The most important housing reform in California has a sleep-inducing name: “Construction Defect Liability Reform.”But it’s key to a defining issue of our time: whether regular Americans can buy a home.Today, the median house in California hovers around $1 million. Condos – apartments that you own – are the least expensive home to buy, and a vital “starter home” for many.
They make up about 40% of the new apartments built in places like Canada or Honolulu, but in California they fell to just 3% after a 2002 law to increase production backfired.
This is bad for multiple reasons:
1) Hundreds of thousands of Californians have been excluded from homeownership simply because their homes were never built.
2) People who do manage to buy condos overpay for older ones in worse condition.
3) Fewer homes built overall raises housing costs for everyone.The core problem: the 2002 law has effectively made it so that 10 years after a condominium is built, the statute of limitations is up and the HOA has to sue the builder or become liable for any damages. While builders were supposed to get the right to repair any flaws that emerged during the preceding years, a UC Berkeley analysis found instead homeowners were perversely counseled not to.“Homeowners are encouraged to seek settlements rather than allowing the developer and/ or contractor to fix (or “cure”) the defect…the practice of plaintiffs’ counsel charging contingency fees (which can take up to one-third of a cash settlement) disincentivizes settlements for repairs alone. The end result is often protracted litigation, where the high costs of discovery and trial preparation mean insurers pay substantial settlements, ultimately driving up both insurance and housing costs. Because all of this increases a developer’s risk, many choose to avoid building new multifamily homes for sale.”
This is an insane system nobody would design, and California never meant to.Imagine if the warranty on your car worked like this. You drive it for 10 years, then sue the car manufacturer for all the problems it had – whether it was paint flakes, bad brakes, or broken A/C – and the physical and psychological harm living with it for those years had caused you.
Virtually nobody would build cars under those conditions, just as nobody builds condos in California now.
Moreover, no normal customer would want such a system. In real life we all want to buy products that don’t break, and in the case they do, they are easily repaired under warranty.
The Berkeley study looked at systems other jurisdictions used and found many that deliver on this goal. States like New Jersey have state-run warranty programs and high condo production rates with no apparent issues with customer satisfaction.
The only group of people who unambiguously benefit from California’s broken system are the lawyers.
Not coincidentally, they are the main group opposing the bill to reform the system, Assembly Bill 1903 by Assemblymember Buffy Wicks, D-Oakland.
Despite the bill being passed unanimously by the state assembly and winning a rare endorsement by the city of Los Angeles, the California Trial Lawyers Association helped persuade the Senate Judiciary Committee to force amendments to the bill as a condition of passage.To do so, they have framed themselves as consumer advocates against greedy businesses. But it is not advocating for customers to prevent huge swathes of people from becoming consumers at all, forcing people who do buy condos to overpay for older ones in worse repair with less legal coverage, and raising housing costs for everyone who rents or buys a home in the state.They are right that the government must protect against businesses whose interests can run counter to their customers and the general public’s. The problem is that law firms are those for-profit businesses, often recruiting customers with literal roadside billboards. The government must notice that and treat their lobbying with the same skepticism.
Toby Muresianu is chair of Westside for Everyone (a chapter of Abundant Housing Los Angeles on LA’s Westside) and a member of the Los Angeles New Liberals. Follow Toby on Instagram and Twitter as @tobyhardtospell