By Alex Tarrant
The head of a group representing leaky building owners is calling on the government to hurry with an assistance package to help with a problem that has “put people’s lives on hold”.
Rolf Stucki, who chairs a body corporate for a leaky development of 55 townhouses on Mays Road in Onehunga in Auckland, said they wanted to rebuild, but uncertainty over the terms of a government guarantee was holding up the bank loans needed for the project to start.
Building and Construction Minister Maurice Williamson yesterday introduced the Weathertight Homes Resolution Services (Financial Assistance Package) Amendment Bill to Parliament to deal with the issue, although this has not provided any clarity as to whether the package will be agreed to by New Zealand’s retail banks.
The Bill will be reviewed by the Local Government and Environment Select Committee, which is not due to report back to parliament until April 28 next year.
Under the proposal, government would pay 25% of leaky building costs and councils another 25%, although councils would only pay for developments theit own certifiers had inspected, and not ones done by private inspectors. See all our previous Leaky Homes articles here.
This included the Mays Road development, Stucki said. As it was reviewed by a private inspector when building was completed around 2000, they were only eligible for the government’s 25%, and would have to fund the remaining 75% of costs themselves.
The government has indicated it would guarantee bank loans for dealing with leaky buildings. However a spokesman for the Bankers Association said the proposed legislation did not offer certainty.
"The current proposal falls short of how a guarantee is commonly perceived, in that what's being proposed would not cover 100 per cent of any loss, so it would be more like a loss-sharing arrangement between government and banks," the spokesman told The Dominion Post.
93-97 Mays Road, Onehunga. 55 leaky units
The 55 Mays Road units were built in 1999-2000 and signed off for the council by a private inspector, Stucki told interest.co.nz. The developers had been bankrupted, so the body corporate was not able to sue for costs of repair.
“Every single unit has been tested and they all now need to be repaired. We’re having the problem with having [had] private certifiers. That means that we don’t get the 25% from the council," he said.
The council didn’t want to have a bar of it, even though it had accepted the certification.
“The rest we have to pay ourselves. It could be more than 75%,” Stucki said.
“What the government is talking about is an ‘agreed’ value of repairs. That means it will only take into consideration things that are directly attributed to the leaking,” he said.
"The whole thing is so vague. The government [in 2009] put out an offer saying ‘we’re going to help you - it’s a rescue package - early next year. Then three months after the first announcement they say ‘oh no it will be mid-next year’, and then we’re hearing whispers [about it being longer due to problems with the banks].”
The problem had put peoples’ lives on hold, Stucki said.
“I know a chap that owns a unit here that he’s got a NZ$230,000 mortgage on. He’s had it for about two or three years, interest only. He’s got his own private property to back it up as security, so he borrowed basically NZ$230,000 at 100% finance,” he said.
“Now it’s leaky."
The units were selling now for as little as NZ$110,000.
“You’ve got a NZ$230,000 mortgage and it’s valued [at just its] land value. We now need to go to the the bank and say ‘we’re now going to need another, say NZ$150,000 to rebuild and everything.
“You’ve got a mortgage of NZ$230,000 and want another NZ$150,000. The overall value of it once it’s been done up will be around NZ$300,000 probably.”
“Well if you’ve got NZ$230,000 then another NZ$150,000 that’s NZ$380,000. Would the bank want to give you that money?
“You still need that other asset. In this particular case they’re also breaking up.
“They can’t sell their matrimonial home because it’s being used as a guarantee for this place here. They’re losing big time. And they can’t do anything unless the sell this at the going rate.
“You can’t do that. The bank may not even allow them to sell their house. It’s just financial ruin.”
Private certifiers, council not liable
At the time the development was built, private certifiers were allowed to do inspections on behalf of the council, Stucki said.
The council later stopped this, but not before a number of leaky developments had been build.
“The private certifiers, they’ve gone belly up, so you can’t sue them anymore. They’ve gone, like the developers as well. They’ve gone – they’re bankrupt, that’s what they claim,” Stucki said.
“So we’re literally faced now with paying all of it by ourselves,” he said.
“If the government is coming in with their rescue package, we appreciate 25% - that’s certainly helpful. We might get say a NZ$20,000-25,000 contribution. That’s better than a kick in the pants. But ultimately you still need to find the rest.
The banks had every right to say the government had to make sure they were going to get their money back due to the fact not many owners currently passed bank lending criteria, Stucki said.
“The odd [person would default], but at least you’ve got a unit [as collateral],” he said.
Inspected before he bought it
Like every home buyer, Stucki had to have the unit inspected for the bank before he was given a mortgage to buy the property
“They inspected it and wrote down what they could see. Nobody’s going to drill holes in places and things like that. And five years ago of course it wasn’t as bad as it is today,” he said.
“When the [leaky building] assessors came in to look [at the unit for the claim], you know garden mulch? That’s got more substance than what we’ve got in there. It is horrendous decay.”
“It’s a disaster.”
