What factor can contribute to functional obsolescence in real estate?

Functional obsolescence refers to a reduction in the efficiency or utility of a property due to its design or features not meeting current standards or preferences. Outdated technology or inefficient floor plans in a property are prime examples of functional obsolescence. For instance, a home that has a layout that doesn't facilitate modern living or lacks contemporary amenities may be less desirable to buyers compared to newer properties that incorporate more functional designs and technology.

The other options relate to market conditions or economic factors. High demand for housing could potentially increase property values, but does not inherently impact the functionality of a property. A decrease in local property taxes may benefit property owners economically but does not influence the structure or usability of a property. Likewise, the availability of new construction could offer buyers more choices, but it is the inherent features of the existing property—such as outdated technology or inefficient floor plans—that directly contribute to its functional obsolescence. Thus, the first factor clearly demonstrates how design and technology issues can lead to reduced desirability and value due to functional obsolescence.