Community Associations Institute (CAI) responds to new real estate study examining the lack of affordable condominium housing.
August 1, 2016—Falls Church, VA— A study released by David Leon, Washington Center for Real Estate Research, concludes that there are many factors contributing to the high cost and low availability of condominiums in the Seattle Metro area.
The study is in stark contrast to statements featured in recent articles placing the brunt of the blame for the lack of affordable condominiums on “remarkably onerous construction defect laws.” Instead, the study finds multiple explanations for the lack of affordable condominium development.
Capital Markets: The capital markets in Seattle currently favor construction of for-rent buildings. The existing market promotes the development of apartments, as opposed to condominiums, because they present lower construction costs, greater marketability and a steady income stream for investors.
Land Use Regulations: The state’s Growth Management Act (GMA) is also identified as a critical factor in constraining supply and increasing price. The goal of the GMA is to promote urban development and reduce sprawl, making the City of Seattle, as the report points out, the best opportunity to meet the GMA goals. Restricting growth to specific areas, natural geographical constraints, and Seattle’s land use restrictions and building codes, lead to higher development costs and, as a result, increased housing prices.
Construction Management: As the study points out, another factor contributing to the lack of condominium development is the limited capability of many developers to manage construction internally, as opposed to subcontracting out work on condominium projects. Managing construction internally allows builders to keep better track of quality and to self-finance a significant portion of the construction cost, thereby managing the risk of defects and improving the availability of financing and insuring new condominium construction.
The Washington Condominium Act: The study probes additional changes to parts of the Condominium Act that currently expose developers to risks. One recommendation is to require mandatory, binding arbitration as a dispute resolution mechanism. However, in its comparison to the California statute, the study points out that this provision, along with others, still yields exposure to construction defect litigation and is arguably more expensive and more time consuming on parties to the disputes. In addition, binding arbitration eliminates condominium owners’ opportunity to pursue claims through the courts and significantly limits judicial review of private, professional arbitrator decisions.
The study also recommends addressing what constitutes a construction defect, and revising the remedies available under the Condominium Act to be limited to specific performance of repairs, as opposed to monetary judgments.
Legislative proposals in recent years that attempted to create an onerous and lengthy process for owners as a condition to remediate defects have been unsuccessful.
The Uniform Law Commission developed the Uniform Condominium Act – from which the Washington Condominium Act is derived – by thoroughly vetting the construction warranty language with stakeholders; including the building industry. The current language in the Condominium Act already represents a compromise of consumer warranties and has been effective in improving the quality of condominium construction in Washington State. If there is a defect in construction of a condominium, the responsible party should be accountable for remediating the defect. That’s the nature of the existing law which is particularly important to purchasers of affordable housing who may not have the financial resources to repair defective construction on their own.
This study suggests that changes to the Condominium Act are “not sufficient…to improve condominium supply and affordability.” The Community Associations Institute (CAI) Washington Chapter will continue to review these recommendations in its ongoing effort to advocate on behalf of homeowners in the state to create conditions favorable for the well-being and protection of condominium purchasers and existing owners.
About Community Associations Institute
Community Associations Institute (CAI) is a national nonprofit 501(c)(6) organization founded in 1973 to foster competent, responsive community associations through research, training and education. CAI is an international membership organization dedicated to building better communities. With more than 34,000 members, CAI works in partnership with 60 chapters, including a chapter in South Africa, as well as with housing leaders in a number of other countries, including Australia, Canada, the United Arab Emirates, and the United Kingdom. We work to identify and meet the evolving needs of the professionals and volunteers who serve associations by being a trusted forum for the collaborative exchange of knowledge and information and by helping our members learn, achieve, and excel. Our mission is to inspire professionalism, effective leadership and responsible citizenship—ideals reflected in associations that are preferred places to call home. Visit www.caionline.org or call (888) 224-4321.