As some of you may know, developers have limited the number of residential condominiums they build. For the last 10 years condos have made up only 3% of the new construction market.
Condominiums are important in the housing chain. They are typically the entry level home, and in a tough buyer market, they become the more affordable product. As (if) interest rates rise, and housing prices continue to increase, few and fewer people will be able to buy a single-family home first, and will seek more affordable housing, and that’s condos.
You can throw townhomes in the mix too, as most of the market does not differentiate much between the two.
The reason builders have not been building them is because of a state law known as the Structural Defects Law. Under the law as it was written, a simple majority of the Board of Directors of an HOA, could sue the builder, for a structural defect, and if successful in court, the builder was not given the chance to correct the defect, or go to arbitration…their insurance simply had to pay the HOA. As a result, insurance companies hesitate to insure builders doing condo projects, so…no condo projects.
This law has been challenged for years and last month there was a change. The Colorado Supreme Court upheld the right of condominium developers to require disputes go to binding arbitration. This was a huge victory for the construction-defects reform advocates (i.e. the building industry).
Also, earlier this spring the Governor signed into law a separate bill concerning defects reform. This law requires a majority of condo owners approve any legal action, instead of the simple majority of the Board of Directors of the HOA.
My thought is that common sense said the law was lopsided and would eventually be changed to be more reasonable. Has anyone noted the huge numbers of apartments built in the past few years that resemble condominium projects? It is very simple to convert an apartment/rental complex to an condo/ownership complex. I suspect we’ll see a lot of those apartment complexes slowly convert to condominiums as that was the long-term plan of the developer all along.
But, as my fiancé says, “the problem with this country is that common sense is no longer the common denominator” so, we’ll see what happens.
Have a great day!