More regulation is not the housing cost answer

By Don C. Brunell

Recently, a researcher from the University of Washington reported land use regulations - most notably the state's Growth Management Act - added $200,000 to the price of a home in Seattle. That staggering figure blows one's hair back and makes you wonder what went wrong and ask, can it get much worse?

But, unfortunately that price could go higher if state legislators make the wrong decision.

Theo Eicher, founding director of the University of Washington's Economic Policy Research Center, says that 88 percent of the increase in Seattle's housing costs from 1989 to 2006 was the result of land use regulations. That's twice the financial impact of regulations in other major U.S. cities.

The UW study confirms that imposing burdens on homebuilders increases housing prices.

Nonetheless, Sen. Brian Weinstein, D-Mercer Island, is sponsoring legislation that imposes new burdens on contractors who build or remodel homes. Senate Bill 6385 greatly expands the legal liability for contractors, making it much easier for lawyers to sue them over construction defects.

If this measure passes, it will increase housing costs before the first lawsuit is filed. Insurance premiums will skyrocket at the mere prospect of a new class of liability lawsuits. How can a small homebuilder stay in business with yet another round of costs for a home? Larger construction companies may pay the higher premiums but have to pass the costs on to home buyers in the former of higher prices.

The question we all need to ask is "how will working families afford even a starter home when the price is outpacing the average family income even with both parents working?"

Unfortunately, Weinstein's bill (SB 6385) passed the Senate, 27-20, on Feb. 1 and now sits in the House Judiciary Committee. Ironically, at the same moment the Senate was passing a bill that will increase housing costs, those same lawmakers were struggling to increase the supply of affordable housing.

Of course, contractors should provide a quality product and should be held responsible for shoddy work. But there are better ways to address the issue.

For example, both new construction and remodeling projects must have a variety of permits and are inspected at every step of the way by city or county building inspectors. At each stage, the inspector must confirm that the work meets all relevant codes and standards before construction can continue.

If home buyers are getting defective homes, one of the key reason is inspectors are approving poor construction. Shouldn't those inspectors face liability for not doing their jobs? Lawmakers should look at that before they open the door to new litigation.

In addition, all contractors are all licensed by the city and/or state. Shouldn't lawmakers find out if the licensing process needs to be improved before they hand a blank check to lawyers looking for a new reason to sue - a check that you and I will pay in the form of higher housing prices?

Lastly, the Washington State Department of Labor and Industries also needs to crack down harder on "moonlighters" and black market builders who operate in an underground economy. Many problems stem from those unscrupulous contractors who give good contractors a black eye and homeowners a migraine.

One state lawmaker is taking a better approach.

House Bill 3349, sponsored by Rep. Mark Ericks, D-Bothell, requires the State Department of Licensing to work with representatives of consumer protection groups, legal authorities, contractors and consumers to examine licensing programs in other states, evaluate consumer complaints, and conduct public hearings to determine what the problem is.

It makes common sense to find out what the problem is before you propose a "solution." Unfortunately, Weinstein's bill puts the cart before the horse and is the wrong way to set public policy. Ericks' "look before you leap" approach will help pinpoint what the real problems are and help fix problems without lawsuits.

Fortunately, many lawmakers agree. HB 3349 passed the full House, 93-1, on February 15 and was referred to the State Senate. Let's hope the Senators make the right call on this one before the session ends on March 14.

Don C. Brunell is president of the Association of Washington Business.