What I talk about when I talk about “luxury housing”

“Luxury housing”: sometimes it’s a marketing term, sometimes it’s a claim that a new apartment building will be unaffordable, unlike older more “modest” single-family homes nearby. Is a home “luxurious” if it’s described that way, or if it’s more expensive to live in? If you’re looking at cost, those “luxury apartments” are quite a bit less luxurious than the single family homes that represent the status quo in many neighborhoods.

Whether coming from longtime residents, a neighborhood association, or even elected officials, the words “luxury housing” are often used as a way to oppose apartments or other developments. Instead of just saying that someone doesn’t want to see something built near them, they say “most people can’t afford to live in them” to sound more empathetic.

Why does this happen? I think a major reason is that people who have lived in their current homes for a long time may have an academic understanding that their home is more expensive than when they bought it, but don’t think about it in a practical, specific way as far as what it would mean for someone like them to try to purchase that home now, let alone compare it to those apartments. Not just for the sticker price, but for monthly costs as well.

On top of that, people fear change in their neighborhoods, and to some degree that is understandable. But they know, deep down, that it sounds and feels bad to oppose new housing for its own sake. So they have to convince others and, to be blunt, themselves that there is an affordability argument to be made. That argument has a certain “truthiness” to it, the quality of seeming or being felt to be true, even if not necessarily true. It feels true on a gut level that this new, fancy-looking thing costs more, so many can stop there, assured of the righteousness of their arguments.

So, like, let’s run some numbers and see what what’s what, shall we?

The math of “luxury housing”

In Montgomery County, the average asking rent for Class A apartments (fancy, new apartments basically) of any size was $2,353 dollars as of 2022. Using an actual example from the newest rental building in downtown Silver Spring, at the time of writing this a one-bedroom apartment rents for about $2,400/month, and a two-bedroom about $2,800/month. Not exactly cheap, but how does that compare to the mortgage on a typical house in the county?

Pretty well.

As of February 2024, the median sales price for single family homes in Montgomery County is roughly $760,000. And that’s for the whole county, not limited to more expensive areas downcounty, and/or near transit, where such “luxury apartments” often pop up.

Still, let’s be generous and assume someone finds a good deal on a house, one that “only” costs $600,000. In many Montgomery County neighborhoods, especially inside the Beltway, this could get you a smaller, older home likely in need of repairs and maintenance.

Assuming an interest rate of 7% and *after* a 20% down payment of $120,000, the monthly payment according to this mortgage calculator as of the time of writing would be $3,654, excluding utilities and maintenance. That’s about $1,300 more than the rent for a “luxury apartment.”

What if you don’t have a six-figure down payment, and put down 6%, typical for a first time homebuyer? After a down payment of $36,000, that house will cost $4,200 a month excluding Private Mortgage Insurance, which most borrowers have to pay if they put down less than 20%.

Even if interest rates come down to, let’s say, 4.5% (the average mortgage rate in March 2022) that would be $3,319 a month with 6% down (not including PMI) and $2,893 a month after a 20% down payment, which, suffice to say, most people do not have.

The more luxurious thing is the one that costs more

Apartments and condos won’t work for everyone, but they do work for the significant number of households in Montgomery County with three or fewer people.Even if they may be more expensive per square foot than a house, you buy or rent all of the home you live in. Something that costs less per square foot, but costs more in total is in fact more expensive, even if you don’t use all of it. I think it’s fair to say that the more luxurious item is the one that costs more dollars than the other.

When I bought my condo in 2019, I was pretty lucky: I had a mortgage rate in the low 4% range, a 20% down payment, and I live in a newer building you might call “luxury condos.” Even factoring in my fees, my monthly payment is under $2,000, mostly because it’s less than 650 square feet.

Detached houses work great for a lot of people, and even if we allow denser options they will continue to be allowed everywhere they are now. But if you are reading this in a single family home in Montgomery County, someone trying to buy that home today would almost certainly have a much easier time affording an apartment or condo, even a “luxury” one. Opposing them on the grounds of them being “luxury housing” isn’t helping anyone.