How did you find out it was leaky?
Over time, there were people in the development who had repairs done on their units. “And at that stage it became a whisper that they were leaking,” Stucki said.
Finally someone trying to buy a unit was refused a bank loan because of the moisture in it, he said. This meant the people who owned it could not sell.
“From there on in we then contracted a company that does moisture testing, probably about three years ago. They came back and said ‘yeah you’ve got a problem there,’” he said.
All 55 units eventually signed up and were inspected for a claim.
They were now just waiting for the government to come up with the money. “Simply we haven’t got the money”.
Given the chance, the body corporate would opt to rebuild the entire development, rather than just have repairs, although it was up in the air as to whether this could be done.
It would cost about NZ$125,000 to NZ$130,000 per unit for a rebuild against about NZ$120,000 per unit for repairs. “That’s the estimate.”
Repairs cost so much because they would have to be done by expert repairers, Stucki said.
“Ultimately they have to sign a piece of paper which makes them responsible for the integrity of the building,” he said.
“But it is widely recognised that particular industry is an absolute disgrace in ripping people off because they can charge whatever they want. A normal builder can’t do it. You have to have specialists.
“What happens is these buildings have been designed with flaws. In order to overcome those flaws, you can’t just go and replace a piece of timber with another piece of timber and put the cladding [back] over it and think it’s not going to happen again.
“It will happen again due to the design of the place, so what they have to do is design out the flaws.
This caused problems because there was still an existing structure. “To redesign the existing structure without having to go in [and] change designs is very difficult and costly.
“Whereas if you’re bowling it over to start anew, you design it correctly in the first place. Any builder can do that,” Stucki said.
Problems
“There are no eves. It’s a ‘Mediterranean’ design – it’s bad. What you’ve got is water penetrating form the top, and it runs down inside,” Stucki said.
“There’s no decent capping on top either, so you’ve got water running inside the wood. Then of course it goes in through the nail holes.”
Health issues?
"You don’t notice the moisture on the inside yet. Because while the interior’s still sealed, you don’t have a health issue. But there are units where, if you lift the carpet, that you notice there’s some black mould there already. So health issues are starting.”
Legislation
There was total uncertainty whether the claim would qualify if it was for a rebuild, or if the claim would only qualify if it was for repair-only.
“It’s too vague. There’s not enough detail.”
Williamson’s heart was in the right place. “But he’s got to deal with the banks, and the Finance Minister as well,” Stucki said.
“We just want to make sure we have access to money so we can get on with it. A majority of people here don’t qualify [for bank lending criteria] now because all their assets are in a place that’s over-mortgaged.”
Those trying to sell now would have to take “a pittance and walk away”. You’re looking at about NZ$110,000 to NZ$120,000, that’s what they’re selling for. At the moment if it wasn’t leaky you could probably get NZ$250,000-260,000.
“People can’t afford [to sell so low and walk away].
One couple who were owner-occupiers wanted to emigrate to Australia.
“They wanted to sell the place so they can purchase something in Australia. They couldn’t sell. So now they’ve got tenants in there and I’m not sure they’ve managed to buy a place in Australia or not.
It was easy enough now to get tenants for a unit, although it would become an issue as health problems associated with the moisture worsened.
“The health issues are something that will happen sooner or later in a serious way.
“Now it’s just wait for the government. You can’t use it as collateral for anything else.
“It literally puts your whole life on hold. You’ve got an asset that is probably worth less than what you still owe on it. It’s easy enough for people to say ‘oh you shouldn’t have bought the place like that’, well hang on, sometimes that’s the only thing that’s available in our price range.”
“And you take [the inspector’s] word for it.”
“Everybody has got a way out except for the poor bastard who owns the unit."
Life on hold
The problem literally put people’s lives on hold and not just for a year or two. “Money that they had saved for retirement, it’s gone, because you have to invest it in something else now,” Stucki said.
“If you have to find another NZ$125,000 – that’s money that you’ve put aside for other things,” he said.
“Our generation hasn’t had a war. This is our war here. At least we’re still alive. It’s just frustration. That’s what it is. And the quicker we know what’s going to happen, the quicker we can make a decision and move on. But the key is that the government guarantees that everybody will qualify for that package. That’s the key.
“If we have to repair them [rather than rebuild], ok, they’ll get repaired but guess what? I’ll be the first one to sell straight away. Because it’s going to go bad again, you still have a stigma on it and there’s no better time to sell than when it’s brand spanking new.
“You’ll find there are a lot of people who will just sell up.”
“My bubble has shrunk. My retirement fund’s gone. I’m back to starting from scratch.”
“NZ$150,000 say over 10 years – that’s NZ$15,000 a year. That’s over NZ$1,000 a month. That’s money you could have put in the bank.
“So yes, it’s changed my life.”
A PricewaterhouseCoopers report commissioned by the government last year estimated between 22,000 and 89,000 homes were leaky.
