Hell, No, Not So Low
New York co-op boards are refusing to let owners sell their homes if the price is too low. This is just one of the problems of widespread apartment ownership.
Even here in DC, where the housing market is relatively robust and inventory is tight, there's a sizeable contingent of houses that just sit on the market . . . and sit . . . and sit . . . while the owner waits for that very special lunatic who wants to buy their home for $100,000 over the market price. Elsewhere, of course, the problem is worse: you can add in banks who just can't bring themselves to admit that they lost $100,000 on a split-level with two-car garage.
And in New York City, you can add yet another wrinkle: the co-op board who won't let you sell unless they like the price. In a co-op situtation, you technically don't own the apartment; you own a share of the co-op which entitles you to the live in the apartment. And the other owners have veto power over who you can sell to:
Co-op boards aren’t required to disclose the reasons they reject applications, which makes it difficult to determine just how often buyers are being turned down because the offer isn’t as high as the board might like. But interviews with more than a dozen Manhattan real estate experts, including brokers, board members and real estate lawyers, suggest that boards are saying no more often as they seek to maintain the value of the apartments in their buildings amid a sea of price-conscious buyers.
“In the last month,” said Aaron Shmulewitz, a real estate lawyer, “I must have had 5 to 10 questions about that from various boards that have turned down or have contemplated turning down purchases for price, as well as various purchasers who contacted us for being turned down.” Mr. Shmulewitz oversees the co-op/condo practice at the Manhattan law firm Belkin Burden Wenig & Goldman.
“I don’t know if prices have gone down, or if boards are expecting the price to go up,” he added. But the incidence of board rejections because of low sales prices has been “markedly increasing.”
The article goes on to point out that this sort of thing can backfire: having four apartments in your building sitting on the market for months doesn't look all that much better than a too-low sales price. And it doesn't do anyone any good if a financially strapped owner stops paying his maintenance fees. But it's not necessarily irrational on the part of the board. Board members who, say, want to refinance rather than sell are probably better off with comparable properties languishing on the market, rather than closing at a price which will lower their own appraisal.
This is one of a host of issues that have been created by individual ownership in multi-family buildings, a trend which only really started in the 1970s in New York, and in the 1980s and 1990s everywhere else. The co-op board thing is a little funny, and mostly local to New York (although DC, and I believe San Francisco and Chicago, also have them.) But here's one that isn't: how do you redevelop a co-op or condo? I can't rebuild my apartment on the fifth floor while you keep your apartment on the eighteenth floor just as it is.
As I understand it, the answer mostly seems to be "you don't". And while it may make us happy to think of all those lovely New York pre-war co-ops staying with us for centuries, the same forces mean that we're stuck with all those towers o'ugly that were build in the 1970s and 1980s. Those concrete castles are aging badly, both in their style and in their bones. Expect to see spiking maintenance fees and a lot of very disgruntled owners.
This has particular implications for cities like DC, which have a lot of undistinguished low-rise multifamily housing dotting the landscape. Even under the existing height limits, many of those buildings could be made taller--but only if they're rentals. To be sure, the rent conrol issues are daunting, but they're at least theoretically surmountable. The condo issues aren't.
Yes, in theory, all the owners could agree to sell. And in very small buildings--the two and three unit conversions of formerly single-family homes that you see dotted around New York, DC, and a few other cities--that is probably a real possibility. But anyone who has served on the tenant association or co-op board of a larger building will tell you that in real multifamily situations, there's no chance you'll get 100% agreement. Someone will insist on staying in their apartment because their beloved cat died there, or they just spent $40,000 on custom furniture, or from sheer pig-headedness. That veto power has some benefits--the people who want to stay often have real, deep attachments to the building community which will be disrupted if it's demolished. But it also has huge costs.
Effectively, every co-op or condo development freezes that particular land use as if in amber. Obviously, this makes the city's housing market much more rigid, and often, much more expensive. It also preserves a lot of ugly, undistinguished buildings that the neighborhood would be better off without--not even because this is how most of the residents want it, but just because we can't get unanimity to change it.
There are legal patches we could enact to ease some of these burdens--allow a majority or a supermajority of owners to sell off a building, for example. And we should be thinking about them now. Because in the next decade or so, we're going to be confronting the problem of what to do with outdated buildings that should be torn down, but can't be. And that will be easier to do if we already have a legal mechanism to deal with it.