New Condo Defect Law Stifles Housing Construction
FEBRUARY 24, 2025
By Adam Briones
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The recent wildfires in Los Angeles County have left thousands displaced, highlighting the urgent need for more housing options. Condominiums could be a big part of the solution. However, California’s strict condo defect laws, particularly SB 800, have discouraged developers from building condos—an affordable and space-efficient housing option. With burdensome legal risks and costly litigation, builders avoid condo projects, worsening the state’s housing crisis. Other states and Canada have found better ways to protect buyers while still encouraging construction. California must reform SB 800 to make condos a viable option for those in need of new homes.
As Los Angeles County recovers from the shock of January’s catastrophic wildfires and contemplates the challenges of housing thousands of displaced families and rebuilding devastated neighborhoods, the region faces choices that mirror the broader issues facing California’s troubled housing market. Right now, California’s legal framework limits those choices and makes some approaches needlessly difficult.
Traumatized, displaced families need immediate support, but they will also face short- and longer-term choices. Some may resettle in other neighborhoods, farther from fire dangers. Will those who are middle- or upper-income now compete with low- or moderate-income families for scarce, increasingly pricey, housing? Will some – especially those discovering that inadequate insurance has reduced their options -- leave the L.A. area completely in search of lower costs, possibly moving to locations with their own fire hazards? Our state’s limited housing supply and high prices make all of these choices harder. Housing costs, after all, are what’s been driving people out of our urban centers for years.
Condominiums could be a big part of the solution. Condos are inherently less expensive than single-family homes because they tend to be smaller and use less land. When part of well-planned neighborhoods, they’re also conducive to communities that are more walkable, transit-friendly, and generally more convenient to live in – not to mention better for the climate and environment.
But California builds very few condos anymore. A recent analysis by the Terner Center for Housing Innovation at UC Berkeley found that from 2011-21, 97% of multifamily housing units built in California were rentals, while only 3% were built for sale. Of course, we need rentals – more of them than we build now – but we also need moderately-priced homes that people can buy. California used to build a lot more condos, so what happened?
The story goes back decades, to an earlier housing boom that led to explosion in condo construction and many new contractors coming into the field. Unfortunately, some of them did negligent or shoddy work, causing huge problems for buyers. A California Supreme Court case finding that builders could be held liable for defects led to a series of legislative remedies intended to protect condo buyers and clarify everyone’s obligations.
“The public sector has left an enormously powerful tool out of its toolbox by assuming all taxes should be paid in cash.”
The latest of these, SB 800 or the “Right to Repair Act,” was passed in 2002 and still governs the issue today. It’s become apparent that this law addressed one set of problems but created new ones, contributing to a cratering of condo construction that kicked in after the law’s impact had worked its way through the system.
How severe was the drop-off? In San Diego County, over 7,000 condos in buildings of five or more units were started in 2005. By 2007 that figure had dropped to a little over 2,000 and has rarely broken the 2,000 level since – in some years dropping below 1,000 condo starts. A similar story played out in the Bay Area as well as Los Angeles and Orange Counties.
Condo defect laws, which many states have in different forms, involve a balancing act. We need to protect consumers from negligent construction without making the system so onerous and expensive that it discourages builders from constructing condos at all. The latter, unfortunately, is what seems to have happened in California.
SB 800 allows a generous 10-year window for filing claims, long enough that it can be hard to distinguish between faulty construction and the results of normal wear and tear. And it lacks standardized definitions for defects, frequently leading to clashing opinions from experts and fueling costly litigation. It lacks incentives for early resolution of claims and does not allow homeowners to waive their claims in consideration for repairs under the “Right to Repair” process.
Other states as well has Canada have approached the problem differently and some have implemented ideas California should consider. Some go too far in the opposite direction, including Utah, whose law seems too narrow and doesn’t give homeowners enough protection.
On the other hand Minnesota has established different timelines for different types of defects, an approach that makes sense. “Major construction defects” like a faulty foundation or roof get 10 years, while defects of workmanship or materials get less.
New Jersey used a different approach entirely. In 1977 the state created a New Home Warranty Program, funded by fees paid by developers. Like Minnesota, it has tiered timelines for different levels of defects. New Jersey requires claims to be filed within the program, avoiding costly litigation, and obligates developers to do needed repairs for defects that fall under the warranty program.
Those are just two examples. Canada and Hawaii, among others, also have condo defect laws with features California should consider.
What we can’t do is what California has done on this issue for years – nothing. We need to rethink SB 800 so that we ensure adequate protection for condo buyers without stifling desperately needed new construction.