CREJ - Multifamily Properties Quarterly - July 2015
As many in Colorado’s real estate community know, construction defects and the law that deals with them has been a long, difficult and contentious political issue. The construction defects political seesaw has rocked back and forth for years in the General Assembly and, right now, when it comes to condo developments, our state’s construction defects law has created an unfriendly environment for developers, builders, banks, insurers and, most important, homebuyers. By now you have heard and know about the statistics. Metro Denver is the most expensive major housing market in the country that isn’t 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 rapidly 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 affordable price range for 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 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 spreading across Colorado. Durango and Fort Collins are struggling with a lack of affordable housing and limited rental options – and both have cited the state’s construction defects law as a significant impediment to condo development in their communities. The Homeownership Opportunity Alliance formed two years ago to find a legislative solution to this statewide problem. The mission is clear: Colorado needs a more efficient statewide system for addressing construction defect issues that will protect consumers and homeowners while helping jump-start condo development. During the last 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. SB 177 sought to spur attainable condos through a series of common sense changes in law that the alliance believed would reduce the threat of expensive, time-consuming litigation, increase the supply of attainable housing and protect the rights of all homeowners in a community. The changes included a majority vote by all homeowners in a community before entering litigation, disclosure of costs and financial impact to all homeowners of litigation and, most importantly, a preference of mediation and arbitration to settle defects claims. Through SB 177, the alliance was 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 SB 177 as an important step toward addressing our state’s housing challenges. In the end, SB 177 was killed in the state House of Representatives. SB 177’s demise represents a missed opportunity for many Coloradans, including would-be first-time homebuyers and seniors. 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 a homeowner association and homebuilder over the removal of arbitration from governing documents as a way to resolve defect claims. 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 already passed measures to encourage condo developments. Many other cities facing affordability, density and transportation issues are currently working on local solutions. The Homeownership Opportunity Alliance continues to work on a unified state process while vigorously pursuing local solutions to the state’s housing challenges.