Why Build Houses in Shopping Centers?

 Missed Opportunities in Applying California’s Housing Law   

    Legislation in California since 1969 requires cities and counties to meet certain minimum requirements for new housing construction. The California Department of Housing and Community Development oversees these requirements. The department's website explains: 

    "California's Housing Element Law acknowledges that, in order for the private market to adequately address the housing needs and demand of Californians, local governments must adopt plans and regulatory systems that provide opportunities for...housing development. As a result, housing policy in California rests largely on the effective implementation of local general plans and, in particular, local housing elements."

    Multiple California state funding programs require compliance with this housing development law. The law requires each of the 532 local jurisdictions to inventory potential housing sites and submit a detailed "housing element" every five or eight years. The submissions must include a "land inventory" identifying vacant or underutilized land suitable for new housing, even if the site requires re-zoning for residential construction.

    Because vacant land is rare in most local jurisdictions, sites that now include commercial, governmental, and even religious buildings can be identified as "potential" sites for re-zoning to residential uses. This has brought massive pushback from residents and local governments who object to zoning changes and the loss of local amenities. As a result, most California jurisdictions subject to the law remain out of compliance.

      We reviewed the housing element prepared by one California county and were surprised to see sites with existing shopping centers, churches, and even school properties included in the "land inventory." The law does not require that the existing owners of these sites convert them to residential uses, nor could it without the exercise of eminent domain. So, the conversion of these non-residential sites to housing remains largely hypothetical. This makes the goals of the legislation suspect since, at its base, it relies on property owners to agree to convert existing uses to housing. The law has teeth only so far as forcing local jurisdictions to identify sites that would be "nice" to convert to housing. Nothing more.

    What's needed is the identification of sites that will more realistically produce a greater supply of housing, especially low to moderate-income housing. A shopping center owner isn't likely to tear down stores and build apartments just because the state would like that, not to mention the loss of valuable neighborhood amenities. So, what sites could realistically provide more housing, and what would it take to make that happen? 

Condo Survival is Up To You!

On Sunday, May 28, 2023, a six-story apartment building in Davenport, IA, collapsed. The building was old and appears to have been built from masonry, possibly unreinforced. This was an apartment building, but it could easily have been a condominium. The owners had plans to perform repairs, but the collapse beat them to it, and the building will be demolished.  This was not an isolated incident and follows the fatal collapse of a balcony in Berkeley, California, in 2015, the deadly failure of the Champlain Towers condo building in Surfside, Florida, in 2021, and in April 2023, the deadly collapse of a parking garage in New York. 

So what can be done to prevent this from occurring in your project? It's up to you. It's up to you as an owner. You cannot assume that those managing your building are ahead of looming failures. You have to ask questions. You have to be ready to fund the necessary repairs. You have to offer your time to serve on committees or the board of directors to be sure that essential maintenance is done promptly.

It's up to you as a member of the board of directors. Keeping assessments low cannot be your primary goal, regardless of the political pressure to do that. The goal should be to keep them adequate to pay for current operating expenses and fund future repairs. You have an obligation to accumulate necessary information on the condition of your building. You are responsible for raising the funds to repair and maintain it when the information you receive makes that clear.

It's up to you as the community manager. The owners and the members of the board are conflicted. They pay the assessments necessary to keep the building safe. Yet what that may cost often conflicts with their sense of what that should cost. You have to obtain that information for them, recommend investigations, and here's the hard part--you must convince them to fund repairs and maintenance adequate to do the job. The easy way out is to stay out of it and let them decide. The hard and the right way is to convince them otherwise!

Left Holding the (Sand) Bag

Who Will Pay for the Damage Caused by Flooding and Rising Sea Levels? It Could Be Your Homeowners Association!

(Editor's Note: This article was originally published a decade ago. Given the recent storms and resulting flooding, the concerns expressed below are even more compelling today.)

The San Jose Mercury News:

“From Antioch to North Richmond to Redwood City, a slowly rising Bay could endanger the properties of as many as 270,000 Bay Area residents and cause some $56.5 billion in damage by the end of the century unless measures are taken to protect them, scientists warn. But surprisingly, few cities are taking action.” 

    City of Benecia Website: 

“In the event of projected flooding, sandbags are available at the Benicia Corporation Yard. Some assistance may be available, but residents should bring shovels and plan to fill and load the bags themselves.”

