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Colorado lawmakers weigh rules to spur more building without stripping homeowner protections

The studs of Jennifer Miller’s Erie dream home carry in them her family’s hopes for the future, with messages literally inked with permanent marker onto the bedroom beams while the two-story house was under construction in 2019.

But the dream home turned into a money pit for the family of four as they tapped savings and equity from their down payment to fix problems she said were caused by rushed construction. The soil under the foundation wasn’t properly prepared, Miller said, causing the house to twist and stretch as the dirt settled under its weight. Drywall and floor tiles cracked. Doors stopped shutting all the way. The basement heaved and strained against itself. All after the warranty had expired, she said.

Three years and some $45,000 later, Miller now finds herself taking sides in the latest legislative fight over an otherwise esoteric area of law: construction defects, and how to find the balance between encouraging new builds and protecting people who’ve poured their savings into what’s often the biggest asset people will own.

“We really, really hope that things will change so the homebuying process doesn’t have to be a fight-or-flight experience,” Miller said. “That’s our hope, that people can see there’s a real face and real people with lives that are perfect, and we need homes that are safe to live in. We need that security. And someday I hope housing will be available to everybody because everybody needs a home.”

Construction-defect law in Colorado has been the subject of bruising battles in the Capitol for more than a decade. After taking a breather from the last round in 2017, lawmakers are again juggling consumer protection and rules that some worry will stifle much-needed building.

While at least four bills touch on construction defects, two in particular serve as vanguards of their particular side. Senate Bill 24-106 aims to create a middle ground between lawsuit and remedy, with the hopes of easing insurance costs and nudging builders toward more condo development. House Bill 24-1230 would increase the period during which homeowners can sue over shoddy workmanship and not start that clock until the alleged defect is noticed.

Backers of both bills emphasize the need for housing and highlight two separate economic reports that found a precipitous drop-off in condo development following the Great Recession, and that it’s a key housing type for a healthy market. But they also note their efforts approach it from different, possibly countervailing, angles.

The two economic reports give insight into the different approaches. One, from the Common Sense Institute, highlights the rising cost of insurance as a key factor for the drop-off in building condos. The other, from Boulder-based Pacey Nehls Economic Consulting, zeroes in on broader, national market trends for the root cause. Either way, there are fewer condos available for entry-level home ownership and for aging Coloradans looking to downsize.

“No first-time housing available”

Sen. Rachel Zenzinger, an Arvada Democrat and prime sponsor of the Senate bill, has “CAN STILL SUE!!” written in the margins of the draft — a personal emphasis that this effort isn’t about removing remedies, but creating new ones.

If passed, it wouldn’t force anyone to accept inadequate fixes and codifies the right of owners to get third-party fixes if their trust in the original builder has cracked, she said. Zenzinger is sponsoring that bill with fellow Democratic Sen. James Coleman, of Denver, but it has early support from a bipartisan coalition of lawmakers. It faces its first major hurdle with a committee hearing Tuesday.

Now, supporters of her bill say, the threat of lawsuits hangs over new developments and spurs insurance companies to raise rates. Those costs are then passed on to builders, and, in turn, buyers.

“We’re trying to reduce the scope and frequency of lawsuits because they have had the unintended consequence of increasing costs,” Zenzinger said, adding that it can also drag out the actual solution to the problem, too. “… You go to court, it takes longer to get your problem solved, and it’s more expensive for everybody.”

Kelly Campbell, a lobbyist for the American Property Casualty Insurance Association, said that when people buy insurance, often they’re paying for lawyers. Especially in a field that gets as complicated as construction defects, where cross-claims can blossom among different parties with different contractual obligations.

This proposal wouldn’t be a cure-all to the strain on the pressure of the condo market, she and other backers said. But it would be a “gentle nudge” to the insurance industry that it should take another look at the Colorado market.

“(This bill is) an opportunity to raise a flag and say, ‘Hey, the insurance market might be changing,’” Campbell said.

The effort has drawn support from more than just expected industry groups, with Healthier Colorado and Habitat for Humanity both signing on. Supporters also have touted the backing of more than two dozen mayors in the state.

Healthier Colorado sees housing as the “literal and metaphorical foundation to someone’s health,” spokesperson Kyle Piccola said. The bill may be one small piece of spurring housing, but the state needs everything it can, he said. The advocacy organization also didn’t see any red flags in the proposal, such as barring owners from seeking remedies to health and safety concerns from shoddy constructions.

Habitat for Humanity builds and subsidizes housing for low-income families throughout the globe. Colorado’s current insurance climate can add six-figure costs to affordable multifamily construction like condos, said Karen Kallenberg, executive director of Habitat for Humanity of Colorado. That effectively prices out builders, including nonprofits like Habitat, from pursuing that type of development.

An often-cited report from the Common Sense Institute shows condo insurance eating up 5.5% of total project costs — more than three times what it is for single-family development.

“There’s no first-time housing available in our state,” Kallenberg said. “Is this the only solution? No. But is it part of the solution? Yes.”

“Create all these empty houses”

But the line between construction defect law and lower costs isn’t universally agreed upon. An analysis by Jeffrey E. Nehls, an economist with Boulder-based Pacey Nehls Economic Consulting, found broader economic winds played a bigger role in pushing developers to build for-rent units like apartments instead of for-sale multifamily properties like condos.

In short, institutional investors found for-rent developments more enticing than for-sale developments after the Great Recession and that trend has never really let up. And it’s not a trend unique to Colorado, but something being seen nationwide, his report found. In his view, that boils the debate down to a clear concern over weakening consumer protections versus the uncertainty that it would have any real effect on new condo construction.

“Changing these laws isn’t going to move the needle in terms of changing the economic behavior of the builders, and which companies build or don’t build in Colorado,” Nehls said in an interview. “It’s just more profitable for them to build rental units. They have this capital lined up to build them and that’s what they’re going to do. Tweaking these laws won’t change that behavior, but will come at the risk of jeopardizing homeowner safety.”

The separate House bill aims squarely at the consumer protection piece. It would extend the window for a construction defect lawsuit from six years to 10 years, and change when that clock starts, to include when the defect is actually found, not just when it should have been found.

Rep. Jennifer Bacon, a Denver Democrat, noted that the two proposals have some overlap, but aren’t necessarily in direct opposition to each other. Her bill aims at the larger housing market, while the Senate bill has more focus on condos, in particular. Affordable housing doesn’t just mean building it; it means making sure people are protected if their homes are built poorly.

“We have to be sure that, especially if we’re doing this for the attainable and affordable markets, that people — when they are the most leveraged in their lives — are able to recover if something goes wrong,” Bacon said. “We have to find a balance between all of that.”

That’s the position Miller, the Erie homeowner, finds herself in: What good is new building if the homes aren’t inhabitable?

“It doesn’t make sense to build houses that are inflated in costs and have these defects,” Miller said. “Because then all it does is create all these empty houses.”

Backers of Bacon’s bill see it as encouraging builders to take stronger responsibility for their work — and they fear the Senate bill has the opposite effect by giving them more outs for bad building. Jonathan Harris, chair of the advocacy group Build Our Homes Right, has spent 20 years fighting for stronger consumer protections, starting with his own long legal battle over problems with his condo in Denver’s Five Points neighborhood.

“There’s a lot of good builders out there,” Harris said. “The problem, really, is the few unscrupulous builders that are giving more of them a bad name. If they just stood behind their work, this wouldn’t be an issue.”

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