As the California State Legislature reconvenes following its summer recess, a critical suite of legislative proposals aimed at revitalizing the state’s stagnant condominium market has moved to the forefront of the policy agenda. Assembly Bill 1903 and Assembly Bill 1406 represent a concerted effort by lawmakers to address the structural, legal, and financial barriers that have historically disincentivized the construction of multi-family for-sale housing. By targeting the state’s complex construction defect liability framework and deposit structures, proponents hope to unlock a vital segment of the housing market that has been largely dormant since the Great Recession.
The push for reform comes at a time when California remains mired in a chronic housing affordability crisis. For decades, the state has struggled to meet the demand for entry-level homeownership, a gap that condominiums are traditionally expected to fill. However, a combination of high litigation risks, soaring insurance premiums, and stringent regulatory requirements has led many developers to abandon condo projects in favor of luxury apartments or single-family homes. The current legislative session marks a pivotal attempt to recalibrate the balance between consumer protection and development feasibility.
The Mechanics of Assembly Bill 1903: Reforming the Right to Repair
At the heart of the current legislative push is Assembly Bill 1903, which seeks to overhaul the state’s construction defect liability rules. Under existing California law, homeowners’ associations (HOAs) and individual condo owners have significant leverage to sue developers for construction flaws. While intended to protect buyers from substandard workmanship, developers argue that the current system encourages aggressive, high-stakes litigation over minor issues that could otherwise be resolved through direct maintenance or repair.
AB 1903 proposes a robust "right-to-repair" process. This mechanism would require plaintiffs to allow developers a meaningful opportunity to inspect and fix alleged defects before a lawsuit can be initiated. The bill originally included a "certified building" framework, which would have allowed developers to hire independent, third-party inspectors to certify a project’s quality. Once certified, the building would have enjoyed a degree of protection from certain types of litigation, with claims handled through builder-controlled repair procedures.
However, the bill faced significant opposition from consumer advocacy groups who argued that such a framework would effectively grant builders immunity and strip homeowners of their legal recourse. In response, the Senate Judiciary Committee introduced several amendments to narrow the bill’s scope. The "certified building" provision was struck from the final version. Instead, the amended bill focuses on procedural safeguards, such as limiting the recovery of investigative costs unless the builder is given 21 days’ notice and the opportunity to attend testing. Additionally, a proposed mandatory motion to dismiss for noncompliant claims was made discretionary, giving judges more flexibility in handling procedural errors.
Assembly Bill 1406 and the Debate Over Liquidated Damages
While AB 1903 focuses on the back-end risks of construction, Assembly Bill 1406 targets the front-end financial stability of condo projects. The bill seeks to increase the state’s liquidated-damages limit on new condominium sales from 3% of the purchase price to 6%. In real estate contracts, liquidated damages refer to the amount of the deposit a seller can retain if a buyer breaches the contract and walks away from the deal.
Supporters of AB 1406, who refer to the measure as "condo deposit reform," argue that the current 3% cap is among the lowest in the nation and does not provide developers with enough security. In a volatile market, a 3% deposit may not be sufficient to deter a buyer from canceling a contract if interest rates rise or market conditions shift. By doubling the allowable deposit, lawmakers hope to give developers and their lenders more certainty that "pre-sold" units will actually close, which is often a prerequisite for securing construction financing.
The bill has faced a difficult path through the legislature. The California Association of Realtors (CAR) successfully stalled the bill in a General Assembly committee earlier this year. CAR and other critics argue that shifting more financial risk onto the buyer—particularly first-time homeowners who may already be struggling to scrape together a down payment—is the wrong approach to solving the supply crisis. Currently, political analysts suggest that AB 1406 faces long odds of passing in its current form without significant concessions to buyer protections.
A Decades-Long Decline: The Data Behind California’s Condo Shortage
The urgency surrounding these bills is underscored by startling data regarding the collapse of condominium starts in California’s major metropolitan areas. A 2024 study conducted by the Terner Center for Housing Innovation at the University of California, Berkeley, highlights a dramatic shift in the state’s housing stock. According to the research, condo construction in Los Angeles peaked between 2005 and 2006, with more than 8,000 units permitted annually. Following the 2008 financial crisis, condo production plummeted and, unlike the apartment market, never recovered.
The Terner Center’s findings suggest that the "missing middle" of the housing market—moderately priced for-sale multi-family units—has been replaced by a "rentership" model. In many California cities, it is now more profitable and less risky for a developer to build a 100-unit apartment complex than a 100-unit condominium building.
