It can be extremely difficult to understand the true cost differences between owning a condominium unit in a high rise vs. a detached or semi detached home. Sure, listings for condominium units are substantially cheaper than those for detached homes, but just looking at the listing price alone can be very misleading. There are many differences to consider that affect the true cost of ownership which is, after all, what really counts.
Just consider one of the hottest real-estate markets in Canada this year – Toronto. Earlier this year, the TD bank reported that the price gap between detached homes in the city and condominiums had reached an all time high. On the surface this would make it appear that condominiums – in Toronto at least – are the better value. What the report failed to disclose, however, is that the main sources of this discrepancy are two concurrent trends – the trend towards building ever larger single family homes in the city and the opposing trend of the ever shrinking size of condominium units.
When compared on a square footage basis the cost of the two classes of dwellings is remarkably similar. In fact, Brandon Donnelly of the award winning ATC blog in Toronto recently compared the cost of similar condo units and detached homes to find that a detached home (at 20% larger) was actually somewhat cheaper than a condominium unit. Moreover, he found that assuming the homeowner outsourced maintenance work on the detached home, that the costs would be comparable with those on the condo unit. So, based on that limited analysis, a marginal cost advantage goes to the detached homes over high-rise condominium units. When you also consider, however, a somewhat broader financial analysis, the contrast between the two becomes even more stark.
Specifically, when you consider the investment opportunity cost of purchasing a house, detached and semi detached homes are are superior to condominium units. The disadvantage of condo units is two fold. First, you don’t own the land – the greatest source of capital appreciation when it comes to a house. As Mark Twain famously quipped; “Buy land, they’re not making it anymore”. Secondly, because of the limited supply of land for single family homes within the city, and the burgeoning growth in condominium units, supply and demand strongly favours price increases (and importantly; price stability) for single family homes over condominium units. As the TD bank reported this year;
While low supply supports strong prices in the single detached market, condominiums are a different story
It’s been noted elsewhere that ‘The problem with condos is they have a shorter lifespan than homes—their value tends to peak within the first 10 years’. Condominiums are commodities and everyone wants the latest style so older condominiums quickly fall out of favour.
There is also the greater financial risk associated with a condominium. That is, the risk of additional assessments that need to be made because reserve funds prove inadequate to cover repairs and maintenance. This situation happens all too frequently with condominium communities and the surprise can be very costly. Moreover, the homeowner has little to no control over the amount of the assessment and how the money is spent.
It is also worth mentioning that prosperous businesses like Dymon Storage have arisen in large part due to explosive growth in condominiums units. I am personally aware of friends of our family who are spending a couple of hundred dollars a month storing odds and ends that just won’t fit into the rather small storage spaces that are available in most condominiums. This can be a significant expense that needs to be accounted for in order to fairly compare the different housing options and their associated costs.
Finally, ground level housing normally offers greater flexibility regarding future housing needs, and the lack of this flexibility involves real potential costs for the homeowner. Should it not be possible to adapt the home to future needs, there will be additional real-estate costs in the future to accommodate changing needs. For example; many of our clients have needed to repurpose a bedroom or den as a home office, or vice versa, shortly after acquiring the home, and as a result of changing work or family circumstances. Others have needed to refinish a basement to accommodate the return of adult children for a short period of time. These changes can fairly easily be accommodated with ground level units that include finished basements and extra in building storage, while most often these changes would require a move in the case of a high-rise condominium.
In conclusion, when you really dig down into the numbers and seriously consider likely living needs, the true cost of ownership of condominium high-rises is not significantly less than equivalent ground level housing, and may actually turn out to be significantly more expensive.