By Elliot Njus The Oregonian, (TNS)
Legislation would limit builders’ exposure to construction defects
In Portland’s recent construction boom, condos have been a no-show.
Even as for-rent apartments have gone up by the thousands, developers have built only a handful of for-sale condo buildings, and most of those in gleaming towers in the Pearl District with prices squarely in the luxury range.
Their relative absence kept a more affordable option on the sidelines while first-time homebuyers fought over every fixer-upper on the market.
An Oregon House bill aims to make new condos cheaper and more common. It would do so by limiting builders’ exposure to lawsuits over construction defects.
The bill has the backing of developers and advocates for low-income homeownership.
“We need units that are more accessible, more affordable, more space-efficient, for seniors who are trying to downsize and millennial couples trying to start out or people who want to raise their children in the heart of a neighborhood,” said Diane Linn, the executive director of the housing nonprofit Proud Ground.
But trial lawyers and some condo associations that have been through defect battles say it could expose homeowners to huge repair bills.
“This is a bill that gets a developer off the hook, basically,” said Stan Penkin, a condominium board chair in the Pearl District.
House Bill 3432 would reduce the period set for suing developers over damage from construction defects from 10 years to six. It would require approval from a majority of homeowners before initiating a lawsuit.
The bill also would require the state building codes division to stiffen standards around sealing new houses from the elements and improve training for workers. It would require third-party inspections before the homes can be occupied. And if a defect comes to light later, the bill also sets up a procedure for the builder to offer to make repairs before the matter goes to court.
“Condominiums are a great first-time homebuyers’ opportunity,” said Rep. Mark Meek, D-Clackamas County, a chief sponsor of the bill. “We’re trying to move forward and offer good protections and bring affordable housing to the market.”
A typical condo in the Portland metro area, at $267,000, according to the real estate website Zillow, costs $137,000 less than the average stand-alone house.
But despite a red-hot housing market, developers have shied from building condos.
While most recently built rental apartments are wood-framed, many recent condo buildings are framed in pricier steel and concrete, largely to reduce the risk of defects. That raises the cost of each unit — by as much as $150,000, the consulting firm EcoNorthwest found — and makes each condominium building a riskier financial bet for the builder than high-end apartments.
Then there’s a prospect of getting sucked into a lawsuit up to a decade later.
Most developers buy insurance to protect themselves and their contractors against such a lawsuit, but the premium is wrapped into the construction cost and ultimately passed onto buyers.
And even so, many contractors are reluctant to get involved in a condo project because they might have to spend time dealing with the fallout years later. When Proud Ground was soliciting builders for a mixed-income condominium building in North Portland, many contractors chose not to bid for the work, Linn said, and those who remained were able to charge a lot more.
For developers, meanwhile, apartment buildings have been close to a sure bet, leaving little incentive to go with condos.
As a result, condo construction has limped along, with only a few hundred units coming to market each year in the Portland metro area. At the same time, rental apartment construction has stayed in the thousands.
The last major condo boom was in the mid-2000s, when the housing bubble was going full steam. The frenzied era resulted in a raft of shoddy construction claims, most because of water intrusion problems.
Homeowners at the Orenco Gardens townhome development in Hillsboro, for one, discovered leaks in a handful of units. After a full inspection conducted six years after construction wrapped up, homeowners found mold and dry rot hidden behind the facades of many units, the result of defects present in all 139 of them.
“It’s upsetting,” said Russell Sherrell, the homeowners association president. “You buy into a place, a beautiful neighborhood, a nice home, and then you find out it wasn’t built properly.”
The homeowners association sued the developer, recouping a little less than half the cost of a $4 million repair effort. Each homeowner had to pay about $17,000 through a special assessment to cover the expense.
Under the bill, the shorter timeline to sue could have meant the builder couldn’t have been held liable, Sherrell said, and homeowners would have had to pay twice as much, with many unable to afford it.
“I could see a mass move-out,” he said.
Homeowners associations like Sherrell’s and the Oregon Trial Lawyers Association — whose members litigate construction defect cases — say six years is often too little time to detect defects that often hide inside walls or under siding.
“What we’re talking about here is setting homeowners up for a situation where their home is too toxic to live in and too toxic to sell,” said Arthur Towers, a lobbyist for the trial lawyers group. “You have all these homeowners who put all their savings into a down payment and they have a giant mortgage.”
Boosters for the bill say 10 years is an arbitrary line that’s taken a toll on housing affordability.
“We think the six years is enough time to identify any serious issue,” Linn said. “You’ve got to draw a line somewhere. The line the state drew has created, we believe, unintended consequences.”