The primary culprit cited by researchers is the cost of insurance and litigation. A follow-up study by the Terner Center found that defect liability insurance adds between $8,100 and $18,300 in "hard costs" to every single unit in a typical Los Angeles project. When "soft costs," such as legal fees and the risk of delayed projects, are factored in, the financial burden becomes prohibitive for many mid-sized developers. This "litigation tax" is often passed directly to the consumer, further eroding affordability in a state where the median home price remains well above the national average.
National Context: The Surfside Legacy and Federal Safety Financing
California’s legislative efforts are occurring alongside a broader national conversation regarding condominium safety and financing. This movement was catalyzed by the 2021 collapse of the Champlain Towers South in Surfside, Florida, which claimed 98 lives and exposed deep-seated flaws in how condo associations manage aging infrastructure and structural repairs.
In Washington D.C., U.S. Representatives Debbie Wasserman Schultz (D-Fla.) and Maria Elvira Salazar (R-Fla.) have reintroduced federal legislation aimed at helping condo associations fund essential safety work. The bill would provide low-interest loans for structural repairs, addressing a major pain point for older buildings where residents may face massive "special assessments" to cover the cost of retrofitting or concrete restoration.
The federal debate highlights a dual challenge for the condo market: the need to build new, safe units while ensuring that the existing stock remains habitable and financially viable. For California, the federal focus on safety provides a backdrop for the state’s own regulatory adjustments. While AB 1903 seeks to limit frivolous litigation, the memory of Surfside serves as a reminder that robust construction standards and accountability remain paramount.
Chronology of Reform: From SB 800 to the Present
The current legislative push is the latest chapter in a long history of attempts to regulate California’s construction industry.
- 2002: The California Legislature passed Senate Bill 800, also known as the "Right to Repair Act." It established functionality standards for various components of a home and created a pre-litigation process.
- 2008-2012: The Great Recession caused a total collapse in new construction. During this period, many condo developers pivoted to apartments, a trend that solidified into a permanent market shift.
- 2018-2022: As housing prices reached record highs, advocacy groups began pointing to the lack of "for-sale" density as a primary driver of the crisis.
- 2024: AB 1903 and AB 1406 are introduced. After several rounds of amendments in the spring and early summer, AB 1903 cleared the Senate Judiciary Committee in August, while AB 1406 remained stalled in the Assembly.
Stakeholder Perspectives and Industry Reactions
The reaction to the proposed changes has been divided along predictable lines. The building industry, represented by groups such as the California Building Industry Association (CBIA), argues that the status quo is unsustainable. "We are in a situation where the threat of a lawsuit is baked into every project pro-forma," said one industry consultant. "Until we can provide builders with a clear, predictable path to resolving disputes without ending up in a courtroom for five years, the condo market will remain on life support."
Conversely, consumer rights attorneys and some homeowner advocates worry that the pendulum is swinging too far toward developer protection. They argue that "right-to-repair" laws can sometimes be used to delay necessary fixes, leaving homeowners in deteriorating conditions while legal clocks run out. The amendments made to AB 1903 in the Senate Judiciary Committee reflect a compromise intended to address these concerns by maintaining judicial oversight and ensuring that builders cannot simply ignore claims.
Broader Impact and Economic Implications
If AB 1903 successfully passes and is signed into law by Governor Gavin Newsom, the implications for California’s urban landscape could be significant. A resurgence in condo construction would support the state’s climate goals by encouraging higher-density living near transit hubs, reducing the need for long commutes from suburban fringes. Furthermore, condos provide a critical pathway to wealth-building for first-time buyers who are currently priced out of the single-family home market.
However, the success of these reforms will also depend on the insurance market. California is currently facing a broader insurance crisis, with major carriers like State Farm and Allstate pulling back from the state due to wildfire risks and rising costs. Whether a change in defect liability laws will be enough to lure insurers back to the condominium sector remains an open question.
As the legislative session enters its final weeks, the fate of these bills will serve as a bellwether for California’s commitment to diversifying its housing stock. While AB 1903 appears to have a viable path forward, the struggle over AB 1406 highlights the ongoing tension between protecting today’s buyers and incentivizing tomorrow’s builders. Regardless of the outcome, the data suggests that without fundamental changes to how condos are built, insured, and litigated, California’s dream of affordable homeownership for the masses will remain increasingly out of reach.