The chance of flooding in cities in and around San Francisco Bay and other low-lying areas in California is not just speculation. It has happened many times and will happen again and again if climate change and sea level rise continue or a “perfect” storm joins with normal high tides. It's easy to see why. Look at any map illustrating the first areas around the bay that will flood when the sea rises. It should come as no surprise that they are the exact locations where the bay was initially filled to create housing and commercial developments. These low-lying areas—Redwood Shores, Alameda, Vallejo, Alviso, and many others—were bay bottom and tidelands just a few decades ago. Now there are thousands of homes. The flood danger is obvious.

But what differs today from developments built three or more decades ago is that most of these new developments will be built as common interest developments. As a result, local or state governments will maintain little of the expensive engineered facilities necessary to protect these developments from storms, rising tides, and sea level rise but, instead, will be homeowners' responsibility.

Streets, storm sewers, parks, and sidewalks in older developments are maintained by cities and counties using tax dollars raised from a broad tax base. In newer projects, these “public” works are instead made the responsibility of private owner's associations. The advent of the community association was a boon to tax-starved local governments, which saw them as a way to promote development and raise new tax dollars while avoiding responsibility for the new infrastructure.

The cities and counties require developers to place the responsibility for necessary flood control improvements in community associations or small, special districts. Responsibility for Levees, settling basins, pumps, riprap, and retaining walls built by the developers of these new projects will eventually be maintained and repaired by community associations and paid for only by the owners who live there.

Local improvement, levee, or reclamation districts began this massive shift of responsibility away from governments and onto landowners and have been widely used for many years. Much of the Sacramento delta, a system of sloughs and islands on which more and more housing is being built and proposed, is maintained by such “special” assessment districts, not the state or local cities or counties. The taxpayers within those districts pay for all levee maintenance and repair work.

Originally these districts were formed to give farmers quasi-governmental authority over the properties in a particular area. It also shifted fiscal responsibility away from cities and counties and their broader base of taxpayers. But a flood disaster in an agricultural area will only inundate crops. The same disaster in a residential community will be much worse. So it matters who is in charge and who must finance the maintenance of such critical facilities.

 

Are Condos a Bad Idea?

Internal Conflicts and Lack of Funding Undermine Sustainability

 

 

Introduction

 

Condominiums are a nice idea, but their execution has been less than perfect. Long before the fatal Berkeley, California balcony failure in 2015 or the 2021 Champlain Towers South collapse that killed 98 people in Surfside, Florida, we suspected that all was not right with the basic condo concept. Years ago, there were already signs this "cooperative" housing model was anything but. Whether due to owner apathy, internal disputes, or failure to fund future repairs, sustaining these projects for the long term has been difficult, leaving their future in doubt. Can this be fixed, or is the concept inherently flawed?                                               

 

Every enterprise has an organizational "model" to run the business. For-profit corporations obtain revenue from the sale of products or services. The revenue of non-profit condominium corporations is the assessments paid by the owners of the individual units. While these assessments are “mandatory” in the sense they must be paid, they are also “voluntary” since the amount is left to the board of directors to determine. Condos are cheaper to buy, but the sales price may not reflect the real cost of ownership. They are "cooperative" because costs and space are shared, but internal disputes and funding shortfalls operate to shorten the life of these buildings in ways few owners understand.

 

Internal Disputes

 

            Why is condominium life frequently not “cooperative?” Disputes. Disputes between condominium owners and their associations; among board members; and between individual owners and their neighbors. There are arguments over the right to put a flag on the balcony. There are arguments over swimming pool hours. The right to paint their front door some color other than everyone else's. The right to be free of noise, smoke, or view-blocking plants. And sometimes, the claimed right not to pay assessments needed to maintain the project—all notwithstanding the governing documents to the contrary. The right to use one's property as the owner sees fit is a concept imported from the single-family home experience but not replicated in condominiums where common ownership requires rules to avoid chaos.

 

But a condominium association's most important concern should not be the color of someone's front door or when they can swim but sustaining the building and keeping owners safe. Maybe we care someone has painted their front door bright green, but should that concern have priority over finding rot that may cause a balcony to collapse with someone on it? Resolving conflicts and enforcing the governing documents have a reasonable success rate. Still, the effort required to do that often distracts the board from more critical issues—damage that can sink the ship. Directors can waste a lot of time re-arranging the deck chairs on the Titanic when, if they look closely, the iceberg is coming. 

