Builders hope to spur condo development
Lawmakers are taking another run at reforming the state’s construction-defects law, which the business community believes has stymied building of condominiums, one of the last bastions for affordable homeownership.
Reform of the law centers around requirements for filing class-action lawsuits against builders, the length of the statute of limitations for homeowners to sue builders for defects, and giving builders the right to repair reported defects before being sued.
“There is a real lack of housing available in price ranges that young professionals can afford in the Denver metro area and across the state,” said Scott Smith, president of the Colorado Association of Homebuilders, a political lobbying group for builders. “The two main things keeping builders from constructing condominiums is the high cost of insurance and threat of litigation.”
Bill Ray, a spokesman for the Homeownership Opportunity Alliance, said condos represent 3.1 percent of new housing starts today, compared with nearly 23 percent in 2007.
If Colorado’s construction-defects law is a factor in the condo slowdown, hard data isn’t readily available to prove the point, said Boulder-based economist Pat Pacey, who conducted a study commissioned by Build Our Homes Right, a Denver-based nonprofit formed to advocate for homebuyers in construction-defect cases.
“Clearly, the increased down payment, origination fees, mortgage insurance premiums, reduced real earnings are all more significant financial deterrents to home ownership than any barrier from construction-defect laws,” Pacey said.
Her study concluded that slow condominium development is the result of a lack of demand caused by stringent lending requirements, higher down payments, higher purchase fees, lower real income of potential buyers, later marriage rates and higher college debt – not construction defects.
Her study also concluded that the market value of apartments relative to condominiums and detached homes has grown steadily since 2006, creating an incentive to build apartments. She said the condominium market was built to a point of surplus in 2009, leading to the current ebb in condo construction.
A key concern for builders is that Colorado law lets the majority of a homeowners’ association board, rather than a majority of the homeowners, decide whether to sue over construction defects. Builders say the law is difficult for building condominiums because so many homeowners live under one roof, complicating legal action.
Already this session, state Sen. Ray Scott, R-Grand Junction, introduced a measure that would reduce the statute of limitations for filing construction-defects suits from eight to four years. That could lead to a reduction in the cost of insurance for homebuilders.
“If you give builders this free pass, you are inviting substandard construction,” said Jonathan Harris, president of Build Our Homes Right.
Senate Majority Leader Mark Scheffel, R-Parker, and Sen. Jessie Ulibarri, D-Westminster, are expected to introduce a bill in the Senate similar to the one they cosponsored last session that would have made it more difficult to file class-action lawsuits against builders for defective workmanship. Reps. Brian DelGrosso, R-Loveland, and Jonathan Singer, D-Longmont, are planning to introduce the bill in the House. Proponents of the bill said it died in the last session because it was introduced late and ran out of time.
Doug Storum can be reached at 303-630-1959, 970-416-7369 or firstname.lastname@example.org.