Colorado Builder gathered with a panel of industry representatives just before Christmas for a wide-ranging discussion on the builder industry and its myriad challenges. The group comprised several builders and suppliers, who each brought their perspective on what 2018 will bring for builders and their customers.
The condo problem
There’s an opportunity for creative legislators to address two major issues in Colorado for the builder industry and for homeowners: construction defect reform and affordable housing.
Construction defects and affordable housing are intrinsically linked. Condos are a key part of young consumers’ ability to build equity and be financially successful, according to Brian Workman, president of Blind Corners and Curves, and a member of the Construction Resource Group (CRG). However, concerns about defect suits have stifled construction in that sector.
“When you look at stepping into ownership of a house, a condo is a defined way to do that in most markets, and it’s not in Colorado,” Workman said. He believes that there’s “a large coalition of people who care a lot about affordable housing who would find ways to make this a part of their issue.”
Unfortunately, none of the panelists could name a legislator who has been willing to step up as an advocate for the building industry.
Instead of homeowners and builders working together, conflicts over construction defect reform pit them against each other.
Consumers are laboring under the impression that builders are getting rich off shoddy work, but as Scott Moberg, president of Joyce Homes and 2018 president of the Home Builders Association of Metro Denver, pointed out, “margins are smaller now than they were three or four years ago.”
Dave Jackson, principal at Jackson Design Build, noted that his margins are half of what they were in 2005.
Getting more affordable housing options built means educating consumers about why that isn’t already happening, and getting them to advocate for change, according to Jason Brown, president and co-founder of Ascent Builders, and vice chair of the HBA of Metro Denver’s Custom Builder and Remodeler Council.
Brown said, “The consumers have to get behind this and understand that if you want affordable or attainable housing, or whatever term you want to use, some of these things are going to have to change. Or we’re just going to continue to build single-family detached” homes.
[Click here to learn more about ‘affordable’ versus ‘attainable’ housing.]
Strategic Insurance Services owner and CRG member Stephanie Beninati believes the builder industry needs to do a better job of educating consumers about what a construction defect suit means for them in real terms.
“The people who are purchasing these products have to fully understand the extent of what happens when you take a builder to court and sue them for $10 million,” she said. “How it plays out when they’re awarded that judgment is not necessary beneficial to them.”
David Baltz, owner and operations manager of Phoenix Framing, another member of CRG, agreed that consumers need to be educated about the impact a defect suit will have on them, and called for significant reform in how defects are handled.
“Having been in the business for a while and unfortunately been dragged into numerous defect suits, my observation is that there needs to be fundamental tort reform,” he said. “Right now, it doesn’t matter whether you did a great job or you didn’t do a very good job. [Plaintiffs’ attorneys] will seek to find the level at which the insurance companies will settle without going to court.”
He added, “The homeowners think they’re going to end up with a big sack of money, and they don’t. In many cases … they don’t end up with enough money to repair the alleged defects.”
Baltz said that sometimes a defect doesn’t even have to cause any harm. Suits can be brought over a discrepancy between a plan or drawing and the final build; “whether there’s actually any structural defect, cosmetic defect, water intrusion or anything else is irrelevant.”
Brown has also seen defect suits first-hand. Insurance carriers “know what their cost to litigate is, so they know what they’re willing to basically write a check for to avoid litigation,” he said.
[Click here to learn more about the construction defect legislation landscape in Colorado.]
Beninati added the insurer’s perspective. “The insurance carriers should fight harder because once they pay — and the builders want to fight — but once they pay that builder’s insurance, [their premiums are] going to double, if they don’t get dropped.”
Labor loosening just temporary
Labor has been a primary challenge for builders for years, and the panelists agreed that it remains a problem today. However, Moberg noted that he’s seeing labor pressure loosening a little.
The National Association of Home Builders cited data from the Bureau of Labor Statistics that shows the construction industry added a respective 27,000 and 30,000 jobs in November and December 2017. Over the last 12 months, as of January, home builders and remodelers have added 86,400 net new jobs, according to NAHB.
Danielle Andrus was previously the managing editor for Colorado Builder, and is currently Editor for the Journal of Financial Planning.
