Construction of new rental apartments has bounced back from the Great Recession. Single-family homes are also coming back. But condominium construction remains largely stagnant, especially on the more affordable end of the market.
Developers in the Denver metro area say they're reluctant to build because of the potential to get sued by condo buyers for even small issues with the units. Specifically, many developers take issue with a provision in state law that allows two owners in a condo development to bring a lawsuit on behalf of every other owner in that development. But reforms to that law may come this legislative session, despite opposition from some consumer groups.
Ed Sealover, who covers the legislature for the Denver Business Journal, says developers in the Denver metro area claim that if they build condos, there is almost a 100-percent likelihood they'll be sued for construction defects. He says recently some developers have had to pay out eight-figure settlements.
According to Sealover, developers say something as trivial as a drafty window can result in a lawsuit.
"That has not only scared developers out of the market, but it's made it nearly impossible for construction companies to get insurance," Sealover says.
Insurance rates are high at least in part because of the high probability of lawsuits.
The issue is frustrating for city leaders along the Front Range. At an event in January previewing the 2014 Colorado legislative session, Denver Mayor Michael Hancock said one of his top priorities for this year is to reform the construction defects law. Hancock and others see the lack of condo development as detrimental to both economic growth and the Front Range's ability to attract young, educated workers who are likely condo buyers.
Relief for developers may be on its way. Sealover reports that Sen. Jessie Ulibarri (D-Commerce City) is trying to find a way to reform the law. Ulibarri voted against a reform bill in last year's session, joining several other Democrats.
Ulibarri says he's still not sure what form his bill will take but Sealover reports that Ulibarri has been talking with the Metro Mayors Caucus. That group wants to make it harder for a few individuals to bring a class action lawsuit.
Additionally, the caucus wants a majority of owners in a condo development to have to sign onto such a suit and also want to provide the possibility for mediation or for allowing a developer to fix defects before legal action can be taken.
Sealover says Ulibarri is also considering whether the state could provide developers with grants or tax incentives to defray the cost of higher insurance.
But Sealover says there's no guarantee House Democrats would support any proposal that comes out of the Senate -- even if it should come from Ulibarri, a fellow Democrat.
