The state’s Condominium Act aims to ease restrictions, but is it enough to kickstart development in Spokane County?

Spokane County’s buoyant real estate market has resulted in a shortage of available real estate and record-breaking prices, leading developers and real estate officials to advocate a variety of apartment types to increase home ownership.

But condominium construction has largely stalled in the county as a result of regulations in the Washington State Condominium Act, which developers claim make these types of projects difficult to pursue because of insurance requirements and the risk of litigation make more difficult.

They say regulations have lowered the bar for condo construction companies to sue for defects, resulting in costly insurance premiums – if they can get insurance at all. Instead, builders have decided to build single-family houses, terraced houses or apartments.

In July, a new state law went into effect that aims to reduce the barriers and costs of building condominiums by allowing a qualified architect or engineer to conduct inspections, rather than a forensic engineer. The law also allows builders to use a portion of the purchase price of a condominium for construction if they receive a bond.

The new state law is a step in the right direction, but it may not be enough to encourage widespread condominium development in Spokane County, said Jim Frank, founder and developer of Greenstone Homes at Kendall Yards.

“We need to do a lot more to drive condominium development,” said Frank. “(The new law) will not lead to any significant change in condominium construction and development because too many barriers remain at the state level.”

Senator Mike Padden, R-Spokane Valley, led a 2018 push to ease condominium restrictions and create affordable housing.

Padden supported Senate Bill 5024, which was revised before it was passed unanimously by the House and Senate earlier this year to become law.

“I think we want to see how this works for a while, and hopefully there is an increase in condominium and home ownership,” said Padden.

One of the biggest changes was the removal of the requirement that condominium inspections be carried out by outside forensic experts. In the past, developers had to pay a forensics engineer to perform inspections who flew from Seattle to Spokane, Padden said.

“That was helpful. It reduces some of the inspection costs by allowing the architect to issue these certificates that the building will be built according to their plans, ”said Frank of Greenstone Homes. “It saves some money, but there are still all of these other barriers.”

Frank said a legal warranty to protect homeowners for construction defects of up to 10 years is an obstacle as it has resulted in homeowner associations being able to sue property developers before they are notified of damage to make repairs.

The statutory warranty does not apply to apartments, single-family houses or townhouses, he added.

The statutory warranty has led to “wild legal disputes” and prompted insurance companies to increase the premiums or to refuse insurance protection, said Frank.

“The insurance companies are telling the subcontractors that we don’t want to buy a lawsuit so that subcontractors can’t get insurance,” he said. “So it is extremely expensive to build under these circumstances. Even a few simple measures by a section of the legislature to ease the climate of the condominium litigation have now gone nowhere. “

According to the Spokane City Housing Action Plan, more than 36% of projects built in Spokane from 2010 to 2019 were apartment complexes, compared to 2% of condominium projects.

“We were in a situation in which no condominiums had been built since 2009,” said Frank. “(The new law) allows a handful to develop, but we are in a situation where we have to develop hundreds a year.”

The state is considering relaxing regulations on single-family homes, which would allow more townhouses and adjoining residential buildings, which Frank saw as a positive development.

“It’s not condos, but it will help build small houses on small lots and develop townhouses,” he said.

Joel White, executive officer of the Spokane Home Builders Association, agreed that condominium projects are more restricted than apartment complexes or townhouse developments.

As a result, insurance companies won’t even cover a small condominium project. While developers in Seattle could potentially absorb the cost by building a high-rise property project, it is not the same in Spokane, White added.

Developers are trying to maximize their investment, and liability insurance is a huge expense if they can’t find a carrier to cover, he said.

“If you’re trying to build a six- to eight-unit condominium project in Spokane, it won’t,” he said.

White said it needs a “massive overhaul” at the state level to make condominium projects viable from an investment perspective.

“We have a housing boom and a housing shortage, but no investors are choosing to take on these projects,” he said.

“I think we need condominiums as one of the solutions for a variety of housing types, but there aren’t many incentives to build them.”