As we’ve written in the past, Millennials have played a significant role in the revival of Denver’s economy. As increasing rent payments threaten to exceed monthly mortgage payments, however, Denver’s popularity among Millennials may diminish. Although worsening affordability has not discouraged Millennials’ interest in living in Denver thus far, as Millennials age and begin to consider homeownership, some believe a supply of more affordable homeownership options may be necessary for their retention.
Condominiums, which often serve as a key transition into homeownership for first-time buyers, are being built at a much lower rate than in years past. Although a few condominium projects in the Denver metro area are underway (see here and here), the price point may be beyond what Millennial buyers are able to afford and in any case, the number of units remains low.
Some cite the inability to qualify for financing and low demand as the reasons for the decreased number of condominium projects. Others, including Denver’s Mayor Hancock, credit the chill on condominium construction to Colorado’s construction defect laws, which they say have resulted in increased insurance costs that make condominium development economically infeasible. Apartments, which are not subdivided into individually-owned units, are not subject to laws governing common interest communities that have resulted in increased liability exposure for condominium developers. A 2013 report quantified the difference, finding that insurance costs associated with condominium projects are 2 to 3 times greater than those associated with apartment developments. Based on this finding, it makes sense that some developers otherwise interested in condominiums elect to build apartment projects instead. .
A bill introduced in February aims to revise the current construction defect laws applicable to condominiums. Senate Bill 15-177 would amend Colorado’s Common Interest Ownership Act, C.R.S. § 38-33.3-101 et seq., as follows:
- Encourage alternative dispute resolution of construction defect claims by requiring a homeowners’ association to mediate the claim and by limiting the ability of homeowners’ associations to unilaterally amend the declaration applicable to their community to remove a commitment to resolve construction defect claims by mediation or arbitration.
- Require homeowners’ associations to inform their members of, among other things, the projected cost and duration of a construction defect claim and the effect that the claim could have on the value and marketability of their condos (both those subject to the claim and those not subject to the claim).
- Require a majority of unit owners to vote to file a class-action lawsuit, rather than just a majority of homeowners’ association members (the current requirement).
In attempting to reform its construction defect laws, Colorado joins a number of other states concerned about the overall reduction in the number of condominium projects in their respective states. Senator Jessie Ulibarri, a Millennial and co-sponsor of Senate Bill 15-177, hopes that reform will mean that members of his generation who have been driven into Denver’s expensive rental market will be able to buy a home. Whether Millennials are truly interested in homeownership and are economically positioned to become homeowners remain questions to be answered.