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Washington Condo Reform Gains Momentum amid Shortage of Affordable Homeownership Options

Economy

Washington Condo Reform Gains Momentum amid Shortage of Affordable Homeownership Options

The Puget Sound region is trying hard to get out of the housing crisis, but it is falling woefully short on one critical aspect: affordable homeownership.

Apartments for rent are mounting all over Seattle and parts of the Eastside. And some outlying communities have reportedly added tracts of expensive new single-family homes, often far from jobs. But the people who wish to be able to buy a small, reasonably priced condo are mostly out of luck because the local developers had abandoned condo construction in the past decade even as demand soared. This has resulted in inflated prices for the typical condo in Seattle and the Eastside to nearly half a million dollars — up 117 percent in six years.

It should be noted that in the last six months, condo prices have cooled a bit and developers have slowly started to build condos again. But prices remain near record levels, while inventory and housing production remain historically low — with the busy spring home-shopping season about to get underway.

There is a question looming as why aren’t more condos getting built? The reason as per any developer would be Washington State’s unusual condo liability law, which makes it easy for condo owners to sue builders over even minor defects in construction. In addition to that, the insurance costs and legal risks are high enough that most developers don’t bother with condos. And few developers that do have to tack those added costs onto their new units, making them even more unaffordable.

Now, after several years of stalled efforts at condo reform, there is a tremendous momentum in Olympia to change the law in hopes of spurring more condo construction.

A bill has bipartisan support which would make it harder, but not impossible, for condo owners to sue developers. It also has the support of trial lawyer groups that had helped scuttle past condo-reform bills. The legislation, from state Sen. Jamie Pederson, D-Seattle, is co-sponsored by 17 other lawmakers. It was able to be passed unanimously out of the Senate on Monday and faces little vocal opposition as it heads next to the House.

Pedersen wanted to introduce a compromise that allowed condo owners to bring lawsuits still when truly needed while protecting developers from onerous legal proceedings.

“It is not meant to be a lessening of consumer protections; it is not meant to allow developers to get away with things,” said Rep. Tana Senn, D-Mercer Island, who unsuccessfully pushed a more aggressive condo bill last year. “It’s really making sure that we bring the pendulum that swung too far in the ’90s (when the condo laws took effect), that we kind of brings condo liability laws kind of back toward the center.”

It should be noted that lawmakers around that state have been pushing housing issues more this session, as a problem once viewed as affecting only the Seattle area has spread state-wide. Housing prices from Vancouver to Bellingham to Spokane continue to increase far faster than incomes. Here lower pay means residents typically spend a similar share of income on housing as people in Seattle do.

The Law-

Under the existing law, Washington Condo owners can sue builders more easily than in most states — it allows suits for several years after a building is completed and uses a broad definition of what a “defect” is.

Pederson’s bill, SB 5334, does change a few things-

  • It reduces the personal liability of condo association officers by granting them the same immunity given to board members of nonprofits and companies; under current law, those condo board members could be forced to pay to repair defects in their building if they do not sue the builders that cause them.
  • It raises the bar for what condo owners can sue over — instead of the building having to comply with “all laws,” a lawsuit will need to prove the construction team violated building codes in the state. Now the condo owner would have to prove not just that the defect exists but that it would cause harm, like an unreasonable safety risk.

Along with this bill, another bill is also moving toward a vote on the full Senate floor would exempt condo projects fewer than seven units from some of the legal risks, an attempt to spur construction of smaller projects.

A third bill is also coming from Senn, which passed a House committee on Friday. It would require condo owners to secure a majority vote of the HOA before they could sue.

It should be noted that these changes would not suddenly unleash a flood of new condos as there are other reasons they don’t get built. Most developers continue to favor apartment buildings as solid money-makers, while fears of another condo bubble — like the one a decade ago when the market crashed, and empty condos had to be converted to apartments — still linger.

Jan Himebaugh, government affairs director at the Building Industry Association of Washington, said if the bills pass it would take much time for the real estate and insurance markets to react. But gradually the bill has the potential to be a significant step toward encouraging more condo development.

“I do think it’ll make a difference,” Himebaugh said.

The Condo Market-

In recent years, Condo prices have inflated, yet it remains the most affordable homeownership option.

In Seattle, the median condo costs $470,000 while the typical single-family house sells for $757,000; and on the Eastside, condos are $440,000 while houses are $910,000.

The same way demand for condos also has outstripped houses. Since 2012, condo prices across King County have soared 119 percent, compared with a 94 percent increase for single-family homes.

“The condo market has picked up,” said Erica Clibborn, a Windermere broker in Seattle who specializes in condos. “I think there’s definitely demand, we’ve seen it.”

The bills also have the option to reduce developers’ insurance costs, which, in theory, could reduce homeownership prices.

“There are so many developers that would want to come back into the market if it was a more developer-friendly space,” Clibborn said.

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