FL Lawmakers and Construction Industry Must Align Interests to End Construction Defect Crisis

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Home is where the heart is. We’re familiar with the adage, and most of us would probably agree the concept of “home” is more important than ever in the wake of COVID-19.

As the pandemic surged in America’s large cities, many people moved and purchased houses in less densely populated towns and suburbs, seeking the physical distance from others that public health officials advised was critical to prevent infection. In most houses, residents can limit their interactions with other people, enjoy room to move and play outdoors, have space to isolate and care for sick family members, and make use of amenities to comfortably work and study.

Florida, perhaps more than any other state, has welcomed people relocating due to the pandemic. Moreover, Florida has long been an attractive destination for new residents due to its climate, beaches and outdoor recreation, strong economy, and low taxes.

Demand for housing is at historic levels throughout the state. Yet, as residents purchase new homes and make what, for most people, is their largest investment, a strikingly large number of these homes are plagued by hidden construction defects.

Typical examples include leaks behind siding, under roof assemblies, or through window installations. Over time, water from these leaks will cause damage to other components of the house, and the hidden condition will reveal itself. These hidden defects may cause a variety of troublesome conditions severely impacting the owner’s ability to comfortably and safely reside in the house.

The construction defect crisis has ravaged the American housing market for decades. Most large cities across the country have experienced periods of concentrated population growth and new home construction, followed by years of intense litigation arising from defective construction.

The current housing market, turbo-charged by the pandemic, and marked by historic demand and price escalation, has fueled the state’s construction defect crisis. Florida homebuilders have been forced to work quickly to meet spiking demand, and are scrambling to complete projects, start new projects, and keep costs as low as possible. Skilled construction labor is scarce, and the supply chain has been disrupted by COVID-19 closures, severe weather events such as hurricanes, tornadoes, and wildfires, and impacts to global shipping infrastructure such as the recent Suez Canal blockage by the container vessel Ever Given. These supply chain disruptions drive up the cost of raw materials and manufactured goods. According to the National Association of Home Buyers, lumber prices have increased more than 300% since April 2020. Other materials and products including steel, millwork, windows, plumbing fixtures, and metal hardware have experienced significant price escalation, significantly raising Florida homebuilder costs.

In many instances, homebuilders are forced to absorb rising costs on their own, decreasing or eliminating the opportunity to profit on each project. Rising housing prices may not be enough to cover these additional costs. Such market conditions create an incentive for homebuilders to save money at every opportunity. This may result in downgrades to materials or building methods that put the finished home’s long-term performance at risk. Local permitting authorities and plan reviewers are similarly impacted by high demand for new housing and COVID-19 closures that slow the process. Building departments throughout the state have been asked to serve the public interest by safeguarding certain aspects of new home construction through plan review, permitting and inspections, yet they have limited time, limited personnel, and a huge volume of applications to review.

Zerega Consulting

It is not surprising, then, that construction industry participants – including homebuilders, purchasers, insurers, design professionals and attorneys – perceive that construction defects and resulting claims by homeowners are at an all-time high. Yet, the industry response to this spike in construction defects has been confounding.

Homeowners are typically strangers to the construction process, and Florida law requires them to follow a strict process when dealing with defects in a house. It is not, therefore, unreasonable or unexpected that homeowners would hire attorneys to navigate this strict process and seek redress for construction defects.

Homebuilders, however, control the actual process of construction. Intuitively, a stranger to the process might assume that homebuilders would respond to the surge in construction defects by doubling-down on quality control measures to prevent deficiencies in the work. These measures might include enhanced training, increased field supervision, and using outside consultants to advise on best practices for the building components that most frequently give rise to construction defects. For the most part, however, homebuilders in Florida and throughout the country have responded by (1) using contract documents and liability insurance to transfer risk to the subcontractors hired and supervised by the homebuilders to perform construction work, and (2) lobbying the state legislature to make changes to the law preventing, limiting, or imposing substantial burdens on homeowner claims.

The second strategy is exemplified by the recent House Bill 21, through which the homebuilder lobby sought to impose significant additional burdens on new house purchasers seeking to provide homebuilders with notice of construction defect claims under Florida’s existing Chapter 558, Florida Statutes. (For more detail on the now-defunct House Bill 21, see the Law360 article by N. Vargo and G. Demers, “DEMOLITION OF HOMEOWNERS’ RIGHTS AGAINST FAULTY CONSTRUCTION: a discussion about the requirements under Florida’s Chapter 558 Notice of Construction Defects and proposed legislation.”

Ultimately, both the homeowner and homebuilder strategies fail to address the heart of the issue. The current cycle of defective home construction and litigation has become an endless, toxic feedback loop. And while it may have become an acceptable business model in a thriving housing market, it will take a toll over the long run. For the homebuilder, litigation is risky, time consuming and expensive. It may negatively impact a builder’s reputation and long-term viability, and it diverts time and attention away from the core business of building quality, durable housing for Florida residents. For the homeowner, even successful litigation may be a cold comfort as, after accounting for the time and expense of the process, the purchaser is rarely in the same position as if there had never been deficient construction in the first place. As a result, thousands of Floridians are left to raise families and build a “home” in a structure that fails to meet expectation or the spirit of the adage quoted at the opening of this article.

In reality, homebuilder interests are aligned with those of the new home purchaser. To finally end the construction defect crisis in Florida, the legislature must recognize this alignment of interest, and pass laws that protect homeowners and incentivize the best homebuilding practices. Homebuilder and contractor licensing requirements should be improved with an eye toward consumer protection and quality control throughout the construction industry. The statutory process under Chapter 558, Florida Statutes, should be revised to protect access to civil justice for homeowners and to hold homebuilders accountable for construction defects. With accountability comes the incentive to control quality and prevent the construction defects that are at the root of this crisis and feed the endless cycle of construction defects and litigation.

Floridians know that a safe and secure home is more important than ever. The time is right for lawmakers to recognize the aligned interests between homebuilders and purchasers, and pass reforms to protect most people’s largest investment.

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