The Case for Micro-condominiums

Before reading through the first five chapters of University of Chicago economist Richard H. Thaler and Harvard Law School Professor Cass R. Sunstein’s book Nudge, that outlines the basics of choice architecture, I was curious as to why people where perfectly okay with paying 30% or, in some markets around the country as high as 50-70%!! of their income on rental housing without questioning the reasoning behind their choice or exploring other options? The answers I came up with sounded more like excuses for why things are the way they are, and less about solutions to address this aspect of a phenomenon I am labeling “the great millennial extortion”. Before I go into how Nudge helped to make sense of what is happening and how certain nudge strategies can help make the case for downsized-for-sale multifamily housing, I want to quickly explain the aforementioned phenomenon.

We (millennials) are constantly hearing about how businesses are adjusting their strategies to target us and how we are going to save the economy with our tech savvy-ness and entrepreneurial spirit. I understand where this sentiment comes from, I mean look at what Zuckerberg has done! Nonetheless, the cost of obtaining the same life as our parents is coming at a high price as education and housing costs skyrocket, delaying or eliminating the same opportunities that were available to the previous generation. Not to mention the national debt that someone has to pay for. Many 20-35 year olds feel like they are being taken advantage of for following their dreams and getting an education. I certainly have this sentiment at times.

Back to the topic at hand, rent. If people hate losses, what is driving them to spend their income so freely on a cost that is a total loss when compared to the alternative, home ownership? There are many advantages to owning a home versus renting; one of them being it’s a forced form of saving, you also gain appreciation, and you have the option to rent out your place if you so choose. You essentially are paying yourself as opposed to a landlord. To frame this better: in September of 2014 average rents in the Central District of Seattle was $1,446/mo. Assuming a 30 day average per month, that $48.20 a day you are giving away to your landlord instead of investing in yourself. But If you are not under the influence of a status quo bias, what is stopping you from buying?

The concept of availability, which deals with fear of an outcome, explains the choices that lenders have made to create a high barrier of entry with higher LTVs, especially since the 2009 sub-prime mortgage crisis that caused “the great recession”. This makes the down payment on an already expensive bungalow in Wallingford or Beacon Hill way out of the affordability price range. Now asking the same question previously posed, except insert the micro condominium (800 sf or less) as an option for housing.

Anchoring the monthly mortgage payment to current monthly rental payments may sway choices since chances are at the current interest rates, your mortgage might be cheaper and better for you in the long run!

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About mcj2030

Corbin’s professional passion resides in the impact that good design has on people, communities, and ultimately, cities. He is an dual architecture and real estate masters student at the University of Washington, driven by the notion that thoughtful architecture and development have a profound impact on our ability to be stewards of the environment while creating a framework for economic and social vibrancy in future communities.

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