Washington’s condominium conundrum
Housing advocates say state law makes building condos cost prohibitiveJanuary 17th, 2019
The Washington state Condominium Act adds to development costs and liabilities making condo construction an unattractive option for builders seeking to meet the demand for affordable housing, some construction industry professionals here say.
Some in the industry are pushing for legislation this year to lower barriers to condominium construction and allow developers to create more affordable housing options that meet infill development requirements.
A condominium is a building or complex of buildings containing a number of individually owned residences. Industry experts say that strict warranty and inspection requirements included in the Washington state Condominium Act of 2009 have led to a steep decline in condominium development here.
In 2008, building permit applications were filed for 178 condominium units in the city of Spokane and Spokane County. That number fell to zero in 2011 and, in the last seven years, permits have been filed for only 242 condominium units, according to data published by the Spokane-Kootenai Real Estate Research Committee.
During that same period, permits for 8,172 multifamily units and 9,983 single-family homes were filed in Spokane County.
Jim Frank, president of Greenstone Corp., of Liberty Lake, is one local developer who has been heavily involved with local efforts toward a legislative fix to the Condominium Act.
“The condominium law was changed in 2009 and made more restrictive in several ways, with the result being essentially the elimination of condos as an affordable housing option in the state,” he says. “There aren’t any being built here and very few being built in Seattle, most of those being high end.”
Frank says the law as it exists now imposes development standards on condominium construction that aren’t imposed on other types of construction, such as multifamily rentals or townhomes, and a strict inspection regime that’s more difficult than normal building code requirements.
“All residential and commercial construction are subject to inspection, but condo applications require a lot more frequent and detailed inspections,” he says.
The law also created a liability and extended warranty on everyone working on construction of a condominium, including developers, contractors, sub-contractors, and architects, Frank says.
“It’s designed to make it easy for (homeowners associations) to sue, so there’s been lots of litigation and abuse of legal practices,” he claims. “In my view, if there are construction standards to meet, they should be met by everyone. Local jurisdictions should be able to add building standards, but they should be imposing those uniformly across all building types. The same goes for warranty requirements.”
Frank says Greenstone got involved in legislative efforts to change condominium development laws primarily because of the issues it raised for the company in the Kendall Yards development northwest of downtown Spokane.
“In 2016, we submitted plans to build a 24-unit condominium building at the corner of Summit and Elm,” he says. “However, after about two months, we gave up, as we couldn’t get any subcontractors insured to work on it.”
Frank says liability, insurance, and inspection requirements were also adding significant cost to the project, and Greenstone ultimately decided to withdraw its permit and then resubmit the identical plans as an apartment project.
“And suddenly, all of the excessive costs and issues with insurance just disappeared,” he says.
That project, known as the Elm Lofts, is currently a fully occupied apartment complex.
Going forward, Frank says that in order for the Spokane area to reach the density level it hopes to achieve, as well as meet the infill requirements set forth by the Growth Management Act, it’s important to have more options for multifamily development.
“Currently, the only way to do that is constructing apartments, so that’s why we see such a glut of those now,” he says. “We’d prefer to allow for homeownership through condominiums, but this forces us to build more apartments than we want to. It’s a bad thing for cities and communities to have all multifamily developments be rental housing.”
Arthur Whitten, government affairs director for the Spokane Home Builders Association, says housing is an economic driver for the Spokane region.
“Without affordable rentals and methods of attainable homeownership, it’s difficult to recruit new employers to the area,” he says. “The lack of condominiums puts a strain on the market for entry-level homeowners and downsizers and increases the cost of rentals.”
He says critics of the condominium act argue that it allows for warranties to extend for unnecessarily long periods, and its definition of construction defects is too broad.
“In recent years, some attorneys have taken advantage of those factors, advising condo boards to sue before the warranty expires over damages that aren’t necessarily the developer’s responsibility,” he says. “So, now there are very few who are willing to insure developers and contractors.”
Whitten claims many of the changes that were made to the condominium act in recent years reflect issues that were occurring at the time with Seattle high-rises.
“The changes ensure homeowners have more power to mediate with developers,” he says. “Unfortunately, it was a bit of an over-correction, and the result is that condominiums are now too expensive to produce.”
Locally, Whitten says, there is a lot of support for legislative action that would update the Condominiums Act.
Some of the groups he says the SHBA has partnered with to support condominium liability reform in 2019 include the cities of Spokane and Spokane Valley, Spokane County, Greater Spokane Inc., Spokane Valley Chamber of Commerce, Spokane Association of Realtors, and Downtown Spokane Partnership.
Greater Spokane Inc. CEO Todd Mielke says the economic development organization is one of several in the area that support condominium reform that would limit the expansion of condominium warranties and liability for developers.
“As a business development organization, we look at the regional infrastructure needed for economic development, and housing availability is a big part of that,” he says.
Mielke says GSI and its partners support changes to condominium development laws that would revise warranties and inspection standards to more accurately reflect builder responsibilities and clarify details of when and how litigation can be brought against developers.
Whitten says several options are being considered for potential changes to the state’s condominium act.
“The first would be to reform the definition of construction defects,” he says. “The second would be to amend the arbitration process to allow developers a ‘time to cure’ period to address issues and require that a majority of condo owners be in favor of litigation.”
Whitten says a third option might be introducing statewide legislation that would allow local jurisdictions to adopt their own warranty and inspection requirements for new condominiums.
“This would introduce a minimum threshold on how many stories or units are required for a condominium complex to fall under the state’s condominium statute,” he says.
Whitten says changes to the condominium act would likely come in the form of a bill with attachments, but it’s hard to say how soon legislative action would begin to yield results.
“It really just depends on what’s introduced and passed,” he says. “From there, the changes would still need to be implemented, so we might not see any real results until 2020.”