Out of Balance
If you watch the news or read any of the publications in the greater Puget Sound area, it’s no secret that our housing market is unbalanced and has been for many years. This seems to be the norm throughout the Seattle area, and Kirkland in particular can appear to be very out of balance depending on who you ask.
Affordable Downsize
One of the biggest missing segments in our market is the lack of affordable condominiums. Affordable condominiums are an important part of a stable housing economy because it provides entry-level homes to people, and more importantly, options for seniors to downsize. Condominiums provide single-floor units without the dreaded stairs that our beloved seniors are no longer willing or able to tolerate. Usually, they require minimal upkeep and maintenance, which is the perfect combination for people to “age in place” rather than having to face another relocation later in life. However, after the Condominium Act revision in 2005, the number of condominiums that have been built is close to zero.
Affordable condos for downsizing has always been a crucial part of the real estate cycle. In a typical lifetime, people will move a few times; either to a bigger home, a better location or for many other various reasons. Later in life, seniors typically downsize from a large home into a smaller, more manageable condo, which opens up their existing home for those who are looking to trade up. It creates inventory for those in other stages of their purchase cycle and subsequently aids in a stable economy.
The Condominium Act
In 2005, there were a few “bad apples” out there, putting out subpar products, both in new construction and in condo conversions. Due to these issues and the special assessments that arose and burdened homeowners, there was a revision to the Condominium Act which greatly increased consumer protection. For four years after completion, it allowed the owners of condominiums a window where the builders are still held liable under the statute of repose for any potential defects. As a result, over the past 13 years, several condominium projects started engaging in lawsuits with the condominium builders regardless of how large or small the issue, with some buildings having no defects whatsoever yet still finding themselves involved in litigation.
HomeSight, a local nonprofit builder, was sued over “potential defects,” stating that there was potential for water damage, even though not a single drop of water had entered into the building from this potential defect. Due to the prevalence of these lawsuits on condominium projects, construction insurance companies started abandoning Washington State.
Seeking Resolution
Because standard construction insurance contracts no longer covered condominium projects, some insurance companies started offering specialty insurance for these projects. However, the premiums are so high, it made potential projects too expensive. All of this has contributed to the lack of major condominium projects being built over the past 10 years. As of now, we are starting to see more condominium projects entering the market, such as Jade in Totem Lake or First Light in Seattle. However, due to the high cost of insurance, these condominiums are not by any means what most would deem affordable. First Light is the opening salvo of Westbank Development in Seattle. Prices there start at $500,000 for a 392-square-foot studio with a range of up to $6.5 million for a 2,755-square-foot penthouse—not quite an affordable option for most seniors and only the top luxury units can afford to absorb the cost of the premiums.
This year, Washington State Legislature is ready to tackle the problems that have arisen from the Condominium Act. There are different proposed fixes for the issues, and while insurance companies will take time before ensuring any new projects at a reasonable rate, hopefully we will take the first important step to affordable home ownership.