DRCOG’s Findings on the Impact of Construction Defect Litigation Have Been Released (And the Results Should Not Surprise You)

The downward trend in attached-housing construction in Colorado is well-known and discussed often within the region’s construction, insurance, finance, and legal communities.  In recent years, builders and insurers in particular have striven to bring greater awareness to local governments and lawmakers regarding the impact that construction defect lawsuits have on the builders’ ability to introduce desirable, affordable, yet cost-efficient attached-housing options, such as condominiums and townhomes, into the marketplace.  The Denver Regional Council of Governments (“DRCOG”) has been aware of the builders’ and insurers’ plight, largely because of the impact that the scarcity of affordable attached-housing has had on their respective communities.

On October 29^th, DRCOG released its long-awaited Denver Metro Area Housing Diversity Study, prepared by Economic & Planning Systems, Inc., which investigated the factors contributing to the recent (downward) attached-housing development trends and conditions.  The Study evaluated factors including changing financing and insurance requirements for builders and homebuyers, the impacts of foreclosures, changes in prospective homebuyer demographics, economic conditions which limit options for prospective homebuyers, and the costs and risks associated with construction defect regulations and lawsuits.

Despite the retorts and rebukes of the naysayers, the negative impact of construction defect regulations and lawsuits on Colorado’s housing market is significant. In this regard, the DRCOG Study found that:

• There is a belief within the development community that the probability of being sued is nearly 100 percent for attached residential for-sale projects involving an HOA.
• The costs of litigation, including retaining experts to evaluate defects, and legal costs associated with the builders’ insurance companies seeking to recover costs from contractors, are a deterrent to future development.
• All of the national homebuilders interviewed indicated they have no plans for building attached for-sale housing in Colorado—where the risk of being sued is “just not worth it.”
• At least one insurer interviewed opined that insurance premiums are 25 to 45 percent higher in Colorado than other states for comparable products.
• The number of subcontractors and development team members willing and/or able to work on attached for-sale housing has diminished.
• Developers are estimated to need to pay an average of $15,000 of additional cost per unit due to construction defects (i.e., the eminent threat of a lawsuit for same). 

I encourage anyone and everyone reading this article, and particularly those within Colorado’s construction, real estate, finance, insurance, and government circles, to read the DRCOG Study and to become more in-tune with the real risks and concerns brought on by rampant construction defect litigation in Colorado. Based on the DRCOG Study’s findings, you can’t afford not to.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.