The Harmful Effects of the Colorado Condo Construction Defect Law

If you read any article about the top cities to live in or top growing cities in the United States, you are bound to find a Colorado city on the list. Denver is one of the fastest growing large metro areas in the country, with tens of thousands of new residents flocking to the city annually in search of sunshine and ski slopes, but that doesn’t come without growing pains.

Thanks to an old law often referred to as the “construction defect law,” if two condo owners in a building or development join forces, they could turn a lawsuit into an expensive class action complaint. The intent of the law is good, but the problems it causes have created ripples into the cost of housing in the growing metro area.

What is the Colorado condo construction defect law?

The Colorado condominium construction defect law is a 12-year-old state regulation that gives condo owners an ability to join forces and sue developers for construction defects. The idea is to help consumers get better leverage against powerful developers who might try to get away with shoddy work and keep from paying out to owners who can’t afford to fight the developer’s lawyers.

In theory, this is a great deal for consumers. It is a great way to stand up to “the man” and “corporate interests” by empowering the little people to join forces. But the real world implications of the law end up harming consumers in practice.

A shortage of condos amid rising housing costs

Like other popular states for new residents, Colorado skylines are filled with cranes building new apartment buildings and houses. But new condos are quite rare, artificially driving up the cost of existing condos. In fact, condo prices are approaching house prices due to the low supply and high demand.

The median price of a home in Colorado grew by 10% in 2016, and 2017 is on pace for another year of high growth. Colorado Realtors share that condo and townhouse inventories are at a low, and supply continues to shrink. The affordability index for townhouses/condos fell 16% in Colorado in 2016.

According to data from Zillow, the price of a condo hovered around $150,000 from 2008 to 2012 before skyrocketing to over $300,000 today. I sold a condo near Downtown Denver in June 2014 for $215,000 when I left Colorado for Portland, Oregon. Today in October 2017, Zillow estimates the value at $330,000.

Progress to update the construction defect law

With dwindling supply and skyrocketing demand, Colorado lawmakers have been under pressure to update the controversial law. Some condo owners and consumer advocates say that the construction defect law is necessary to protect consumers, but with almost no new condos developed in Colorado since the law’s passing, it is clear that would-be condo owners could be priced out from a lack of supply.

House Bill 1279 was signed into law in the Spring of 2017, and addresses many developer concerns about expensive litigation costs on new condos. On both sides of the debate, this appears to be a step forward but not a cure-all for problems.

A Colorado Supreme Court case in June 2017 ruled that a homeowners association could not sue in a public court when association bylaws required arbitration. This put a little wind into the sails of dormant condo builders in the state.

Economics are important in real estate

The rules of supply and demand are rarely more clearly applied than in the world of real estate. The construction defect law in Colorado is proof that when demand skyrockets and supply remains low, prices can only increase.

If you are interested in the Colorado real estate market, understanding the unique legal environment is vital for success. But no matter where you live and work, real estate regulations are certain to impact your bottom line.

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