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Why Condominium Growth Is Stalling In Florida

Condominium. For many, the word conjures up images of luxurious living, with all the amenities and niceties of life.

From a legal standpoint, however, the word refers to a form of ownership in a commercial building or multi-unit living complex. Despite being, at times, more affordable than standalone homes, condos have been the slowest segment of the market to bounce back since the housing bubble burst in 2008. (In the last five years, the construction of apartments has nearly tripled, while condo sales have increased by a relatively more modest 53 percent.) Many insiders blame the prevalence of lawsuits for the slow growth.

The housing bubble's lasting effects

The housing crash hit people hard in the wallet. As a result, young adults and new families turned to renting. This led to developers' increased interest in building apartments. Yet as the economy has recovered, and individuals are seeking to buy, they are finding that there is a dearth of units available for purchase.

Simply put, condo development has decreased, and it is not a result of supply-and-demand. Rather, a major reason for the decrease in condominium construction and sales is the substantial spike in litigation connected with these dwellings. Construction defect lawsuits have increased largely because boards of homeowners' associations, which oversee common property, can file a suit on behalf of multiple owners. Moreover, they can do so without seeking approval from all of a given building's owners.

Worse still, as a result of the proliferating litigation, developer's insurance costs can be as much as three times higher for a condo than for a new apartment building. One report found that this increased risked of liability added $15,000 per unit.

As developers have found themselves targeted, they have shied away from involvement in condo construction. The net result is fewer entry-level home options for young adults and new families. Those who wish to purchase a home are unable, and forced to live in apartments.

Florida takes action

Florida has passed legislation to make it more difficult for homeowners' associations to sue developers. Specific steps must be taken before legal action can be taken. In short, the law requires a third-party inspection and written report from a licensed professional, and compels associations to provide "reasonable detail" with regard to any defects or other problems.

The effect of this legislation remains to be seen. Lawsuits persist. So do legitimate construction defects. But lowering the risk of litigation against developers could lead to an increase in condo construction and more entry-level housing available for young adults.

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