The Construction Industry

September 22, 2008

The housing industry was hurting last spring before the most recent economic difficulties.  Housing starts were already at a fifty year low.  Commercial construct enjoyed a better fate but it appears that the home loan crisis has served to dry up money for commercial projects.

Bloomberg reports:

The recent collapse of Lehman Brothers and Merrill Lynch will make it even more difficult for borrowers to refinance commercial real estate loans.

According to UBS AG, the world’s largest manager of private wealth assets, eight of the top 10 investment banks accounted for about half of the loans packed into commercial mortgage-backed securities in 2006 and 2007. As of today, the eight are now either merging with other companies, no longer in business, or significantly reducing their real estate holdings.

By the end of 2012, UBS analysts anticipate a competitive market and estimate that almost $151 billion in commercial mortgage loans that were underwritten by investment banks and securitized will be due.


Building Green in King County, Washington

September 9, 2008

It is sometimes good to remind ourselves, while we listen to campaigning about the energy crisis, that things are in fact changing to better acomodate the energy difficulties that beset us. For example a town house development on Capital Hill boasts

The REM modeling shows the buildings will perform 30 to 40 percent better than 2004 International Energy Code and the tight envelopes will allow leakage of only 0.215 to 0.25 air changes per hour. Beyond the technical aspects of the project, gProjects paid great attention to the overall site layout and achieved high quality community design. By limiting parking to the exterior areas of the site and through detailed planning, the project has provided for several communal areas, including a pea patch, “the canyon”, and a shared bike shed.

This development is described in detail at the website BuiltGreen, which is run by the Master Builder’s Association of King County and Snohomish County. Check out the site to see news, past newsletters and information about building green. Hopefully the market will catch on to this more than it has, as only 786 new certified homes have been built this year.

At this time there is a conference in Minnesota. This one does not seem to be attracting the attention of recent activity in the state but will have a noticeable impact on new housing nonetheless. There is a conference to determine what changes will be recommended to the building code. One one side are reformists who want state of the art energy saving requirements and on the other are builders who argue that there has not been sufficient research to verify the energy savings or that the some of the changes would not be cost justified.


Frank Chopp Kills Another Consumer Bill

March 10, 2008
The State Speaker of the House, Frank Chopp, refused to let the Homeowners’ Bill of Rights out of committee, thereby killing it. The bill, sponsored by Democrat Brian Weinstein, who is quitting after this session, merely gives homeowners what they think they already have. It merely causes Washington law in the narrow area of responsibility for unsafe or negligently built residences to conform with common sense. It eliminates only one of many immunities enjoyed by the construction industry and then only with respect to homes.The bill is very simple. It says that someone guilty of the defective construction of a home is responsible to the homeowner if the defect causes damage to the home. Not all that controversial is it?Speaker Chopp killed this bill last year and did the same thing again this session. There is absolutely no legitimate reason for this bill not to be law. There is no policy reason, no legal reason, no legitimate reason of any kind.

Speaker Chopp killed this common sense measure to preserve the immunities of the construction industry, maintaining the burden of defective construction on the back of the absolutely innocent consumer. Mr. Chopp believes that by catering to BIAW, the building industry lobby, the Democratic Party will curry the favor or at least avoid the opposition of one of the State’s most influential special interests.

By the way, frequently homeowner’s property insurance does not cover this loss, leaving the consumer completely out of luck.


Statute of Repose: A Vehicle for Fraud

January 19, 2008

Washington’s construction statute of repose gives immunity to responsible people for damages that do not accrue until 6 years after the project — whether a bridge, a highrise, earthquake retrofitting or anything other than a condominium, which is 4 years — is put into the stream of commerce. This puts the burden of catastrophes on the victims.

Statutes of repose have been attacked constitutionally in a number of states. The result has usually been that the state legislature — at the behest of the building and insurance lobbies — passes a new law meeting, or appearing to meet, the unconstitutional aspects of the overturned law. Over the last several years the use of the statute of repose to avoid liability has increased. Increasingly we are hearing outcries about the injustice of its application.

In Minnesota a bridge failed killing many people. The local government had paid for a one hundred year bridge but when it failed after fewer than 20 years because of a design defect, the responsible people were render immune from suit by that state’s 10 year statute of repose. Only this summer — after the disaster — did legal professionals express outrage at the injustice of being unable to enforce warranties and representations that were a material part of the purchase price of the bridge.

In New Jersey the Supreme Court is considering a case in which a condominium developer made express representations to consumers knowing that they would rely on them. When these representation turned out to be false, the developer hid behind the statute of repose.

It is terribly hard to find a reasonable justification for Washington’s 6 year statute of repose, particularly when a new building is usually given a useful life of around forty years. Projections, pricing and even tax depreciation are based on the useful life of the building, bridge or other improvement. Despite all this we give immunity to everyone in the construction industry after 4 or 6 years.

The excuse — and it is a transparent excuse — for the law is that it would be too hard to determine the cause of a catastrophe after 4 years in the case of a condomium and 6 years with all other construction. The 4 year condominium law was passed however only because the responsible parties could be identified with certainty and there is absolutely no engineering difficulty determining causation that occurs after 6 years. Furthermore, the burden is on the plaintiff to prove causation so if it can’t be proven the suit fails. It is said sometimes that there might be intervening causes but this too is something that the system is supposed to address anyway before a judgment can be entered.