The housing market has cooled this winter and the median sale price for single-family homes in metro Denver was down 3.1% from October.
But don’t celebrate just yet. The cost of single-family homes is still at an astounding mid-point price of $625,000. That price point is simply unsustainable for hard-working Coloradans.
Colorado needs more condos for sale on the market.
Multi-unit for-sale homes are a critical piece of the state’s affordability puzzle – often selling for significantly less per square foot than single-family homes or townhouses. Land has become so valuable in Colorado that anything less than multi-unit construction is a luxury. The mid-point price for metro Denver condos in October was $418,000.
But construction of condos has long lagged behind in this state. According to a new white paper put out by the Common Sense Institute, a conservative-leaning think-tank, only 515 building permits for condominium projects were pulled last year. The paper notes that for-sale multi-family unit construction has faltered nationwide with the exception of a few markets.
The white paper, written by developer Peter LiFari, blames the dearth of condo construction primarily on builders’ fears of being sued for construction flaws – leaky roofs, crumbling stucco, electrical and plumbing failures, etc. — and the resulting high insurance rates for covering construction liability.
There are of course other complexities driving away condominium builders – the lure of higher profit returns in rental apartment construction, affordable housing requirements, backlogged and dysfunctional building departments in cities and counties, and the rising cost of vertical construction, including a shortage of land zoned for high-density development.
Solving the puzzle of affordable housing in Colorado will take addressing all of these problems and then waiting years for the market to piece itself back together. During that time, it’s critical the state and local governments focus their limited resources on preserving existing affordable housing units through programs that purchase affordability easements and put land in trust for future generations.
We supported two new laws in 2017 with the hope that tort reform would rebound condo construction. That has not occurred. In part, we suspect it is because the reform did not go far enough. LiFari called for a stronger right-to-cure to be written into the law, meaning before homeowners can litigate they must give the developer a chance to correct the construction mistakes.
Tort reform will be politically much easier to sell at the General Assembly next year if proponents come armed with actual data about lawsuits and the types of abuses they are seeing, including nitpicking condos down to the studs to file every single claim possible.
The data and specific examples are critical because while everyone has heard horror stories about new homes with catastrophic failures, hardly anyone has heard stories of lawyers making a killing because they seek damages for sprinkler heads installed out of code and studs installed a half-inch too far apart.
Healthy skepticism must be met with real cases of abuse. Take a moment to Google “Colorado construction defects” and find the teams of lawyers making a living off suing builders and how they describe the work they do on their own websites.
Reforming construction defects isn’t going to solve the condo conundrum. LiFari estimates that insurance premiums account for 5.5% of the “hard” costs of building a condo compared to 1.6% for apartments that don’t run the risk of owner litigation. Could a 4% cost difference make or break a deal? It certainly doesn’t help the calculus.
Construction defect reform, especially a right-to-cure for builders, could finally click into place during the 2024 legislative session as part of a broader effort to bring the cost of Colorado housing back down to reality.
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