Construction defects

No policy issue before the Legislature holds as much promise for economic growth, job creation and an accelerated housing recovery as construction defect reform. The laws crafted to protect homeowners from the costs of shoddy workmanship have enriched lawyers and made housing more expensive, because builders have to recover the costs of their skyrocketing liability insurance premiums.

There’s no better proof of the need for reforms than the years-long federal investigation into local homeowners associations. Conspirators stacked association boards with members who pushed for construction defect lawsuits against builders, then steered legal and construction repair work to co-conspirators. We have all paid dearly for their crimes.

Last week, lawmakers received a new study that lays out the case for reform through numbers. “The Nevada Housing Market: Prospects for Recovery,” was prepared by Stephen Brown and Ryan Kennelly of UNLV for the Southern Nevada Home Builders Association.

The study found that between 2000 and 2012, new home sales in Nevada decreased by 86 percent, but construction defect claims increased 355 percent. Since 2006, the number of construction defect claims per new Nevada home is 38 times the national average. That makes insurance companies eager to settle, which encourages even more claims.

Reform legislation is still being drafted. At a minimum, it must better define defects and limit claims to cases of negligence and corner-cutting. Current law allows lawsuits to be brought for cosmetic imperfections that pose no risks. And reforms must rein in attorney and expert witness fees, which are essentially guaranteed in settlements.

The report notes that every new home creates 3.19 permanent jobs in Nevada, and that a $220,000 home generates more than $400,000 in total economic activity. That’s incentive enough to reduce builders’ insurance costs and liabilities and encourage more competition in the housing market.

Like so many issues before the Legislature, construction defect reform can’t wait another two years.