NCPA - National Center for Policy Analysis

Affordable Housing in Danger From Trial Lawyers

December 13, 2002

Affordable housing is always a concern of Americans. Nevertheless, trial lawyers are raising the costs of housing with dubious lawsuits says a new article in the City Journal.

The heart of the problem is a massive increase in "construction defect" litigation. During the 1980s, when middle-income condo developments sprang up across the Sunbelt, some were jerry-built, and owners and condo associations-properly-sued the contractors.

Trial lawyers quickly discovered that suits against multi-unit complexes could be gold mines, since there were so many potential litigants in each case. By the mid-nineties, trial lawyers were actively soliciting condo associations across the country, offering to represent them in suits against builders on flimsy, or even nonexistent, evidence of faulty construction.

The results are devastating. For example:

  • By 1998, California insurers were collecting $19.3 million in premiums, but paying out $36 million in costs, a loss of $16.7 million.
  • Two years later, the loss widened to a jaw-dropping $29.6 million-$2.95 paid out for every $1 in premiums collected.

Predictably, insurers are fleeing the market or are ratcheting up their rates so high that builders can no longer afford to construct multi-unit housing. Multi-unit housing construction has plummeted 85 percent since 1994, even as the Golden State's economy roared. One of California's biggest builders, Barnett America, no longer builds the affordable, multi-unit housing that it specialized in for 20 years.

Source: Steven Malanga, "Tort Turns Toxic," City Journal, Volume 17, Number 4, Autumn 2002.

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