Brand New Condos are NOT Luxury Housing
Spoiler: Single-Family Homes are LA's true luxury housing
Over the last few years, a its becoming more common in California’s housing discourse to see a wider spectrum of folks acknowledge that, in fact, we do have a housing crisis. But many still disagree about how to solve this housing crisis. For example, if you read this blog, you know I think we need to loosen regulations that allow for more home building. This perspective has been slowly gaining steam, but there are many who are still skeptical that it will work.
One typical response of skeptics is the observation that the new housing being built is “luxury” housing that is not helping anyone but the wealthiest find housing. This point has been articulated everywhere, from prominent LA Politicians to hardcore anti-housing advocacy groups. In my experience, it also has a decent amount of resonance across the political spectrum with ordinary folks who are watching their rents and home prices continue to go up, even as new buildings are being built throughout the city. The intuitive response to seeing this change around you.
A typical response among housing advocates has been to argue that actually, luxury housing is actually beneficial (as seen in pieces by Nolan Gray and Jerusalem Demsas) After all, the more supply of housing you build, even if that new supply is expensive, ends up soaking up some of the demand for new housing in a city. Demand for housing in cities has gone up over time for many reasons:
Children grow up and move out of their parent’s house
Remote work has meant that folks want to consume more housing, as they spend more of their time in their house and less at the office
Many American cities are constantly attracting new residents seeking opportunity, both from other parts of the US and abroad (this is especially true in LA)
Housing markets are by nature dynamic: something is only luxury as long as something nicer has not come along to replace it. When demand for a good goes up and supply does not come online, prices will go up. On the flip side, if you overbuild new housing, it will lead to existing housing to become relatively less in demand, meaning that it will become relatively more affordable over time (the same way used cars do). In cities that keep building over decades, the luxury housing of previous decades becomes the affordable housing of today. Some of my personal friends recently moved to Tokyo; their they found they could live in a nicer and newer four-bedroom apartment for only slightly more than they paid in LA for one bedroom. A big reason for this is that Tokyo is constantly building new and better housing, while LA is determined to preserve housing from previous generations.
But the reality is that while I 100% believe this supply and demand argument is true, I also think there is a more straightforward point that this misses: calling condos luxury housing is a misguided way to look at the housing market, because those new units seldom are seldom entering at the “top” of the housing market.
Why is this? Housing markets can be better understood by thinking about two markets that come together in housing: the market for structures and land. Every type of housing unit that someone buys is a combination of these two market dimensions. If we simplify housing into just three classes, condos, townhomes, and single family homes (SFH), here is how they would break down along those two dimensions:
Of course, there is a lot of unique variation within these two broad categories: structures have value both because of the size of the home, but also how new the material and plentiful the amenities are. On the flip side, the land is valuable due to the house's location and the amount of land that the home consumes. But the point here is to create a crude and simple mental model of the housing market.
Because condos are traditionally part of dense buildings that build up to make more efficient use of land, they will have much lower land costs than townhomes or single-family houses. The larger the condo, the more value the structure will have, but the land value, by definition, will be lower. Assuming that a condo and a single-family home will be located in an identical location, the single-family home will be more expensive almost every time. There might be exceptions where the single-family home is unusually tiny or decrepit, or the condo is new and has high-quality amenities. New Single-Famly Homes though
UCLA Housing researcher Shane Phillips confirmed this in 2019, looked at every neighborhood in Los Angeles, and found that in almost every case, the median price of a single-family home was much higher than the median condo, and often by a large margin. As far as I can tell, that fundamental insight still holds today in LA. That said, I thought it was worth taking this further and looking at whether specifically brand-new condos were more expensive than existing single-family homes in LA. Or put another way: do new condos cost less than the median used single-family home, including ones built more than 40 or 50 years ago?
While there is no good way to find good data on the median price of a median condo on the neighborhood level, partially because so few exist, I spent some time digging on Zillow to come up with a simple, unscientific data set of 13 condos. I had two criteria for searching:
I was sampling only from condos in LA city or adjacent cities built in the last five years (since 2018)
I excluded condos that were actually townhouses with HOAs, by looking at the description on Zillow and seeing if it was self-described as a townhome. I did this because townhomes are in a gray space between condos and single-family homes and get classified on both sides of the ledger, which would complicate the dataset.
I found that, yes, in most cases, even brand-new condos were still cheaper than the median existing single-family home in the same zip code. Existing single-family homes may not look luxurious because many are older, decaying houses whose value is primarily in the land, not the structure itself. But the underlying land’s value (which is not something you can quickly ascertain driving around) is what is driving the cost:
Within the sample, there was some genuinely interesting variation:
Four out of the condos were less than two-thirds (67%) of the median single-family home in the area:
2939 Leeward Ave in 90005 (McArthur Park)
10777 Wilshire Blvd in 90024 (Westwood)
118 S Onizuka in 90012 (Little Tokyo)
1426 S Hayworth Ave in 90035 (Pico Robertson)
Another four of the condos were between 67% and 90% of the median single-family home in the area:
400 S Broadway (1 bed) in 90013 (Downtown)1
2391 Roscomare Rd in 90077 (Bel Air)
518 E Windsor Rd in 91205 (Glendale)
204 Mockingbird Ln in 91030 (South Pasadena)
Another four of the condos were around the same price as a median single-family home (between 90 and 110% of the median):
178 S Euclid Ave (1 bed) in 91101 - (Pasadena)
203 Cedar Crest Ave in 91030 (South Pasadena)
39 S Los Robles Ave in 91101 (Pasadena)
400 S Broadway (2 beds) in 90013 (Downtown)2
Only one condo was significantly above average, which I suspect is partially driven by an artificially low median single-family home price in that zip code:
178 S Euclid Ave (3 beds) in 91101 (Pasadena)
It’s worth noting that these are raw prices: they do not include HOA fees. I debated finding a formula to incorporate HOA fees into the price but ultimately decided against it. I did so because many of the HOA fees are also faced by single-family homeowners in the form of maintenance, repairs, and home insurance premiums. Trying to estimate what portion of an HOA fee pays for these costs would be very labor intensive, and in many cases, it would not significantly change the cost ratio.
Why Does this Matter?
Why do I go into all of this detail? First and foremost, to have an informed conversation about housing in LA, we need to start from a shared understanding of facts, and the fact that existing housing often has a higher price than new condos is essential. Those who have a principled objection to “luxury” housing should be MORE supportive of allowing redevelopment of our housing stock, especially our single-family homes.
But more importantly, the amount of existing single-family homes in LA is enormous compared to the number of new condos. One of the biggest takeaways of this exercise for me was how few new condos are on the market: for every new condo I found built since 2018, there were about three new single-family homes built since 2018. Seeing this made the idea that LA is awash in new condos seem silly. It is still the case that in LA, 40% of the housing stock is existing single-family homes:
While LA’s housing crisis may be complex and multifaceted, the fact that so much of our housing stock is luxury housing is the simplest explanation you can get. And until folks reckon with that reality, it is hard to see our city making progress on the issue.
This building is located in a downtown neighborhood (90013) with no data on median single-family home prices, so I used the median from the adjacent zip code (90015). For the record, I suspect that if enough single-family homes existed in 90013, their median price would be higher than 90015’s homes.
Single-family home data pulled form 90015