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Part 2: How Affordable are Condos?

Affordability Varies with Floor Area

Kristine Yao    |    Property Valuation

In the first part of our condo affordability blog, we examined how affordability varied by location. Some central locations proved to be unattainable for traditional condo buyers seeking affordable options, but what if we also compared housing costs relative to its size, or price per livable square foot? It doesn’t come as a surprise that condos located within the city’s core sell for sometimes hundreds of more dollars per square foot than centrally located single-family detached homes in 18 of the largest 25 condo markets1 given the higher land, material and construction costs of building high-rises in prime downtown lots. But the median price per square foot of condos located in denser suburbs outside of the five-mile radius was also more than the median price per square foot of outer single-family detached homes in 11 of the markets (Figure 1). Atlanta-Sandy Springs-Roswell, Ga. recorded the highest percentage- point difference (22.0 percent) in median price per square foot of outer condos compared with median price per square foot of outer single-family detached homes. Buyers were willing to pay $19 more per square foot on a suburban condo not quite two-thirds the size of a single-family detached home. Houston-The Woodlands-Sugar Land, Texas recorded the second highest percentage-point difference (19.0 percent), with buyers paying $18 more per square foot on a suburban condo roughly half the size of a single-family detached home. The premium pricing seen in these markets reflects the higher construction cost per square foot, additional amenities, convenience and low maintenance lifestyle that comes with living in a condo.

It is important to note that the above analysis does not include the portion of the purchase price going towards the land value for single-family detached homes, whereas the land share of condos is much smaller. If we exclude the land value and calculate the price for only the structure, then the resulting price per square foot of single-family detached homes would be lower, thus increasing the premiums paid for condos relative to size in those 11 markets. We also did not consider the additional condo association fees that are due monthly, and how these fees compare with the costs of maintaining a single-family detached residence. A deeper analysis of the “all-in” costs of ownership for both property types is needed to better understand their effects on comparison pricing.

Condos are not just attractive for first-time buyers seeking affordability. Urban dwellers and retirees with more purchasing power are also drawn to condos and are willing to pay price premiums for both the location and lifestyle condos offer. Prices will continue to rise as long as there is low inventory in the condo market and heavy demand coming from multiple demographics.

[1] The 25 largest condo markets were defined at the Core Based Statistical Area (CBSA) level and determined based on total condominium and housing cooperative unit counts.

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