The $50b leaky building problem
Should we hold a royal commission into construction? Melanie Carroll reports on the drawn-out litigation and the despair.
‘‘For the life of me I don’t understand why so many people got away without having to rectify problems that were generated by them in the first place.’’ David Boyle, who spent $600,000 to fix his leaky home, left
A multimillion-dollar case against James Hardie brought by owners of leaky homes has finally made it to court, five years after the claim was filed.
But it raises the question: Is New Zealand’s leaky homes problem simply too big for us to fix?
At his most recent estimate of $50 billion, or one sixth of the size of our entire economy, author Peter Dyer says it’s hugely expensive, but it will get even more expensive if we don’t fix it. And that’s just looking at houses, not commercial buildings.
In fact, people have been saying it’s too expensive and too big for years – but the problem is not going away.
‘‘There are still cases popping up, we haven’t come very far along,’’ Dyer says.
While many factors are to blame – untreated timber, monolithic cladding, a mania for Mediterranean-style architecture unsuitable for a wet climate – Dyer writes in his 2019 book Rottenomics Dyer that it’s the result of bigger issues in the building industry, and blames both Labour and National Governments.
The scale of the problem is obscured by property owners who aren’t yet aware their house is leaky, or who keep quiet because they can’t afford such a major renovation, according to a 2009 report by PwC.
It doesn’t make the headlines as much as it used to. Since 2005, changes to building practices and materials have stopped construction of the classic leaky home, and some claims have been settled.
There have been reforms, and reports, and court cases.
But building expert Steve Alexander says courts can’t provide a long-term fix. You can’t litigate your way out of a hugely complex, massive, country-wide systemic problem.
Arguments put by either side in court cases don’t even cover the same ground, says lawyer Adina Thorn, representing more than 1000 leaky home owners in a $250 million case to be heard next year.
In court cases, including the current one involving James Hardie, the owners blame the quality of the product, saying it didn’t work no matter how well it was installed. The defendants, including James Hardie, blame the quality of the workmanship, saying the product was fine.
‘‘The two arguments don’t meet. They might sound like they meet, but they don’t,’’ says Thorn.
She has been calling for a royal commission for years, and believes that some leaky homes are still being built.
‘‘And it’s easy to say ‘got a leaky home’ but actually what does that mean?
‘‘It means you’ve got a problem with your biggest asset that’s in the hundreds of thousands, probably like $300,000 or $400,000, which is more than most people can earn in a lifetime after that.’’
There are still a lot of building materials being used that we don’t know much about, she says.
MBIE, which has the power to ban building methods and products, has banned just one product under the Building Act 2004 – foil insulation.
Dyer says uncountable tens of thousands of building products, building systems and construction methods are allowed to be ‘‘dumped on the New Zealand market’’.
Professor of construction at AUT, John Tookey, says the biggest single problem at the heart of the leaky building scandal still hasn’t been resolved, which is the liability of councils.
‘‘The inspection process, and the review process that councils take on board, automatically does a risk transference exercise. Ultimately council is going to be the last man standing with the deepest pockets.
‘‘If you’re dealing with a house or a construction contract, the risk in terms of liability should be borne by the various different producers and dealt with by indemnity insurance at each stage.’’
Is a royal commission worth considering?
‘‘Absolutely, no question about it. It needs to get dealt with,’’ Tookey says.
David Boyle, who spent $600,000 to fix his leaky home, says a huge chunk of its value has gone.
‘‘I don’t think anyone really fully appreciates the significant costs to the economy and to individuals’ own wealth, and mental health,’’ Boyle says.
‘‘It’s just devastating and for the life of me I don’t understand why so many people got away without having to rectify problems that were generated by them in the first place.’’
The house was checked numerous times, revealing nothing of the leaking that had happened since day one.
Insurance Council chief executive Tim Grafton says insurers are now wary of taking on risk relating to New Zealand construction.
The industry wants improvements in terms of product traceability, the ability to pursue at-fault parties and fewer ‘phoenix’ companies, as well as higher standards of building construction, and thorough testing of products.
‘‘Certainly the leaky building phenomenon was one that wasn’t unique to New Zealand but the scale of the losses are huge for the size of our economy,’’ Grafton says.
Building and Construction Minister Jenny Salesa says the Government has a plan in place to ‘‘transform’’ the sector, and respond to building sector issues such as low productivity, inefficient practices and processes, skills and labour shortages.
This includes the Construction Sector Accord, the Construction Sector Transformation Plan, the Construction Skills Action Plan, the Building Code Delivery Framework, the Building System Strategy, and the Building System Legislative Reform Programme.
From 2021, the Building Code will be updated annually.