Another Florida Condo Building Evacuated

 When the Surfside, Florida high-rise condominium building collapsed, many experts blamed poorly maintained reinforced concrete and the building's podium slab design. There have been several more high-rise Florida reinforced concrete condominium buildings evacuated after expert investigations identified potentially dangerous conditions. 

Now we have a low-rise wood-frame condominium building, also in Florida, ordered evacuated, again after inspectors identified deteriorating structural conditions.

According to CNN, "During an inspection on April 14 (2023), a building engineer found the Majestic Isle condominium building in North Bay Village had sagging floors and termite damage and deemed it structurally unsafe."

Majestic Isle is 60 years old. It is three stories with 36 condo units. It is very typical of many condominium buildings built in California as well as many other states. What sets Majestic Isle apart from hundreds of other similar buildings? Nothing except that this one had a thorough inspection of its structural components after a partial ceiling collapse.

Whether this building can be repaired for an amount the owners can afford is unknown, but our experience with structural damage in other wood frame buildings suggests that it will be very expensive and that there will be little or no reserve funding to cover it.

Natural Gas Appliance Ban Overturned

 In March 2023, the Bay Area Air Quality Management District (BAAQMD) adopted rules effectively banning the replacement of some natural gas appliances after 2027. Gas-fired water heaters would have to be replaced with electric water heaters after 2027, and gas furnaces would have to be replaced with electric furnaces after 2029. The City of Berkeley started the 'ban the gas" movement in 2019, and that policy was adopted in other cities. 

On April 17, 2023, however, the Ninth U.S. Circuit Court of Appeals in San Francisco overturned the ban. How or if that decision will impact the BAAQMD rules is unclear; however, the federal court found that the Berkeley rules were pre-empted by federal energy policy. This does not bode well for the district's rules.

Why is this important to homeowners' associations, especially condominiums? Because it is likely that retrofitting condo units that currently use natural gas water heaters and furnaces with electric versions will be very expensive. And perhaps compliance with the district's rules cannot be done at all in some buildings.

Electrical panels that distribute electricity to multiple condominium units are sized to a building with the electrical loads expected in mind. In many cases, the panel may need more capacity to provide what would be required for electric furnaces and water heaters. Even if the panel can be enlarged to allow for the extra load, the building and the units may need to be wired for electricity for furnaces and water heaters.

The panel and much of the wiring are likely common area which would mean the association would be responsible for upgrading sufficiently to comply with a demand for new appliances run on electricity.

While we applaud the environmental goals of anti-gas rules, retrofitting most condominium buildings would be a colossal expense and one totally unexpected in any reserve budget. 

 AB 1101 Puts Condos at Risk

  The California legislature is considering AB 1101 that would amend Civil Code §5551 and Health and Safety Code §17973 which require inspections of "exterior elevated elements" on condominiums and apartments for safety. These include balconies, elevated walkways, and staircases made of wood or wood-based products. The point is to detect or intercept rot that would compromise the safety of these structures. Currently the statutes provide that these safety inspections be done by qualified experts--architects, structural engineers, and in the case of apartment buildings, certain licensed contractors. AB 1101 would add another category--termite inspectors. 

The original statute did not allow inspectors to also perform the repairs. The idea was to prevent the inspectors from capitalizing on their relationship with building owners or homeowner associations to secure jobs repairing what they had just recommended. Seemed logical at the time. Along the way, that prohibition was dropped. That wasn't a good idea then and it isn't now. Homeowner association boards of directors especially are often not sophisticated in construction issues and do not have the background to review or challenge an expert's recommendations. In the past, however, at least with Civil Code 5551, the version that requires balcony safety inspections of condominiums, the inspectors were design professionals--architects and engineers--who do not normally contract to repair what they inspect.

AB 1101 would allow "Branch 3" termite inspectors to not only perform condo inspections, but recommend repairs, and then contract to perform the repairs they recommend. The checks and balances of the original statute would be wiped out. This may not be important for investors and owners of apartment buildings who have the skill and background to oversee these inspectors and, where necessary, question their recommendations. They also know to seek alternate opinions and bids if they question the original reports. While boards of directors of condominium associations can seek the help of professionals to review inspector's recommendations, they are more likely to follow the guidance of the expert already retained.

We also question if termite inspectors have the necessary skill set to calculate whether rot-compromised structural framing on a multi-family building can support the intended loads. A review of the required "Branch 3" exam prep courses doesn't show  much required knowledge of structural engineering or design sufficient to evaluate the ability of a compromised structural support for a balcony or a staircase to hold up when occupied. 

