TEMECULA, CA — Condominiums have historically provided an entry point into California homeownership. But condo construction has virtually ground to a halt in the state.
Only about 3,000 condominiums are built each year across the state, with multifamily condos making up just 3% of new housing added between 2011 and 2021, according to the San Francisco Bay Area Planning and Urban Research Association (SPUR), a nonprofit public policy organization.
Meanwhile, apartment and single-family home development projects continue in several California regions.
Experts say the Golden State's condominium construction crisis comes down to dollars and cents: Condos have become significantly more expensive to build than apartments or single-family homes. Industry insiders largely blame the cost increase on a 2003 California law, Senate Bill 800, which gives condo buyers up to 10 years after construction is completed to sue for building flaws.
The law creates substantial liability risks for condo developers because a homeowners association can legally represent all owners in a building to file a sweeping lawsuit for common-area and structural defects. Some argue that litigation attorneys' seek large settlements and speculatively seek out problems even if none exist, rather than focus on cases where homeowners have valid and substantiated claims.
While owners in a detached single-family development can also sue through an HOA, multifamily condo projects face a vastly higher rate of litigation — estimated at 80% to 85% of projects. In contrast, litigation rarely occurs in detached single-family neighborhoods, according to a report commissioned by the Terner Center for Housing Innovation at UC Berkeley in collaboration with SPUR.
Because California condo developments carry massive liability insurance premiums and litigation overhead tied to multi-unit defect exposure, developers heavily avoid building them in favor of rental apartments or single-family homes, according to the report.
More recently, insurance coverage has driven costs even higher. Wildfire risks and a tightening insurance market have made it increasingly difficult to secure builders risk insurance for construction projects in high-hazard fire zones, which now encompass large portions of California.
In Temecula, for example, a developer recently submitted a major modification application for an attached housing project that was approved roughly a decade ago. Part of the massive Altair development, the project is located in the hills and ridges immediately west of Old Town Temecula.
The project is being constructed in phases. For the current phase, the developer is requesting to build single-family homes and duplexes instead of previously approved attached row houses.
The proposed adjustment, which goes before the Temecula Planning Commission this week, is being driven primarily by the project's location within a "Very High Fire Hazard Severity Zone," according to city documents.
Beyond the upfront cost of securing builders risk insurance during construction, selling attached homes in high-risk zones presents ongoing market challenges. Condos and attached row homes require a master homeowners association insurance policy to cover the building exterior and shared spaces, while individual owners carry separate policies for their unit interiors.
Under current market conditions, master HOA insurance policies are driving up monthly HOA dues for buyers. Additionally, the California FAIR Plan — often the insurer of last resort in high-risk fire areas — is unavailable for certain attached residential developments due to commercial coverage limits.
"Transitioning to single-family detached and duplex homes allows insurance responsibilities to be individually maintained by homeowners, significantly reducing cost risk, improving long-term affordability, and enhancing the financial feasibility of development," according to city of Temecula documents.
The California Legislature is currently advancing a major reform bill, Assembly Bill 1903, aimed at reversing the steep decline in condo construction.
Authored by Assemblymember Buffy Wicks, D-Berkeley, the legislation attempts to reform the construction defect liability framework that housing experts say has constrained the market for more than two decades.
If passed, the bill would require homeowners to give developers an opportunity to repair construction issues before filing a lawsuit. If developers obtain third-party quality control certification during building inspections and successfully resolve an issue, they could be absolved of liability for that defect one year after completing the repair.
The bill passed the state Assembly unanimously (70-0) and now sits in committee.
While AB 1903 addresses legal liability, a complementary zoning measure — Senate Bill 79 — went into effect July 1. It could further spur development by requiring cities to permit taller, multi-unit apartment and condominium complexes up to nine stories near major public transit stops. However, housing advocates note the zoning law's ultimate impact will depend on whether liability reforms like AB 1903 make these projects viable.
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