For decades, condominiums and townhomes served as the affordable entry point into homeownership. Much like the old fast-food “$1 Menu,” they gave working families, young professionals, and first-time buyers a realistic opportunity to build equity without stretching their budgets.
Today, that affordable option is disappearing. While attached homes remain significantly less expensive than detached houses, the financial advantage has narrowed considerably. Rising homeowners association (HOA) dues, soaring insurance premiums, increasing maintenance costs, special assessments, and stricter lending standards have made condominium ownership far more expensive than many buyers anticipated.
According to Zillow’s Home Value Index, the median detached home in Orange County reached $1.31 million in June, while the median attached home stood at approximately $760,000. On paper, condos still appear more affordable. In reality, many buyers must also budget for median HOA dues exceeding $500 per month – before accounting for insurance, property taxes, and mortgage payments.
Beginning in 2027, Freddie Mac and Fannie Mae will further increase reserve funding requirements for condominium associations from 10% to 15% of annual assessment income. At the same time, lenders are implementing more comprehensive reviews of HOA financial health, reserve funds, insurance coverage, deferred maintenance, and delinquency rates before approving conventional loans. Associations that fail to meet these standards may see fewer qualified buyers and longer escrow periods.
The result is predictable. Attached homes are taking significantly longer to sell than detached homes, buyer demand has softened, and condominium values have begun to underperform the broader housing market.
More Renters for Longer
For apartment owners, this trend presents a silver lining. Every household that delays purchasing a home remains in the rental market longer. Many would-be first-time buyers who expected to purchase a condominium now find themselves renewing leases because the total monthly cost of ownership simply no longer fits their budget.
Higher mortgage rates have compounded the problem. Rates have climbed from roughly 6% earlier this year to nearly 7%, dramatically increasing monthly housing payments. For many households, qualifying for a mortgage has become substantially more difficult.
This growing affordability gap should continue supporting rental demand throughout California. Longer tenant residency, lower turnover, and a larger pool of qualified renters are all positive developments for housing providers.
The Same Financial Pressures Affect Apartment Owners
Unfortunately, apartment owners face many of the very same challenges confronting condominium associations. Insurance premiums have risen sharply. Construction materials and labor costs continue to climb. Major building systems – including roofs, plumbing, electrical infrastructure, parking lots, and exterior components – cost substantially more to repair or replace than they did just a few years ago.
At precisely the time operating expenses are accelerating, California’s rent control laws limit many owners’ ability to increase rents sufficiently to keep pace with inflation and rising capital costs.
While operating expenses increase almost immediately, rental income often cannot. The result is a widening gap between what properties need and what many owners can reasonably afford to reinvest.
Deferred Maintenance Is a Growing Risk
One of the unintended consequences of this imbalance is deferred maintenance. When replacement costs outpace available cash flow, owners naturally prioritize immediate repairs over long-term capital improvements. Roof replacements get postponed. Parking lots wait another year. Exterior painting is delayed. Aging plumbing systems continue operating beyond their intended life.
These decisions are understandable, but they become increasingly expensive over time. Deferred maintenance rarely becomes less costly. Instead, minor repairs often evolve into major capital projects that require significantly larger investments later. Many apartment owners are finding that while their properties continue generating positive cash flow for now, they are not producing sufficient reserves to adequately fund future capital expenditures.
Condominium associations are already experiencing the consequences of this challenge. In response to years of underfunded reserves and the growing risks associated with aging buildings and rising repair costs, lenders are now requiring more rigorous financial standards before approving loans for many condominium projects. Apartment owners should view this as a warning. Waiting until reserves become inadequate is far more costly than building them before they’re needed.
The Quiet Cost of Government Overreach
Rent control and other increasingly restrictive housing regulations are often presented as protections for tenants. However, their long-term consequences are often less visible. When rental income cannot keep pace with inflation and the rising costs of insurance, labor, materials, utilities, and capital improvements, owners have fewer resources available to reinvest in their properties. Unlike a sudden crisis, the effects emerge gradually. Reserve accounts become underfunded. Capital improvements are delayed. Aging buildings become more expensive to maintain, and the overall quality of the housing stock slowly declines. It is a quiet deterioration that often takes years to become apparent, but by then the cost of reversing it is substantially higher.
California’s Housing Shortage Cannot be Solved Simply by Limiting Rental Income
Preserving existing housing requires policies that allow owners to adequately maintain and reinvest in their properties. If lawmakers want safe, well-maintained apartment communities for future generations, they must recognize that sustainable housing depends on sustainable economics.
This article is intended for educational and discussion purposes. It is not intended as tax or legal advice. Please consult your CPA or attorney for those matters. Mercedes Shaffer (BRE 02114448) is a multifamily broker with REAL, serving LA and Orange County. For questions about buying, selling or 1031 exchanges, her team can be reached at 714.330.9999, [email protected], or visit their website at InvestingInTheOC.com.