As many in Colorado’s real estate community know, construction defects and the laws that deal with it have long been difficult and contentious political issues. The “defects” political seesaw has rocked backed and forth for years in the General Assembly; currently, when it comes to condo developments, our state’s construction-defects laws have created an unfriendly environment for developers, builders, banks, insurers and – most importantly– homebuyers.
Metro Denver is now the most expensive major housing market in the country not located on one of the two coasts. Our median home prices used to be on a par with comparable economic competitor markets like Phoenix. Today, at $315,000, Denver’s median-home price is $115,000 higher than the Phoenix market. Part of Colorado’s quickly rising housing costs come from the lack of for-sale, attainably-priced condos.
Not long ago, 23 percent of Colorado’s new construction housing consisted of affordable condominiums and townhomes. Today, it stands at 4 percent, and only half of that is in the price range affordable to middle-class Coloradans. At the same time, metro Denver’s rental market is skyrocketing, with national headlines noting an explosion in rental rates that are rising faster than San Francisco and New York City.
This issue garnered additional national attention as shown in this CNBC feature story posted in May:
This is not just a Denver problem, although Mayor Michael Hancock has put it on the top of his list of challenges facing the state’s largest city. The lack of condos is hitting across Colorado. Both Durango and Fort Collins are struggling with a lack of affordable housing and limited rental options — and officials in both cities have noted the state’s construction-defects laws as a significant impediment to condo development in their communities.
The Homeownership Opportunity Alliance came together two years ago to find a legislative solution to this statewide problem. Our mission is clear: Colorado needs a more efficient statewide system for addressing construction defects issues that will protect consumers and homeowners while helping jump-start condo development. NAIOP Colorado is a founding member of this organization and has a seat on its Executive Committee.
This is an important issue to us because of the increase in commercial development, particularly along our light rail transportation system. We are involved in multiuse projects along these lines and that should include the condo product, not just apartments. We are also seeing a jump in industrial and office development from organizations such as Charles Schwab moving their headquarters to Colorado and we need to provide a full range of housing options for those employees. If we aren’t able to fix this problem, it will have a wider impact than just increasing rental rates.
During the past legislative session, the alliance worked with bipartisan lawmakers and built a diverse coalition of more than 30 statewide mayors, elected local officials, affordable housing advocates, and business and trade groups to find the right balance on this issue. That effort produced Senate Bill 177. Senate Bill 177 sought to spur attainable condo development through a series of commonsense changes in law that we believed would have reduced the threat of expensive, time-consuming litigation; increased the supply of attainable housing; and protected the rights of all homeowners in a community. Those changes included a majority vote by all homeowners in a community before entering litigation, disclosure of the costs and financial impacts to all homeowners of litigation and, most importantly, a preference of mediation and arbitration to settle defects claims.
Through Senate Bill 177, we were able to raise public awareness and support for this issue across Colorado. Editorial boards — including the Denver Post, Colorado Springs Gazette, Boulder Daily Camera, Fort Collins Coloradoan, Longmont Times-Call and Loveland Reporter-Herald—all positively endorsed Senate Bill 177 as an important step toward addressing our state’s housing challenges.
In the end, politics trumped good policy, and Senate Bill 177 was killed in the state House of Representatives. Senate Bill 177’s demise represents a missed opportunity for many Coloradans — including would-be first-time homebuyers and seniors — who want an opportunity to own an affordably-priced home and were looking to state lawmakers for leadership on this issue.
Interestingly, as the General Assembly session ended, the Colorado Court of Appeals issued a decision in Vallagio at Inverness Residential Condominium Association versus Metropolitan Homes — a dispute between an HOA and homebuilder over removal of arbitration as a way to resolve defect claims.
The decision addressed a problem in Colorado’s construction defect law that would have been fixed if Senate Bill 177 became law. Now, according to the decision, an arbitration clause cannot be removed without the declarant’s consent and the requirement to use arbitration is enforceable. A petition requesting review has been filed with the Colorado Supreme Court.
Additionally, several communities are looking at ordinances to address construction defects. Cities like Lakewood and Lone Tree (where I live) have already passed measures to encourage condo developments. And many other cities facing affordability, density and transportation issues are currently working on their own local solutions.
The Homeownership Opportunity Alliance and NAIOP Colorado will continue its work on a unified state process while vigorously pursuing local solutions to the state’s housing challenges.