WSJ that there is a lot of buyers remorse concerning quickly bought suburban properties by city dwellers early into the crisis.
But once urban living got re-valorized, the long term values tend to hold I think. That was certainly the case with DC after the last recession.
Of course, the big reason is that the housing supply is relatively fixed, definitely for SFH, although not for multiunit. And regardless of the additions to supply, demand is still greater.
I keep writing that e.g., DC's SFH neighborhoods were mostly constructed before 1930, when the US population was 40% of what it is today.
We haven't increased the city's housing supply 1.5x since to reflect today's population. Not to mention how household size has shrunk, including large numbers of singleton households. (cf Klinenberg's book on this. I think it's called _Solo_.)
2. Utah is a fast growing state but it's pretty much committed to sprawl. There is a lot of new construction in the city, but it's not particularly dense, except in the core, and in the Sugarhouse neighborhood (which is pretty close, not quite 2 miles away). I can't see them getting ahead of the game.
The Salt Lake Tribune has an article about how housing advocates want the Redevelopment Agency director to resign, because the RDA supports a lot of market rate housing.
... the biggest lesson I learned from analyzing CDCs in DC, in particular H Street is that "building better housing for poor people in and of itself doesn't improve broken micro economies, although it does produce better circumstances for those who are housed."
It's the job of an RDA to plan for social housing as part of the mix, but it shouldn't comprise the total agenda. After all, in a market economy, the managers of a city have to aim for a land use policy that balances equity and revenue generation.
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