Breaking news from the Denver Business Journal:

Colorado Gov. John Hickenlooper on Tuesday signed into law a long-sought measure that will make it more difficult for associations of condominium owners to file multi-million-dollar construction-defects lawsuits.

And now, builders are on the clock now to prove that the change will spur more of them to begin putting up condos priced under $300,000, as backers of the measure are expecting.

The signing of House Bill 1279 comes after a decade in which condos fell from being roughly 20 percent of the new housing stock in the Denver market to less than 3 percent — a number that is an aberration among comparable cities.

Some litigation-reform opponents argued that the shift reflected a market reaction to millennials who were too debt-ridden or too uninterested in owning property. Others pointed to sky-high rents that help to make apartments more profitable to build than condos.

But builders linked the decline directly to laws that they said made it too easy for as few as three people — representing the majority of a five-person homeowners association board — to vote to move forward with major litigation that drove up insurance costs and pushed builders to creating apartments that were not risks for lawsuits.

HB 1279, sponsored by Democratic Rep. Alec Garnett of Denver and Republican Rep. Lori Saine of Dacono, changes the rules of the litigation game. Moving forward, a majority of all condo owners in a unit must vote to take legal action, and they can do so only during a 90-day election period in which lawyers and developers can explain both the drawbacks and the advantages to such a lawsuit.

Hickenlooper said he could not remember as much commotion in his seven years in office around a bill signing as he saw Tuesday. He said he expects the new law to get developers to put up reasonably priced condominiums for the young professionals and downsizing baby boomers who business leaders and metro mayors say have sought such options for years without success.

He tied the lack of condos to the acute rise in median-priced homes in the Denver area, which jumped from $260,000 in January 2015 to $339,000 in April of this year.

“This bill will help us make housing more affordable in a lot of different ways,” the Democratic governor said before signing it.

'The first stepping stone'

But just how to measure the success of the effort is a question that still divides even the representatives who passed HB 1279 without a single dissenting vote in the Legislature.

Co-sponsoring Sen. Jack Tate, R-Centennial, said he believes the most immediate things to watch for — things that can happen in the coming year — will be more property insurers coming back into the market to offer policies and average policy costs coming down from their lofty peak.

He said that he also will keep a close eye out to see if projects that have been announced as apartments but have yet to make significant progress could be announced in the coming months as being condos instead.

Garnett echoed many other legislators in saying he does not believe that condos need to be a specific percentage of the new houses coming online before HB 1279 can be considered a success. Eventually, he would like that number to get close to 20 percent again, but at first just watching it climb above 3 percent in the next year would be reversal of its 10-year downhill trend, he said.

“There is still more to be done, but House Bill 1279 will provide the first stepping stone,” advised Saine.

Tami Door, president/CEO of the Downtown Denver Partnership, said there will be ways to measure the success of the bill, including the number of developers who announce or proceed forward with affordable condominium projects in the coming year.

The most important, unmeasurable first step, however, is that the bill will give confidence to builders who may not even have thought about putting condos up, Door said.

Clayton Sharkey, construction-practice leader for business insurance-consulting firm IMA, said that the developers who are moving forward with projects immediately likely already have weighed the risk factors and decided the pent-up demand for condos outweigh the chances of getting sued, especially because builders expect lawyers to try to challenge the new law.

But this law is an additional benefit for developers to weigh into their calculations, and that will help produce a number of new condos in years to come, he said.

And if none of these signs of progress even begin to materialize in the next year, Tate promised the same bipartisan coalition that passed the bill will get back to work on fixing it.

“I’m looking forward to this being a robust first solution to our housing market,” he said. “And if it’s not, this project team will be here to deal with it for years to come.”

See more articles like this in the Denver Business Journal.

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