Could Construction Defects Reform Mean More Affordable Condos For Buyers?

Since 2007, when owner-occupied attached housing comprised 25% of the new housing stock, numbers have been in decline. This year new condos make up only 3.4% of new housing stock. Some have blamed this decline on existing state law, which makes it comparatively easy for homeowners to file a class-action defects lawsuit against builders. This has led to an increase in insurance prices and some fear that the result is a reduction in the number of builders willing to start new housing projects.

A recent Denver City Council vote in favor of construction defects reform was passed 12-1 last month following nine other Front Range cities including Aurora and Lakewood. City Council members then called on the Legislature to pass the construction defects reform bill next year. This reform would make it more difficult for homeowners to file lawsuits against builders. New rules would require that instead of a majority of an HOA board vote, a majority unit owner vote would be needed to proceed with legal action. It also would require plaintiffs to show both city and building codes were violated and actual property damage, risk of injury, or actual injury occurred. It would also ban HOAs from removing builders’ clauses in contracts requiring arbitration or other forms of dispute resolution, rather than the filing of lawsuits in court.

Opponents of the reform argue that it is not the threat of lawsuits that have slowed new attached home building but the state of the market. However, data shows that it is not a lack of demand for attached single-family homes that is preventing future homeowners from purchasing, but the price of those homes. Future home buyers are up against higher down payment and credit score requirements, lower median incomes, and increased student loan debt.

The population in Denver continues to grow at a rapid pace and more housing inventory is certainly needed. Metrostudy reports that total home starts this year are up 33% from 2014 and at their highest numbers since 2007. Still, the greatest demand for attached housing in Metro Denver remains strongest for units priced between $100,000 and $300,000. Listings priced in this range averaged only five days on the market in 2015. However, only 9% of new builds that happened in the last year are for buyers in this price bracket. The other 81% is for homes priced $300,000 and above with the largest percentage (33%) for homes priced between $400k and $500k.

Historical averages show builders starting 17,000 homes per year, however this year will likely only total around 9,000 for-sale home starts. This decrease in new housing starts is due to the inability of builders to keep up with their backlogs of demand. A lack of construction labor, longer planning approvals, extreme weather and a lack of finished lots are stretching the time it takes to complete homes.

So, could construction defects reform help to bring more affordable housing to the Metro Denver area? Unlikely.

construction defects reform

Sealover, Ed. “Denver City Council votes 12-1 for construction defects reform; asks for state action.” Denver Business Journal. Denver Business Journal, 23 Nov. 2015. Web. 4 Dec. 2015.

“Denver Housing 2015: Market is at Historically High Levels; Rising Home Prices Are Squeezing Buyers.” Metrostudy. Metrostudy, 18 Aug. 2015. Web. 4 Dec. 2015.

Svaldi, Aldo. “New Home Construction Jammed Up in Metro Denver.” The Denver Post. The Denver Post. 17 July, 2015. Web. 4 Dec. 2015.

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