Last week, Pacey Nehls Economic Consulting published a study showing that there is no data supporting the claim that construction defect litigation is the reason for a lack of for-sale affordable housing in Colorado.
“Empirical data shows that states’ construction defect laws are not correlated with the availability of affordable for sale housing,” said Jeff Nehls, the principal author of the research study. “From a business economics perspective, further restricting homeowner rights through changes to construction defect laws would not materially impact condo development because the data shows us that it’s more profitable to build for-rent products than for-sale products. Simply put, developers make more money building apartments and new construction defect laws won’t change that fact.”
The report explores the decline in construction of for-sale condominiums, finding that this is a nationwide phenomenon. Further, since the economists find that Colorado’s defect laws are among the most builder-friendly in the country and condo development has also decreased similarly in more homeowner-friendly states, the root cause of the decline cannot be construction defect laws.
Other findings include:
- Colorado’s construction companies’ own publicly available financial statements show they are enjoying record profits and low construction defect costs and state that construction defect litigation has no material effect on their profits, operations, or cash flow.
- A significant boom in large-scale real estate investing has resulted in everyday Coloradans being cut out of ownership opportunity.
- The lack of availability of new multifamily for-sale structures drives up the price of existing units, benefitting builders, developers, and investors of apartment rentals since individuals are “stuck” renting.
Public policy solutions to stimulate affordable condo development could include requiring builders/developers to commit a portion of their projects to for-sale units or pay cash in lieu which can be used to purchase and convert apartments to for-sale condos; changing policies on subsidies, taxes and zoning; and exploring insurance regulation.
“The decrease in new for-sale housing supply is a nationwide trend driven by broader economic factors, irrespective of state construction defect statutes,” said Dr. Pegah Jalali, Colorado Fiscal Institute research manager. “As demonstrated in this report, the number of new housing units built for sale has declined across most states over the past couple decades. This drop can be attributed to factors like rising land and material costs, labor shortages, and more stringent lending standards after the 2008 recession. Thus, the decline reflects macroeconomic trends in the housing industry rather than the isolated impact of state liability policies.”
“We feel vindicated that a team of economists confirmed what we’ve long believed – that builders use construction defects as a boogeyman to justify their calls for less liability for shoddy work,” said Jonathan Harris, a Denver homeowner and chair of Build Our Homes Right. “I’ve lived the nightmare of begging the builder of our affordable condo complex for adequate repairs for serious structural problems, so it’s welcome news that there is no justification to loosen Colorado’s homeowner protection laws that already favor builders and developers.”
Build Our Homes Right is a coalition of homeowners and legal advocates dedicated to protecting homeowner rights and opposing attempts to weaken legal protections for consumers who buy a defective home.
Pacey Nehls is an economic consulting firm with 35 years of experience conducting analyses on economic and business issues in both the private and public sectors, especially in the areas of legal matters and public policy decisions.
Colorado Fiscal Institute provides credible, independent and accessible information and analysis of fiscal and economic issues in Colorado to inform policy debates and decisions that improve the well-being of individuals, communities and the state as a whole.
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