The need for condominium liability reform

condominium under construction
Despite strong demand for condominiums, our region is experiencing a shortage of condos being built and sold – especially those at an affordable price point. The current regulatory and legal environment for condominium construction in Washington state places substantial liability on builders and developers, making it prohibitively costly to bring this housing product to market. Photo: Pixabay

One of the most important things we can do to address the Puget Sound Region’s lack of attainable housing is to increase the supply of housing near job centers. Unfortunately, one type of housing that holds great promise in helping to meet this need has been on the decline in Western Washington: affordable condominiums.

Despite strong demand for condominiums, our region is experiencing a shortage of condos being built and sold – especially those at an affordable price point. The current regulatory and legal environment for condominium construction in Washington state places substantial liability on builders and developers, making it prohibitively costly to bring this housing product to market. Developers generally view for-rent apartment homes as a more attractive, less risky investment.

While for-rent apartment homes fill an important need, the lack of new condominium units is very concerning, especially given the region’s rapid population growth coupled with an overall shortage of attainable homeownership opportunities. Not only can condos provide an affordable housing option for people in all economic segments, they also support several significant goals set forth in the Growth Management Act. Condos help to encourage development in urban areas, reduce sprawl, promote a variety of residential densities and housing types and protect our environment.

Aside from these important policy objectives, condominiums also provide a much-needed homeownership opportunity, particularly for first-time buyers and empty-nesters looking to downsize. Homeownership offers stability, helps create healthy communities and is essential to wealth-building. For most Americans, their homes remain their largest asset. When alternative ownership choices are not available or are unattainable, leaving renting as the only option, our retirees and future generations are denied an opportunity that would otherwise assist in their financial stability and quality of life.

Part of the challenge is that the warranty requirements of Washington’s Condominium Act are  unclear, making it easy for condo owners to sue builders for any type of construction defects, even relatively minor deviations from the building code. These broad, open-ended standards have led to excessive construction defect lawsuits and higher insurance premiums, which has had the effect of deterring many builders and developers from considering condominium projects. That includes market-rate builders and low-income housing providers alike.

While several bills have been adopted over the years that were intended to address concerns with the Condominium Act, they have not been enough to encourage more development of this affordable housing option. Additional changes are needed to create more certainty for developers and insurers, while also removing disincentives to building affordable condominium projects, all without diminishing consumer protections.

The University of Washington’s Runstad Center for Real Estate Studies report, “Incentivizing Condominium Development in Washington State: A Market and Legal Analysis,” suggests specific ways we could lower the perceived risk and uncertainty imposed by the Condominium Act. Drawing from several of these suggestions, we anticipate legislation will be advanced in the 2018 legislative session that would remove obstacles to constructing this affordable housing type. These measures deserve careful consideration.

One idea is to restrict the board of directors of a condominium from participating in litigation without approval from the unit owners. Another needed reform is to define more clearly what constitutes a construction defect that can result in litigation.

The time has come to address concerns about excessive litigation risk and encourage construction of affordable condominiums, while continuing to maintain vital consumer protections.

Enacting condominium liability reform would create more housing supply by decreasing risk and uncertainty for developers and removing barriers to constructing this affordable housing type. Ultimately, increasing housing supply and providing a wider variety of housing types, including condos, will help make housing more attainable for people from all walks of life, and it will address the Puget Sound housing affordability crisis.

As our region continues to grow and experience the high demand for housing, much is at stake. The positive steps we take today to increase much-needed attainable housing are critical to our vibrant future.

Allison Butcher is the senior policy analyst at the Master Builders Association of King and Snohomish Counties (MBAKS). Tony To is the executive director of HomeSight.

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