Construction Defects and the Challenges Facing Residential Home Building Today

Transcription

1 Construction Defects and the Challenges Facing Residential Home Building Today Chérie Talbert, Senior Vice President Home Builders Association of Metro Denver June 1, 2016 Castle Rock Economic Development Colorado

2 The residential home building industry by its very nature faces many challenges No other human built product made of natural materials in a natural environment is expected to be perfect

3 Home Building Industry Challenges What are the other top challenges? I. Regulations/Fees II. Financial Lending and Insurance III. Workforce Labor Shortage IV. Construction Defect Litigation

4 Challenge #1: Regs & Fees Regulations & Fees According to the National Association of Home Builders (NAHB), Regulations account for 24% of the price of a new home. Affordable / Attainable Housing Impacted Tap Fees Impact Fees Inspections Codes OSHA EPA / CDPHE

5 Challenge #1: Regs & Fees Regulations & Fees

6 Challenge #2: Financial Lending & Insurance Financial Lending & Insurance Climate today is especially impacting the smaller builders Cost of insurance extremely high due to construction defect litigation College-educated Denver millennials need 15 years to save for a down payment Millennials with no college education are worse off, needing an average of 23.7 years to save for a median-priced home In comparison, a college-educated millennial in Atlanta without student loan debt can save enough for a 20% down payment on a median-priced home in under 2 years Source of last 3 bullets: Denver Post, May 24, 2016

7 It s all about the RISK Reduce the risk so lending can happen Huge potential market We estimate a demand of 5,000 potential condos per year Both insurers and lenders would love to work with this segment of housing once again

8 Challenge #3: Affordable/Attainable Housing Affordable / Attainable Housing One of the overlooked impacts of building regulations is their effect on housing affordability/attainability Every time a local (or state/federal) government issues a new construction regulation, it raises construction costs - Permit fees - Tap fees - Impact fees - Construction defect litigation Higher costs = Higher prices = less qualify for home ownership 2014 NAHB estimates nationally that a $1,000 increase in home price leads to pricing out about 206,269 households Income is not keeping pace with the cost of housing Source: State and Metro Area House Prices: the Priced Out Effect, NAHB Housing Economics, August 1, 2014

9 Housing is a Vital Economic Development Component National Association of Home Builders (NAHB) weighs in: Importance of affordable/attainable housing Communities with housing options that are affordable for all or most income levels should be substantially more appealing to businesses looking to relocate and/or expand and households looking to put down roots.

10 Challenge #3: Workforce Labor Shortage Workforce Labor Shortage Although Colorado is in the midst of a construction boom, building projects across the state are being stalled due to a substantial labor shortage. The Home Builders Association of Metro Denver (HBA) and Colorado Construction Institute (CCI) recently formed a partnership to create an HBA Construction Apprentice Program to train the next generation of Colorado s residential construction trades workers. HBA has committed grant monies to CCI to develop the program, which will become a one-of-a-kind Residential Construction-specific Apprentice program in Colorado. Source: HBA of Metro Denver/CCI 2016

11 Challenge #4: Construction Defect Litigation Construction Defect Litigation State Preempted Local Reforms

12 Has condo development hit a wall?

13 It s no secret that woven through this entire topic is conflict and litigation and lawyers and money Senator Mark Scheffel, September 5, 2013 Westword Governor Hickenlooper called for construction defects reform for the first time in his State of the State Address on Thursday one of a number of issues he has some, but not full, across-the-aisle support. January 14, 2016 Denver Business Journal

14 Bills Introduced SB SB SB did not get to bill paper to be introduced All contained consumer protection People started to realize that a few representatives of an HOA could agree to litigation that put a lien on everyone s condo property Disingenuous representation by plaintiff attorneys who take 35-40% of awards on average; leaving little for repairs Colorado Specialty Court concept introduced Study bill Did not pass

15 Local Effort Enacting Local Solutions Without a legislative fix over so many years, it was collectively decided that the economic impact to local municipalities was so profound that we d work on local solutions State preempted Home-rule Municipalities

16 Local Adoptions 1. City of Arvada 113, City of Aurora 353, Town of Castle Rock 55, City of Centennial 107, City of Colorado Springs 445, City of Commerce City 51, City & County of Denver 663, Douglas County* 195, City of Durango 17, City of Ft. Collins 156, City of Lakewood 149, City of Littleton 44,669 City of Arvada City of Aurora Town of Castle Rock City of Centennial City of Colorado Springs City of Commerce City City & County of Denver Douglas County* City of Durango City of Ft. Collins City of Lakewood City of Littleton City of Lone Tree City of Loveland Town of Parker City of Wheat Ridge 13. City of Lone Tree 13, City of Loveland 72, Town of Parker 49, City of Wheat Ridge 31, , , , , , ,000 Population Affected 700,000 TOTAL POPULATION: 2,522,283

17 2.5 MILLION 2.5 Million Coloradans are now covered by local reform ordinances!

18 Condo Market Condo Market Metro Denver 25% of the housing market in % in 2015 Average cost of condos produced in 2015 $400,000 Median single family home in 2015 $353,500 Average cost of resale condos in 2015 $202,000 Number of units resold in ,500 Number of units built in *Source: Denver Metro EDC Presentation to HBA of Metro Denver, May 19, 2016

19 Fix Needed Over A Political Win What moves the needle for the diversity of housing (condo s) to come back as an attainable housing product in Colorado? Let Arbitration Stand Right to Repair Informed Consent/Majority Vote

20 2016 Forward Special Legislative Session over the Summer? Not yet sure, but unlikely Upcoming Elections - State Will both Chambers have a single party representation? Keeping diversity between the Chambers important Local Efforts Furthering number of jurisdictions under reforms Local Elections Judicial Final ruling on Villagio Case Other Continuing to educate and expand knowledge of this complex issue

21 Economic Impact of Housing New home construction has always been critical part of the overall health of the Denver metro region and the broader overall Colorado and U.S. economy.

22 Housing is a Vital Economic Development Component Driving a Vibrant Economy: Housing s Role in Colorado s Economic Success (December 2014) The overall economic impact of home building in 2013 was $5.15 billion, 1.7% of the entire gross state product of Colorado New home building and rehabilitation analyzed in this report created 81,375 full-time equivalent jobs, more than 2.9% of the entire Colorado labor force, and; New home construction and rehabilitation resulted in new revenues to state and local governments totaling $1.29 billion

23 Town of Castle Rock Average price of a single family home in Castle Rock over the last 12 months: $450,000 and is going higher. That is approximately $ per square foot 623 closings in the last 12 months ending April 30, 2016

24 Historical Housing Activity Town of Castle Rock (MetroStudy) 1Q16

25 Town of Castle Rock Closing Rate 52/mo. Inventory Homes: 90/52 = 7 weeks Inventory Lots: 1134/623 = 2 years 39 Castle Rock communities showing activity over last 12 mos.

26 Higher Interest Rates With Federal rate hikes back on the table, the residential housing industry will be impacted, as could the whole economy To what degree?

27 Questions? Chérie Talbert HBA Senior Vice President & Executive Officer Metro Housing Coalition Political Committee office: direct: E Easter Place Suite 200 Centennial CO 80112