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December 12, 2016 | PROPERTY REPORT
Watergate: the rot continues The exact number of leaky homes may never be known, writes Diana Clement
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s many as 90 per cent of standalone leaky homes are likely still rotting, says leaky homes specialist lawyer Tim Rainey. And tens of thousands of owners who have stuck their heads in the sand are too late for most forms of redress. The Government’s financial address package closed in July this year. Add in that once a code compliance certificate is issued, there is only a 10-year window of opportunity to file a complaint about a leaky home with the Weathertight Homes Resolution Service, and time is almost up for the majority of home owners. The whole process has been a “monumental failure”, says Rainey. The leaky home crisis was a perfect storm as a result of relaxations in the Building Act of 1991. But it’s not just the buildings’ designs, the lack of cavity, and the monolithic cladding that are the problem, says Gerard Ball, chartered building surveyor at Babbage. When the building’s outer layers are removed, other deficiencies are discovered such as non-compliant materials substituted for ones in the plans, and poor construction methods. It’s estimated that around 80,000 homes and apartments built between 1991 and 2005 used products and methods that have not proved weathertight. About 12,000 of those have been “remediated” (fixed) privately or with the help of government assistance, says Nick Gaites of the New Zealand Institute of Building Surveyors. And the Rainey Law team says almost every street in the central city would have a leaky apartment building. Denial The exact number of leaky homes may never be known, says Rainey, because a recommendation in the 2002 Hunn Report that a survey be done was not carried out by the Government. Thanks to that, many owners are in denial. Some find out when they go to sell or when they seek a CCC for other work and receive a Section 95A notice back, says Gaites, which often means a six-figure repair bill. Lawyer Adina Thorn says many owners are losing a life’s earnings in equity thanks to the cost of remediating the homes combined with the loss in capital gain as a result of the leaky home stigma. Remediation Ironically it’s almost impossible to patch these buildings, says Rainey. If you want to fix a leaky deck, for example, it will require planning permission and the council requires the entire building to be fixed to the current Building Code — a higher standard than the house was built to. Rainey has heard arguments by experts that buildings can be remediated cheaply. But he says nothing less than the “gold standard Prendos approach” ever works. That is stripping off the cladding, treating the timber framing, installing battens and building wrap to provide a drained and ventilated cavity and then installing new cladding. “We have found over time that all these consultants saying, ‘You can fix this up for less money’, were wrong. Ball now sees “third generation” leaky buildings where the first and second remediation hasn’t worked. Leaky home stigma Leaky homes do sell, albeit for a discount. Often buyers are builders or developers who remediate the properties and
More pressure on housing New Zealand’s unadjusted annual net gain of migrants was a record 70,300 in the October 2016 year, Statistics New Zealand says. This surpasses the previous annual record of 70,000 in the September 2016 year. “The record annual net gain in migration was driven by the increase in migrant arrivals,” population statistics manager Jo-Anne Skinner says. “At the same time migrant departures decreased, adding to the high net gain.” Migrant arrivals numbered 126,100 in the October 2016 year, setting a new annual record. Migrant departures were 55,800 in the October 2016 year.
flick them on or bowl the house and replace it with a new or multiple dwellings on one site. Buyers need to be careful and see reports from qualified surveyors. But buyers going to auction haven’t, until the market cooled, had the time to get the necessary report on a potentially leaky home and have taken risks. What’s more, says Gaites, it’s unusual for vendors to allow the necessary invasive testing to properly determine if the home has a weather tightness problem. If they do, it will have tell-tale holes left in it which could deter buyers. Unfortunately for owners, even a reclad and a CCC won’t return the value of their home to that of an otherwise equal home on the same piece of land.
pay $100,000 towards the remediation, the cashed up buyer might pay around $150,000 below the expected market value of the property. Rainey Law has had the first case, but it expects to see more, where the apartment owner declared bankruptcy and the Official Assignee “disclaims the property as onerous property”. In effect, it is abandoned and the body corporate takes it over to recoup some remediation costs.
We have found over time that all these consultants saying, ‘You can fix this up for less money’, were wrong.
Class action Thorn is leading the class action against cladding manufacturer James Hardie on a “no win, no fee” basis supported by international litigation funders. The case involves homes, commercial buildings, schools, hospitals and others that were constructed with claddings such as James Hardie’s Harditex, Monotek, and Titan Board. She says ASX-listed James Hardie tried to argue that there was a 10-year limitation under the Building Act. But Thorn says that only covers the building work, not the products. The $200 million class action involves more than 360 buildings and 1000 property owners.
Whether or not remediated, homes built between 1991 and 2004/5 come with a costly stigma, found Massey University’s Song Shi, Iona McCarthy and Uyen Mai. They are on the verge of releasing research into the price effect and say the drop in value is 11 per cent on average for general market stigma plus 5-10 per cent for post-remediation stigma. In the apartment market, cashed-up buyers have a formula for buying into leaky buildings, says Peter Holmes, general manager at Crockers Property. Where the remediation costs are known, but the work has not been yet done, they will typically deduct the estimated cost of the work, a contingency and then about one third more to cover their profit. In the case of an apartment where the owner needed to
The human cost Thorn says at least two of her clients have taken their own lives. Others have gone bankrupt and many more are living in homes that are severely impacting their health. In 2009 academics working in the field of public health at the University of Otago in Wellington estimated that the physical and mental health costs associated with leaky buildings was $26 million a year. Rainey remembers attending meetings in apartment buildings with mostly older apartment owners who appeared to go downhill physically and mentally over the years that the case ran on. “It is heartbreaking.” Ball knows of tradespeople involved in building the leaky buildings who have committed suicide or lost life savings. One tradesman who was the “last man standing” for a Whangaparaoa home owner had to pay around $60,000 on a job that he would have earned around $3000 for his portion of the work. It crushed him financially.
Lawyer, Tim Rainey
Buyers lack confidence There has never been a greater proportion of people who think it is a bad time to buy a house than now, according to the November ASB Housing Confidence survey. According to the survey’s findings, the drop in sentiment is apparent outside Auckland, although sentiment in the Super City remains low. It says expectations of house price increases, as well as higher debt servicing costs, appear to have subdued survey respondents’ sentiment around buying a house. The latest loan-to-value ratio restrictions could also be playing a part, says the report with investors across the country requiring a 40 per cent deposit to buy an investment property. The upside could be that the slowdown may give some first-time buyers a fighting chance to enter the property
market. However, the bank says buyers may remain cautious given recent house price appreciation and are likely to be wary of perceived changes in borrowing costs. Breakdown of the net quarterly figure for New Zealand: ■ 10 per cent say it is a good time to buy, while 35 per cent say it is a bad time. (It was 13 and 33 per cent respectively last quarter). ■ 42 per cent say it is neither good nor bad (was 41 per cent) and 13 per cent don’t know (13 per cent). In Auckland, sentiment was steady with a net -33 per cent thinking it was a good time to buy (more people think it’s a bad time to buy.) Outside Auckland, a net -24 per cent thought it was a good time to buy (from -16 per cent last quarter) in the North Island.