Remember the late 1980s? Interest rates were stable, new homes were available across the price spectrum — from entry-level condos in the low $100,000s, to plush custom homes costing several times that amount. If you were a first-time buyer who got into a condo and built equity during those golden years, count yourself lucky.

    Truly affordable condominium projects such as The Summit at 4S Ranch in Rancho Bernardo — where prices start at $81,000 — are almost as rare these days as California condors.
    In today’s litigious climate, most home builders avoid condo development. Leery of construction defect lawsuits, they are focusing elsewhere, with the end result being that hundreds (thousands?) of first-time San Diego home buyers are being squeezed out of the market.
    Before long, experts say, those in search of new homes will have these two choices: Buy a detached home for about $270,000 or rent an apartment. The third alternative, condos, is something builders just won’t touch.
    "Nor would you if you were in our business," says Mick Pattinson, president of Barratt American, also in his third year as chairman of the California Building Industry Association's Construction Dispute Resolution Task Force. "Hard though we have tried, the cards are still heavily stacked in favor of plaintiffs."
    Case in point: Just last month, the homeowners association representing the 96-unit Watermark condominium project in downtown San Diego was awarded $11.6 million to settle a construction defect case mostly involving water leakage and resulting damage to inside walls. The settlement shows that, despite statewide legislative "reforms," builders' butts (and the behinds of their contractors) are still on the line — as they have been for years.
    That's one side of the equation. The other side is that plaintiffs' attorneys remain adamant about maintaining high construction standards — and holding builders responsible for the quality of the product.
    "The purchase of a home is the single largest financial investment a family will make in its lifetime," says Rob McGregor, partners with Bryan Garrie at McGregor and Garrie, a law firm that specializes in representing homeowners in construction defect cases. "A home is where a family's hopes and dreams are realized. The solution to the problem is therefore not to grant home builders immunity from liability for selling

defective homes to San Diego families. The solution is to require builders to meet the applicable building code requirements and appropriate industry standards. California law should not be changed to accommodate the interests of home builders at the expense of homeowners."     Regardless of point of view, builders remain condo gun-shy. They aren’t building the affordable for-sale attached housing — and the void their reluctance is creating just continues to grow.     Sherm Harmer, senior vice president/division manager at California Pacific Homes of San Diego, says roughly 90 percent of all condo projects built in San Diego in recent years have been the target of construction defect legal action. Prominent authorities such as the University of Southern California, ConAm Research and the Building Industry Association have all come up with similar figures, Harmer says.

Sherm Harmer, senior vice president/division manager at California Pacific Homes of San Diego.

    In response, thanks to the efforts of Pattinson and construction industry lobbyists, some new builder-friendly legislation has been approved in Sacramento:

• Senate Bill 1029, which mandates a meeting and conference process between plaintiffs and defense attorneys to look for better ways of dealing with construction defect cases.
• Senate Bill 1171, which states that officers of homeowners associations are not personally liable in construction defect cases; builders believed that, under threat of personal loss, association officers were often coerced into suing builders.
• Other state legislation that lets builders include mandatory arbitration in contracts with buyers, as a means of settling defect cases without litigation. (Yet even that arbitration allowance is under attack and indeed would be voided by Senate Bill 19.)

    One bit of encouraging news came when courts ruled that plaintiffs could not seek settlements based on deviations from building codes — there has to be actual damage.
    Overall, though, builders are still crippled by the threat of lawsuits, since homeowners associations maintain not only common outdoor areas, but common walls — a difference between condo associations and single-family homeowners associations that only maintain common public areas, not the actual houses.
    Meanwhile, San Diego’s population is growing again, and housing prices are appreciating at a 1980s pace: perhaps as much as 20 percent this year and 20 percent next year.
    Numbers tell the condo story. According to Market Profiles of San Diego, sales of new attached homes peaked in 1985 at 6,164, then began a steady slide through 1997, when attached sales were a mere 1,367.
    And because there are fewer town houses today, mid-priced attached housing is even scarcer. During the late 1980s, the difference between the average single-family home price and average condo was in the $35,000 to $50,000 range. Today's average new detached San Diego home costs $286,000, versus $186,000 for an attached home.
    Reluctance to build condos comes not only from builders, but from subcontractors. Subs have been hard hit by construction defect litigation — they can easily drop $5,000 or $10,000 defending themselves against liability claims over jobs that may have only earned them $5,000.
    A new form of liability insurance called a "wrap-up" policy offers a way for a few builders to cover their assets — as well as those of their subcontractors. But only a select few blue chip builders like Brehm Communities, who utilize extensive quality controls and peer review, can qualify for the insurance.
    "Let me tell you the types of things that happen," says longtime home builder Woody Brehm, president of Brehm Communities. Like most onetime condo builders, his company’s been sued more than once. "Let's say you’re a small contractor with a $5,000 or $10,000 deductible on your liability policy. You do a $5,000 job for someone and a few years later, you’re drawn into a suit and you pay your $5,000 or $10,000 deductible. I talked to one competent sheet metal subcontractor who had 52 cases against him, some where he had done only $3,000 or $5,000 of work. Some subs can’t get insurance."
    Few subcontractors will even take an attached housing project, Brehm says.
    "It’s not emotionally or economically feasible for subs to do the work," Brehm says. "At one time, condos were a ton of our business." Presently, Brehm has no condos on the market, and only one project in the works: Brendisi, 93 units scheduled to break ground in Aviara in Carlsbad later this year.
    Like Brehm, most builders are condo-wary.
    "We are ceasing condos," says Leonard Matchniff, director of construction at Reynolds Communities, a longtime home builder in East County. "Litigation has run rampant to the point of ridiculousness. You look at an automobile, people spend lots of money on it, it has hundreds of parts — yet they don’t expect the makers to warrant the product beyond a reasonable time." Home builders, by contrast, are liable for 10 years. "Homeowners have a difficult time sitting down, reading their homeowners manual, and understanding that parts of their home need to be maintained."
    Reynolds had the 214-unit Remington condos project in Rancho San Diego underway before deciding to get out of condos, so the company is proceeding — but with caution, and expensive measures that will jack up the project's cost.
    "We spent several months meeting with structural engineers, soils engineers, architects, trade contractors to redesign the project and buildings to at least a little better than code," Matchniff says.
    Standard slabs were upgraded to "post-tension" — with cables strung through the concrete that are tightened after the pour to make the pad stronger. Reynolds also upgraded windows from single- to double-glazed, and substituted "60-minute-paper" stucco lathing paper for "15-minute-paper" — when it rains hard, it takes four times as long for water to penetrate the upgraded paper. Reynolds also installed a double layer of 30-pound roofing paper, instead of the usual single layer, and used double flashing, instead of single as required by code.
    "Liability is still so great that we haven't built any lately," adds California Pacific's Harmer. "Basically, there are only a few builders left who'll build them in California, such as D.R. Horton, from Texas, and Hovnanian, from New Jersey. They're domiciled outside of California, and they can get insurance there. I think everybody else has given up.
    "It’s not the builders' problem anymore. It’s society's problem, it’s a social problem, it’s an economic problem. The governor created a special task force to deal with it because he realizes — if you don’t fix it, where are people going to live who require housing that’s affordable?"