Considering Condos, Townhomes, and PUDs

The vast majority of the population out there wants single family detached housing. The virtues and benefits of the single family residence have been extolled ad nauseum, and the drawbacks of the alternatives are the stuff of urban legend.



Unfortunately, in San Diego and many of the other densely populated urban areas of the country, the price of single family detached housing has gone beyond what the average person can afford. Even if they fall somewhat from this point, in many areas, San Diego among them, the price of a single family residence isn't going to fall to what the average worker can afford. The supply is too low, and the demand is too high. When you consider economic reality, the evidence is overwhelming that San Diego is at least close to the end of the price decline, and even in other areas where things haven't fallen much yet, there's a limit to how far they're going to go.



So for people earning average wages, the choice becomes purchasing one of those alternative forms of housing, saving until they can afford it, or being a renter for the rest of their life. I went over how little saving for a down payment helps most folks, and how a strategy of buying what you can afford now helps more and faster than saving for a down payment. One further option exists, of course: Move to a less expensive market, but that requires finding a job there. There's a reason that all of the highly demanded urban markets are in high demand: That's where the jobs are!



Still, people will tell me they don't want to buy until and unless they can afford a single family detached house, with no association. That's fine if they're going about the process of saving. Most of them would be better off buying the lesser property and using the appreciation to leverage their savings, but it's okay to decide to take an alternative route to getting what you want. It's a free country.



However, in my experience, it's really rather rare to find people who are actually putting the money aside. It's great if you want a house and are putting the money aside to make it happen. I just helped a young couple that could afford a beautiful house in a great area because they both worked hard and saved something like five years of their combined earnings for a down payment, but they're the rare exception. I know a lot more people that have been planning to buy a house for twenty years and have nothing saved at all, than I do people like that couple.



The cold hard fact of the matter is that if you're making fifteen or twenty dollars per hour, you can't afford the payments on such a single family detached house unless you've got a huge down payment. That's not likely to change unless we start being a whole lot friendlier to development, and in places like San Diego, there isn't room to do so even if we wanted to. There's too many people who want that sort of housing, and not enough land and not enough houses to go around. High demand, limited supply. Remember your first economics class. What does that do to price?



People will tell me in one breath that they don't want to deal with home owner's associations, then turn around and tell me they'd rather continue dealing with landlords. Landlords have more power than HOAs, and are less subject to moderating influence. If you're an owner, you have a vote and a voice in the HOA, and you can even run for the board yourself. If you're renting and don't want to follow the rules, the landlord will evict you and find someone who will. They have all the power they need in a 3% vacancy rate!



There is always going to be a wider market further down the socio-economic pyramid. There are more folks making fifteen or twenty dollars per hour than forty. Even those making more have the option of buying cheaper housing, and there are those who do so, while those who attempt tricks to afford more house than they can afford regret it pretty universally. If you buy the property, you owe the money and are paying the interest. Tricks like negative amortization, that make it look like you can afford more property than you really can, will come back around to bite you, with so few exceptions as to be statistically a non-event.



In California, townhomes and PUD developments are most often legally condominiums as far as title goes. It's just the physical set up that differs. Condominiums are multiply layered, stacked one on top of another all in the same building. Townhomes are typically only one unit high. They may be multiple floors and have shared walls, but no upstairs or downstairs neighbors. This improves the privacy situation, but it also increases the price, because land is what costs the most money, and there's only one unit on any given piece of land. PUDs are one further step up the line: They may be individual completely detached structures, but they share a common lot, so maintenance and such is usually shared, and you usually have to match the neighbor's decor. There may not be much space between units in a PUD, as I've said before, but there is usually some. All three usually have some sort of shared recreational facilities, as well, but not necessarily.



There are ways to do each sort right and wrong. The sin most developers commit with PUDs and townhomes is trying so hard to cram as many as possible onto a given piece of land, that each unit has effectively no privacy. With pure straight condominiums, the main sin committed is failing to insulate each unit sufficiently from noise in the neighboring units. Doing it right isn't cheap, and cuts into the profit margin. This also happens with townhomes and some PUDs, but to a far lesser extent. A complex where the developer did it right will be a little more expensive per square foot, but will be a much better investment. Granite counters and travertine floors get old, get dirty, and eventually do need to be replaced. The fact that you and your significant other aren't entertaining the neighbors every time you get intimate, that you can have friends over without disturbing the neighbors, or even that you have a private little back yard to barbecue in, won't.



If you're careful in your initial purchase, you can be happy and private in a condo, townhome, or PUD for many years. If you fall for a bad unit with nice surfaces now, you're going to suffer. If you pick a good unit, the way that leverage works will quite likely leave you very happy with your investment. If you pick a bad one, not so much. If you pick a good one and decide to stay, you'll likely find that your cost of housing becomes a low fraction of what rent would cost before too many years have passed.



If you can't afford the payments on a more expensive property, it's not a good idea to buy it. But if you don't buy anything at all, the economic prognosis for lifelong renters isn't good. This means that if you can't afford the property you really want, it's still a good idea to buy something your family can live in. Condos, townhomes, and PUDs may not be as great as single family detached housing, but they're a long way better than renting, and you can use the leverage inherent in the way property values has worked for the last century or so to help you get where you really want to be more quickly and more easily. Even if you never move up, you have placed your costs of housing permanently under your own control, given yourself a voice and a vote in how things are run, and the odds are overwhelming that you'll end up in a much stronger economic position.



Caveat Emptor