Attached For-Sale Housing and Urbanism in Colorado – Construction defects litigation and laws

By Tim Van Meter, Architect & Urban Designer

As we know very well, housing density and diversity is critical to the implementation of urbanism. Successful, placed based urbanism demands a mix of housing typologies, tenures and affordability. Housing construction largely stopped in 2009 during the latest recession. Also around this time in 2010, HB 10-1394 [Construction Defect Regulation], was passed [of course with good intent], apparently allowing for broad interruptions for construction defects in favor of HOA Associations. With the recent economic recovery, rental housing has bounced back to near to previous levels of development activity, but attached for-sale housing is all most none existent. This lack of attached for sale housing, severely limits housing typology and affordability, in addition to the mix of uses required for for the successful implementation of urbanism.

DRCOG’s findings on the impact of Construction Defect Litigation was recently released. The downward trend in attached-housing construction in Colorado is well-known and discussed often within the region’s development, construction, insurance, finance, legal,  and now design and urbanism communities. In recent years, builders, developers and insurers in particular have striven to bring greater awareness to local governments and lawmakers regarding the impact that construction defect lawsuits have on the developers/ builders’ ability to introduce desirable, affordable, yet cost-efficient attached-housing options, such as condominiums and townhomes, into the marketplace. DRCOG has been aware of the builders’ and insurers’ plight, largely because of the impact that the scarcity of affordable attached-housing has had on their respective communities. DRCOG ‘s report Denver Metro Area Housing Diversity Study, investigated the factors contributing to the recent (downward) attached-housing development trends and conditions.  The Study evaluated factors including changing financing and insurance requirements for builders and homebuyers, the impacts of foreclosures, changes in prospective homebuyer demographics, economic conditions which limit options for prospective homebuyers, and the costs and risks associated with construction defect regulations and lawsuits. Despite the efforts of special interests from the Regulations sponsors and supporters, the negative impact of construction defect regulations and lawsuits on Colorado’s housing market is significant. In this regard, the DRCOG Study found that:

•           There is a belief within the development community that the probability of being sued is nearly 100 percent for attached residential for-sale projects involving an HOA.

•           The costs of litigation, including retaining experts to evaluate defects, and legal costs associated with the builders’ insurance companies seeking to recover costs from contractors, are a deterrent to future development.

•           All of the national homebuilders interviewed indicated they have no plans for building attached for-sale housing in Colorado—where the risk of being sued is “just not worth it. At least one insurer interviewed opined that insurance premiums are 25 to 45 percent higher in Colorado than other states for comparable products.

•           The number of subcontractors and development team members willing and/or able to work on attached for-sale housing has diminished.

•           Developers are estimated to need to pay an average of $15,000 of additional cost per unit due to construction defects (i.e., the eminent threat of a lawsuit for same).

I encourage urbanists in Colorado to read the DRCOG Study and to become more in-tune with the real risks and concerns brought on by rampant construction defect litigation in Colorado. Based on the DRCOG Study’s findings, we can’t afford not to.

For more information, CLICK HERE for the full Denver Metro Area Housing Diversity Study for Denver Region Council of Governments (Oct 29, 2013)

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