Condo owners face increased costs and hard choices in a state that already has a high cost of living. Condo associations must proactively maintain their properties to stop the cycle of compounding maintenance and insurance costs.
The Cycle of Rising Costs
Imagine your condo’s roof is quite old. As a member of the condo board, you know the drainage system on the roof needs replacing, but you also know it will cost a pretty penny. Repair costs are especially high right now due to inflation. Not wanting to charge the unit owners more, the board decides to put off the repairs, hoping the roof can last a few more years.
Then, a storm hits, and the old drainage pipes can’t handle the hydraulic pressure from the heavy rainfall. There is severe damage to the roof as well as several units. Your association files an insurance claim and pays the deductible. All seems fine until the master policy comes up for renewal, and the association is hit with a substantial premium increase.
This situation is prevalent, and it is contributing to a tough insurance market. Carriers are paying more than expected in claims – due to the severity of losses caused by deferred maintenance and rising replacement costs caused by inflation and recent global supply chain issues. Reinsurance costs are increasing too. As claims and reinsurance costs rise, insurers need to hike their premiums to keep up, and the cycle continues. Condo associations and unit owners now have less money to cover maintenance costs because they are paying more for insurance. Ultimately, the cost of living rises, with both condo associations and individual unit owners paying the price.
Many Condos in Hawaii Were Built Before 1980
Although Hawaii has some new condos, many were built decades ago. According to a Hawaii Housing Planning Study prepared for the Hawaii Housing Finance and Development Corporation, there are 162,615 condo units in Hawaii. Of these, 89,632 were built before 1980, which means more than half of Hawaii’s condos are more than 40 years old.
Proactive Maintenance Is Critical
On June 24, 2021, a condominium in Surfside, Florida, experienced a partial collapse, resulting in the deaths of 98 people. According to Property Casualty 360, the collapse may have been caused by poor design and construction activity in the area, but it’s also possible that coastal erosion contributed to the collapse. A 2020 report from Reserve Studies found that some parts of the building (including the garage and entrance) had zero years of remaining useful life, but the condo lacked funds for urgent structural repairs.
A lack of maintenance can be devastating. In extreme cases, it can lead to fatal disasters. Even in less extreme cases, it can contribute to more expensive property damage down the road as well as higher insurance costs and even difficulties securing insurance.
Condo associations should not put off urgent maintenance. If they are struggling to afford repairs, they will certainly be unable to afford the higher costs associated with deferred repairs.
Water Losses Are a Primary Concern
Condo associations with limited budgets may be able to wait to fix issues that are cosmetic in nature, but repairs related to the structural integrity of the building, drainage and inside wall plumbing are urgent.
Unit owners can also take steps to prevent water losses that may not only damage their property but the property of those who live below them. An immediate, cost-effective approach is to inspect your water supply hoses for cracking, bulging and other deterioration. Older rubber type hoses can be replaced with high grade steel-braided supply lines or similar products. Your water heater may have a useful life of less than 10 years. Internal rusting could result in a tank failure. In addition, rusty shut-off valves that are difficult to turn off and on may be prone to failure. If you suspect or detect any problems, hire a plumber immediately to replace the necessary equipment.
In addition to repairing or replacing worn components, condo owners and associations can benefit from implementing new technologies, such as water detection sensors, which can significantly reduce the potential for property damage by providing an immediate and early warning of the presence of water.
At FICOH, we encourage condo associations to take the actions that are necessary now to ensure condo insurability and affordability for generations to come. Learn more.