Seattle’s push for ‘affordable’ condo construction, despite poor track record

By Deborah Goonan, Independent American Communities

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Why are some cities pushing for developers to build more condos as “affordable housing?”

I’ve already written several articles about Colorado City Mayors that push for new condos at low price points.

The standard political spin is that condos are less expensive than single family detached homes. But in the last few years, there have been plenty of luxury condominium towers going up in every major U.S. city.  Somehow, there’s a disconnect.

‘Affordable’ condos only possible if owners willing to accept poor quality

The problem, as we see in Colorado, is that in order to motivate developers to build non-luxury condos that moderate-income people can afford to buy, condo owners would have to give up some of their rights to legal remedies involving defective construction!

Now we see a similar dynamic playing out in Washington state, particularly in Seattle. For example, the author of a Runstad Center study (commissioned by a Realtors association in Washington State) recommends requiring binding arbitration as the sole method for condo owners to resolve issues involving construction defects.

Runstad Center report: Addressing condo construction defect liability may help promote affordable housing in Seattle

Peter Kelley

Runstad researcher David Leon examined housing and condo availability data for San Francisco, Los Angeles and San Diego, California; as well as Portland, Oregon; Phoenix, Arizona; and Las Vegas, Nevada.

Leon’s study cites a combination of real estate, insurance and market forces contributing to the lack of affordable condos in the Seattle area, as well as geography, land use regulation and state legislation. He adds, though, that soaring prices do not appear to be caused by any one of these factors in isolation.

The pertinent legislation, the Washington State Condominium Act, contains several provisions designed to protect homebuyers, improve construction quality and reduce the cost of resolving disputes over construction defects.

Leon’s study suggests that “to respond to the growing concerns about housing affordability, it may make sense to remove some of the perception of risk and uncertainty” imposed by the act. Toward that end, he suggests:

  • clarifying the nature of a construction defect
  • incentivizing repairs rather than money damages as a remedy;
  • making arbitration mandatory and binding;
  • narrowing the standard of appeal from arbitration decisions, and
  • limiting attorneys’ fees or adjusting them to a knowable schedule.

http://www.washington.edu/news/2016/07/28/runstad-center-report-addressing-condo-construction-defect-liability-may-help-promote-affordable-housing-in-seattle/

 

While I can agree with limiting attorneys’ fees and offering arbitration as an option, I disagree with the author’s suggestions that would effectively limit a condo-owning consumer’s chances of satisfactorily resolving construction defect claims. Removing a perception of risk and uncertainty for developers usually increases risk and uncertainty for condo buyers. Without adequate consumer protection, condo builders have little incentive to pursue good quality standards, and housing structures that are built to last a lifetime.

 

But, aside from the obvious and pervasive problem of relatively poor construction of so-called affordable condominiums, there are other realities that make me wonder why city planners aren’t thinking outside the condo “box” — and outside the HOA common interest development box — to create an economic environment where people can actually afford to live in peace and safety, whether they own or rent their homes.

 

Limited market demand

First of all, looking at it from a marketing point of view, the National Association of Homebuilders (NAHB) has already determined that most buyers prefer single family detached homes. There’s very limited demand for multifamily, attached housing, nearly always legally organized as condominiums. In fact, there’s limited demand for living in an urban location.

NAHB Study Reveals the Housing Preferences of the Boomer Generation

Here are some of the findings on what home buyers want:

The majority of all buyers (65%), and boomers in particular (63%), would like to buy a single-family detached home.
Most home buyers (64%) prefer a single-story home, but there is great variation by generation: Millennials (35%), gen X’ers (49%), boomers (75%) and seniors (88%).

And here are some of the findings on what most buyers do not want:
Few buyers (8%) or boomers (7%) prefer a central city location. About two-thirds prefer a home in the suburbs (close-in or outlying) and just over a quarter prefer a rural area.

Source:

http://www.nahb.org/en/news-and-publications/Press-Releases/2016/02/nahb-study-reveals-the-housing-preferences-of-the-boomer-generation.aspx

 

Too many condos?

And some cities – for example Philadelphia and Chicago – are now realizing they have an oversupply of condominiums. In fact, Chicago is now following a condo-to-apartment conversion trend that has been so prevalent in Florida’s cities over the past decade.

And here’s another piece of irony.

Recently, the National Association of Realtors and Community Associations Institute heavily lobbied Congress to pass legislation (Housing Opportunity Through Modernization Act) that contains provisions to force the Federal Housing Administration to relax condominium association certification standards, so that more condos can be sold to first-time home buyers or down-sizing senior citizens using FHA-insured mortgages.

A little common sense begs the question: Why would such legislative action be deemed necessary if there were not a glut of undesirable, unsellable condos on the market? Why would cities need to build even more bargain-priced condominiums, when they cannot seem to sell many of the condos that already exist?

 

How to address affordability of homeownership

It seems that every futile attempt to manipulate the housing market results in an increase in real estate speculation. That, in turn, drives insane price increases followed by market crashes where residential values crumble. The only winners in this game are heavily-funded corporate real estate interests. Consumers generally lose in a cyclical, volatile real estate market.

Instead of forcing a reluctant market to build a form of housing with a history of volatility and failure, why aren’t policy makers and local government leaders looking at economic factors that would increase household incomes? And why don’t local governments encourage homebuilders to build the kind of property buyers actually want?

Instead of arguing for either more or less regulation of residential development, why aren’t we talking about common sense regulation? For example, instead of regulating minimum lot sizes and arbitrary housing density requirements, the emphasis needs to be placed on building communities that are safe, healthy, and financially viable.

Housing needs to be carefully sited so as to avoid land with a history prone to environmental contamination, soil subsidence or erosion, or flooding. Cheap land is cheap for a reason.

Multifamily housing and subdivisions must be thoughtfully designed so that they are affordable to maintain over the long term.  Cutting costs to bare bones in the development stage may translate to lower new construction home prices, but higher costs to maintain and correct poorly planned communities or inferior construction in the decades that follow.

And most importantly, the goal of effective housing policy should be long-term economic stability. Therefore, real estate speculation, and developer-driven, conflict-prone common interest governance schemes should be strongly discouraged in the US housing market.

 

 

 

 


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