Rental units in the Washington metropolitan area are being converted into condominiums or cooperatives faster than in any other urban market in the U.S. except New York and Chicago, according to data generated for a national real estate study.
Approximately one out of 10 of the 130,000 apartment units expected to be converted to individual ownership nationwide in 1979 will be located in the District or its nearby suburbs, concludes the Advance Mortgage Corporation and Citicorp Real Estate in housing market analysis of condominiums and co-ops. The data is based on local realty market statistics and estimates of experts in the cities surveyed.
The D.C. area's proportion of the national total will be higher this year than it was in 1978, when the city and suburbs accounted for 7,500 of the country's 100,000 conversions. Chicago, in comparison, registered 24,000 in town and suburban conversions of rental units to condo in 1978 and can expect another 22,000 to 25,000 in 1979. Metropolitan New York produced about 21,500 units, eight percent of them cooperatives, 20 percent condo; its 1979 total could be over 40,000. The nationwide volume of 100,000 units in 1978 represented a doubling, within a 12-month period, of 1977's estimated 50,000 conversions.
The conversion boom is now so strong, according to the survey data, that it affects housing markets in every region, from younger cities in the southwest to older cities in the north. The Denver area, for example, has seen conversions go from about 1,000 units in 1977 to 4,000 units in 1978, and an estimated 6,000 to 8,000 this year. Roughly 100 medium to large-sized buildings in the city and suburbs-all with 100 units of more-plan to go condo in the near future, says the study. Projects converted in the last two years in Denver have sold out completely in six months or less.
Virtually all of Boston's major rental apartment structures suitable for comdominiums have been or are being converted-8,000 units in the city since 1973. Owners of four-to 10-unit buildings in the Beacon Hill and Back Bay sections are quickly converting their properties to condo.
Los Angeles and the Orange County area witnessed a speculative buying fever for condominiums in 1978, and the volume of newly converted units coming onto the market in 1979 will be more than twice that of last year's (7,000 units versus 3,000). The Advance-Citicorp study says that 500-unit conversion projects "are fully reserved by purshasers) in one or two weekends," and selling prices have jumped by as much as $15,000 for a 1,000 square foot unit "between weekends." Prices in the L.A. conversion market are out of sight even by Washington's inflated standards: Some high-rise units in the Wilshire Boulevard area have sold for $200 a square foot-that is, $200,000 for a 1,000 square foot apartment, $400,000 for a 2,000 square foot unit. (Washington's top-priced conversions have gone for about $125 a square foot.)
One reason is the increasing demand for ownership, with its attendant tax benefits and inflation hedge, on the part of the population groups that used to be considered the natural rental market-singles and childless couples especially those under 35. This population is now willing to pay more for the same unit as an owner than as a renter.
The (second) aspect is the fact that returns from rental ownership have been low-rent increases have not been able to keep pace with costs of operation-even in markets with very high occupancy. This is even more true in markets with rent control or the fear of it. In Washington and New York, apartment buildings are worth half again or twice as much as conversion material than as rentals.
The inevitable reaction to this wildfire conversion of rental stock is now setting in nearly every major market, however, and will tend to restrain volume after 1979's record total, according to the study.
Chicato is considering tough new limitations on conversions, and pressure from Washington area tenants for protection against conversion-induced evictions appears to be growing. Dozens of California municipalities are devising requirements aimed at raising the costs of conversions to developpers, or limiting the types of buildings eligible for conversion. Many communities in the San Francisco area now require two parking spaces per unit for eligibility for conversion-a physical impossibility for all but the most luxurious rental projects.