Citing Housing Shortage, Builders Push for Friendlier Laws – WSJ

The real-estate industry is having increasing success in using the scarcity of affordable housing in the U.S. to convince lawmakers to give builders more legal protection.

Colorado Gov. John Hickenlooper last week signed a measure making it harder for condominium associations to sue builders over allegedly shoddy construction. Backers, who have been pushing for the change for years, argued that Colorado’s former law, one of the toughest in the country, aggravated the state’s shortage of affordable housing by discouraging condo development.

The governor “knows it’s not a silver bullet,” said Kurtis Morrison, the director of legislative affairs. “But the hope is it will release a pressure valve with the rental market and first-time owners seeking their first property.”

A similar measure passed the Minnesota legislature this month and is now before Gov. Mark Dayton. The real-estate industry in that state also argued that current rules have been limiting new supply of relatively inexpensive condominiums by encouraging litigation and driving up insurance costs and other builder expenses.

Developers in both states predict legal changes will lead to a flurry of new construction.

“It’s a big shot in the arm,” said Buzz Geller, of Paradise Land Co., which owns about a half dozen sites in the Denver region. “We’re going to have a lot of condominiums we wouldn’t have had before.”

Trial lawyers and homeowner associations that battled the bills raised doubts the measures will trigger much new supply of affordable condos. Opponents accused the real-estate industry of exploiting growing concern about affordable housing availability to advance its agenda.

“They were trying to take advantage of a perception that litigation is depressing the amount of units being constructed,” said Joel Carlson, a lobbyist for the Minnesota Association for Justice, a trial lawyers group.

Affordability is becoming a problem in cities like Denver and Minneapolis because home prices have been skyrocketing in many parts of the U.S., outpacing wage increases. Prices on average are nearly 40% above their level at the bottom of the housing crash in 2012, according to an index compiled by S&P CoreLogic Case-Shiller.

Part of the problem is a dearth of new supply, according to experts. As of April, there were about 835,000 starts of single-family homes on an annual basis, well below the long-term average of 1.3 million, according to the Commerce Department.

To stoke supply in other states, real-estate industry officials have gotten behind a wide range of efforts to make it cheaper and easier for developers to build houses. More than 130 bills addressing affordable housing have been introduced in the California legislature alone.

“We can’t turn a blind eye to the fact that we have established barriers to housing creation,” said David Chiu, chair of the California Assembly’s housing committee, at a news conference last month.

To be sure, some measures have faced higher political hurdles than others. For example, many communities of single-family detached homes have been successful at beating back projects that would increase housing density.

But real-estate industry executives in Colorado and Minnesota have been able to boost support for new construction-defect laws by pointing to the decline in condominium production.

For example, in Minnesota about half of the construction of for-sale homes a decade ago was for condominiums, townhouses and other multifamily projects. Today the rate is about 15%, according to David Siegel, executive director of the Builders Association of the Twin Cities, who blamed the decline partly on excessive lawsuits by homeowners associations. He said that a decade ago 70% of homes sold for less than $300,000. Now 70% of homes sell for more than $300,000.

If signed by Gov. Dayton, the Minnesota law would require homeowners associations to try to resolve disputes over construction defects through mediation before going to court. Also, homeowner associations by themselves couldn’t decide to sue.

They would need the support of a majority of all owner-occupiers. “Condos, townhouse and twin-homes are very often the on-ramp into homeownership,” Mr. Siegel said.

In the Denver area, home prices have increased at a double-digit rate for three years and the median price of a single-family home just crossed $400,000, according to Mark Trenka, chairman of the Colorado Association of Realtors and the head of Century 21 Trenka Real Estate in the Denver area.

“I just brought a house out for $300,000 in the suburbs and it took me a whole weekend to sell it,” he said. “We probably could have sold it in an hour.”

Mr. Trenka pointed out that the Denver area has been investing billions of dollars in a rapidly expanding commuter-rail service but there has been very little condo development near train stations because of builder concern about litigation. “It’s a squandered opportunity,” he said.

The new Colorado law also requires that at least half of homeowners agree to a construction defect lawsuit before one can be brought by a homeowners association. A provision that would have required associations to go into mediation instead of court on construction-defect disputes was eliminated as part of a compromise with opponents.

“No one deserves a free pass for shoddy construction,” said Nick Jurjovec, spokesman for the Colorado Trial Lawyers Association, in an email. The association “has never subscribed to the notion that in order to spur condo development in Colorado you must do it at the expense of homeowners’ rights.”

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