Will affordable housing ever come back to Colorado?

A new law and changes in the insurance market make affordable housing a less appealing prospect for builders
There is not much market incentive for a builder to take large risks to provide affordable housing. (Photo: Oseland, Dreamstime.com)

Prior to the Great Recession, condominiums and townhomes accounted for approximately 26%-27% of all permits pulled along the Front Range, and were referred to as “affordable housing,” meaning that you could find homes that were inexpensive or reasonably priced. Now that term has all but disappeared, to be replaced by “attainable housing.” In other words, it is possible to become a homeowner in Colorado, but it is by no means affordable.

To encourage more condominium and townhome construction, then-Gov. John Hickenlooper signed HB 17-1279 into law on May 23, 2017. Thereafter, the market has been waiting to see when affordable housing would make a resurgence. Unfortunately, it does not look like that will be happening any time soon.

While HB 17-1279, now codified as C.R.S. § 38-33.3-305, was sold as an informed consent bill, which was supposed to have made it harder for homeowners’ associations to file construction defect cases, that has not turned out to be the case. In reality, the law provides that an association must obtain approval of a majority of the owners who actually participate in a vote before it can file suit. Because this is a lower standard than builders could enforce by way of their own declarations, the new law actually made it easier for associations to obtain approval for construction defect actions. Needless to say, this has not caused a flood of builders vying for the opportunity to build affordable condominiums or townhomes, nor has it caused a rush of insurance carriers to race into the state to insure such projects.

[Related: Are opportunity zones good for builders?]

To make the situation worse, there has recently been a hardening of the insurance market, globally and locally, for wrap insurance programs insuring attached homes in Colorado. Whereas a builder could previously obtain adequate limits for a project for 2% of the hard cost of construction, that same insurance would now cost 3%-4%. Additionally, it used to be that a builder could obtain a $2 million primary policy, with an excess policy to provide adequate limits. Now excess carriers want to start their coverages at $5 million, $8 million or $10 million.

Finally, the cost of everything else is going up also. Land costs more, materials cost more, labor costs more, compliance with governmental regulations and requirements costs more, and fees and taxes cost more. In a housing market where there seems to be no end of buyers who are able to attain new homes, even though not affordable, there is also not much market incentive for a builder to take large risks to provide affordable housing. Hopefully, the economy will continue its upward trajectory, but, if not, we may see a need again for the supply of affordable housing. Until then, I wouldn’t hold my breath.   

Please feel free to reach out to me at (303) 987-9813 or by email at
[email protected] if you would like to explore revamping your building practices in order to make yourself a hardened target.

David McLain

David McLain is a founding member of Higgins, Hopkins, McLain & Roswell LLC, a law firm specializing in construction law and litigation in Colorado. He can be reached at [email protected]

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