The condominium versus cooperative puzzle: An empirical analysis of housing in New York City

One of the enduring puzzles of New York City's housing market is the persistence of cooperatives, despite the prevailing wisdom that condominiums are more valuable. In this article, we examine the theoretical advantages and disadvantages of cooperatives and condominiums and apply these theoretical insights to empirically test whether condominiums have higher valuation. We then use our findings to speculate about why cooperatives remain dominant in New York. In general, theory suggests that the condominium may be a more efficient and desirable housing form, and empirical findings confirm that legal form matters. With one exception, condominiums are more valuable than comparable cooperatives. The exception suggests that, for some owners, the exclusivity that the cooperative offers may be utility maximizing. We speculate that, except for the market segment that seeks exclusivity, the dominance of cooperatives in New York is attributable to transaction costs and collectiveaction problems that hinder the conversion to condominium form.