The latest chapter in the push to build more housing in California is different from the familiar trends of increasing densities, streamlining the permitting process and constructing additional backyard units.
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This more recent focus is on addressing litigation, insurance and financing issues that have stymied condominium development for years.
A state law enacted more than two decades ago that aimed to protect condo owners against construction defects led to widespread litigation and higher premiums, making condominiums too risky for many developers.
Housing advocates, builders and several local governments for some time have lobbied for changes and in the current legislative session in Sacramento, lawmakers have carried various bills to make them.
The key changes would narrow the liability exposure that leaves developers and contractors vulnerable to expensive lawsuits and give builders more flexibility to use portions of down payments to finance the projects, as other states do.
However, in the face of opposition from consumer attorneys, homeowner groups and others, the liability measure was weakened and the financing bill has been withdrawn, at least for now.
There’s little dispute that more affordable housing is needed in California, both in the rental and for-sale markets. Condominiums had long been one of the more affordable types of housing to buy in California — and a “starter home” option, if you will.
Condo projects once seemed ubiquitous in San Diego and around California. But condo construction has fallen 90 percent throughout the state since 2005, according to the Terner Center for Housing Innovation at UC Berkeley, which tied the decline directly to defect liability policies.
Only about 3,000 condominiums are built each year in California, according to SPUR, the San Francisco Bay Area Planning and Urban Research Association, a nonprofit public policy organization
“In fact, multifamily condos made up just 3 percent of the new housing the state added between 2011 and 2021,” wrote Michael Lane, SPUR state policy director.
In addition to litigation costs, developers have had to pay as much as four times more for insurance on a condo project than on a standard multifamily development. This is on top of the high cost of materials, labor, land and financing facing all development.
Many builders turned to constructing apartments.
Gary London of The London Group Realty Advisors in San Diego suggested that could be reversed if Sacramento can unlock condo development.
“That will replace the apartment cycle,” he said, adding that high rents could instead pay for mortgages on condominiums, boosting homeownership. “That’s the missing link.”
Andrew Malick, who specializes in urban apartment construction aimed at moderate-income residents, agreed that condos had provided entry-level homes and could again.
“Yeah, 100 percent,” he said.
But without changes in the law, he said, “we’re going to have a really tough time to build condos in this state.”
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Assembly Bill 1903, by Assemblymember Buffy Wicks, D-Oakland, called for eliminating the prospect of a lawsuit if the builder satisfies the local building department during the construction phase and hires an expert third-party to certify the quality of the construction.
Builders also would have a chance to repair defects before lawsuits kick in.
“Ironically, the late (state Senate Majority Leader John) Burton thought this is basically what he was doing with his legislation back in 2003, Senate Bill 800. That’s why it was known at the time as the Right-to-Repair Act,” according to Tom Philp of The Sacramento Bee.
Yet under the Burton measure, a homeowners association can file a lawsuit for many units based on a sampling of construction defects for up to 10 years from the sale.
This often delays the problem being fixed, according to Wicks.
In some cases, lawyers solicited owners to consider filing legal claims against the developer and the architect. San Francisco-based KQED talked with one developer who said lawyers sent flyers to condo owners in his building encouraging litigation — before some had moved in.
A coalition of opponents to AB 1903 fought back, saying the proposal “shifts the cost of defective construction onto homeowners who cannot afford to pay for builders’ mistakes, weakens accountability for unsafe building practices, and reduces incentives to construct housing that complies with basic safety standards,” according to an analysis of the bill.
The measure passed the Assembly easily, but some key provisions were taken out through amendments by the state Senate Judiciary Committee, which then passed the bill.
A measure by Assemblymember Chris Ward, D-San Diego, didn’t get that far. AB 1406 would increase the amount builders could take out of security deposits when a prospective buyer canceled a contract, from 3 percent to 6 percent. That would help with financing, according to Ward’s office.
“Greater certainty for lenders would reduce reliance on costly financing and discourage speculative purchasing that destabilizes projects,” his office said in a release.
But homeowner groups, real estate agents and some Democrats balked, contending the increase would be too much for first-time homebuyers.
Ward’s bill also passed the Assembly, but he pulled it before a Senate committee hearing.
Regardless of the outcome this year, advocates of the proposed changes see this as the beginning of a longer battle to make condominium development more appealing again.
Other pro-housing legislation, also usually controversial, didn’t always meet with initial success.
“It takes time,” London said. “Public policy typically trails what’s going on in the marketplace.”
Mark Leibovich (@MarkLeibovich) in The Atlantic.
“Here are some things that (Sen.) Mark Kelly has survived: a turbulent and sometimes violent childhood, 39 combat missions in Desert Storm, a missile blowing up just above his plane, and four space-shuttle voyages (two as mission commander). He has also braved the near-murder of the person he loves most and watched her get deluged with death threats for years afterward.
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“It is fair to observe that Pete Hegseth cannot scare him.”