However, even if their training includes how to re-construct a failed balcony or stairway, no inspector who inspects and recommends repairs under these statutes should be allowed to also contract for their repairs. To protect consumers, that just makes sense.

Where Old Condos Go To Die

Will you still need me, will you still feed me,

When I'm sixty-four?

…The Beatles

 

            In 2005 we published a treatise entitled "The Uncertain Future of Common Interest Developments." We worried about the inability of condominium boards to fund reserves for future repairs and maintenance. In addition, political pressure from individual owners was keeping assessments artificially low. While this pleased the then-owners, it underfunded reserves and robbed future owners of the resources for long-term maintenance.

 

            In the following years, we noticed and added another factor to the under-funding equation—damage unseen during routine inspections, which eventually required unexpected and unfunded repairs. At first, these problems—rot in wall cavities hidden for years, gradual soil problems, slow deterioration of framing elements—required spot repairs but often led to large-scale reconstruction later. Unfortunately, some of that hidden damage eventually caused catastrophic failures of building parts or entire buildings and loss of life.

 

            After studying this phenomenon for several decades, we have concluded that these failures and the lack of funding that leads to them result from a fundamental flaw in the condominium business model. Allowing critical funding decisions to be made by a majority vote of owners with disparate interests invariably defeats most fund-raising efforts by the board of directors. This makes funding voluntary. Condominium repair and maintenance are determined not by experts but by laypeople whose interests in the project are mostly short-term. But the managing corporation's interests are long-term. Thus, an inherent conflict.

 

            The consequences of voluntary funding are seen in the gradual deterioration of many older condominium buildings. Newer owners resent that they have been saddled with the cost of decades of deferred maintenance while past owners escaped unharmed. Repairs or restoration that the association could have done inexpensively twenty years earlier, if found in time, now require six-figure special assessments or bank loans, again the responsibility of current owners. Reserve funds were kept artificially low by past votes against higher assessments, did not keep up with the rate of deterioration, and promoted increasing reserve deficits.

 

            So, what's the end game? What happens when current owners either balk at paying for reconstruction to keep a building watertight and safe or lack the financial capability to address these problems? State and local entities have learned of the potential for injury or death from failed building components due to poor maintenance. They can and will condemn buildings considered unsafe or uninhabitable. Insurance companies that provide liability or property damage coverage are also aware of these conditions and, for now, have raised premiums to account for it. But they may deny coverage altogether. Boards of directors have been sued by current owners who reject the idea that they should bear responsibility for many decades of deterioration. And then, there is the possibility that all or a part of the building will fail due to inadequate maintenance, construction defects, or natural disasters.

If any of these factors are present, the project may be at the end of its service life. That's not what a community association's governing documents intend, but that's the reality. Buildings destroyed, unsafe, or cannot be adequately maintained for habitability can no longer function as planned, and the owners must consider an "end of life" outcome. Some outcomes can be chosen, but some cannot be addressed in time to save the project. Here are a few.

Do Labor and Materials Shortages Impact Construction Quality of New Homes?

 

            During periods of high housing demand, as we experienced over the past five years, supply chain disruptions affected the availability of building materials. Everything from insulation to plumbing fixtures to framing lumber has been scarce[1]. Not unknown before the pandemic, labor shortages in the construction industry only intensified with the Covid virus. In addition, falling birth rates, a slowdown in legal immigration, and early retirements created a labor crisis.[2] Demand for new homes was at an all-time high. So, how did these shortages and delays impact the quality of home construction?

 

            The prevalence of construction defects in new housing often accompanies periods of high demand. When sources of trained labor dry up, builders must obtain workers from unconventional sources—sometimes from the parking lot at Home Depot. The same is true for building materials in short supply. As a result, there are substitutions or changes in accepted installation practices. In addition, builders substitute lower-quality materials for traditional building products. Each factor can negatively influence construction quality. 

 

            The most acknowledged result of shortages in materials and labor is the cost of new housing. Builders raise the price of new homes to compensate for the expense of hard-to-get materials and delays caused by the lack of labor. But there are other consequences—some may not be discovered until after the home's sale. For example, forensic investigations of new housing often expose the shortcuts taken during construction. These are quality-control issues often not visible on the exterior of a completed building. But reports of leaks or mold, for example, in a new home will trigger intrusive inspections that reveal poor construction methods.