PwC said a consensus forecast suggested 42,000 dwellings were likely to be leaky homes and noted only about 3,500, or 8%, had been repaired. PwC estimated the total cost of fixing 42,000 leaky homes, including repair and transaction costs, at NZ$11.3 billion in 2008 dollar terms.
The central government has already estimated its share of the cost at NZ$1 billion.
29 Comments
The only "tragedy" is that so many people could be so stupid and greedy.
And this is just part of the great big economics and finance lesson known as the 'Housing Bubble 2002 to 2008'.
Worst of all is that the greedy idiots who set themselves up for these falls will have learned nothing and would gladly do it all again if given the opportunity.
This legislation will suffer delay after delay after delay...on top of the already lengthy delays. Why? Because after 2013 there will be virtually no homeowners eligible to benefit from this scheme. Homeowners only have 10 years to claim after their home was built. How many leakers were built in 2003/4/5 etc versus 1999/2000? The travesty is that the Govt is making us think they're actually doing something about this (mainstream media haven't jumped up and down about the 10 year expiry issue but I reckon they soon will).
Another travesty is that our taxes are paying for Mr Williamson to stand up and speak in Parliament and it is a complete waste of time and money. He would probably prefer the legislation to be delayed because the end cost and risk will be lower. Perhaps he'll be thought of as a hero because by delaying he's reducing the burden on all taxpayers? Where does this leave the owners of leakers?
Will the banks cause more delays? If you were a bank wouldn't you? Delays are just what Williamson (and taxpayers) need anyway. So banks and taxpayers and Williamson win. Leaky owners lose.
Williamson needs a better solution but he's not paid enough to go looking for it! His pay level (understand that it reflects the value he adds to his portfolio) will ensure the owners like the ones in this story are totally doomed. Many more others with houses built in the 1990s, who think theirs don't leak, are similarly doomed.
This issue needs a Royal Commission so that it (and similar Government bungles) can be prevented from happening again. How do we start the ball rolling on a Royal Commission?
“You’ve got a mortgage of NZ$230,000 and want another NZ$150,000. The overall value of it once it’s been done up will be around NZ$300,000 probably.”
The reality of this situation is - that even when repaired, the value of the unit is likely to be less than the cost of the repair (regardless of what way the 'sound house' market goes) for this reason as stated by the leaky homeowner:
“If we have to repair them [rather than rebuild], ok, they’ll get repaired but guess what? I’ll be the first one to sell straight away. Because it’s going to go bad again, you still have a stigma on it .."
Clearly, repair is throwing good money at bad. All the leaky homeowners know that but if the government is stupid enough to throw someone elses money at them - they'll take it - and in many cases spend some of their own good money (likely borrowed) at it as well.
This is plain stupid.
How about demolition be made a requirement of any taxpayer funded bailout. The taxpayer stumps up 25% of the original cost of the building (adjusted for inflation), the empty section gets resold at today's market rate (no agency fees charged - the government can tender them for free) and the proceeds of the land sale is divided equally amongst the body corporate/joint owners. From there the homeowner takes whatever the balance of profit or loss is. If a loss - allow them to deduct that loss from tax liaibilities on other income sources.
Good idea Kate
the only winners at the moment are the lawyers
Knock 'em down and take away the stigma of a leaky home and build again
FYI- a royal commission won't happen because it will show the Govt in the 90s (Nats) dropped the ball with the building regulations.This is typical NZ, no one owns up for their responsibility, a 'shallow' investstigation and then throw as much taxpayer money at the problem as possible/or delay things until after the election and do nothing.
From Tuesday's Top 10 - in case it got missed.
Well, that assessment of valuation was exactly what I thought;
The above example, in which the Market Value is equivalent to the land value, is from our experience, not uncommon in the Auckland market.
Ironic really - when the government valuation agency is telling the Government that they are throwing good taxpayer money at bad with this proposed repair package - yet the Government is passing legislation to do just that at the moment.
I am now firmly of the opinion that John Key's Government (particularly if given a second term) will go down as the most economically ruinous in the nation's history.
But then, should we ever have expected any more from an FX dealer?
Nice link, KWJ. The question now arises...Is QV now declaring the sale of these properties in their statistics now? My understanding is that they previously may have been excluded them as they did not reflect a normal market sale. (ie: "The principal of market value also states that the situation is free of duress, such as financial stress....",financial stress being present in thses cases)
Nice idea Nicholas but most sales of plaster homes are just low-ish due to the stigma and dearth of buyers, they're not actually declared leaky. Effectively we have two real estate markets that should have two completely sets of stats - plaster (or at risk) and other.
These are small units mostly with conjoined walls, leaving only a front and rear wall needing replacement for most units.
How it could possibly be cheaper to rebuild from scratch than repair does not make any sense when rebuilding the two walls would probably cost under $40,000 per unit even with an expensive contractor.
Unfortunately what happens in these situations homeowners get on the bandwagon of demanding a whole new building rather than just demolishing parts that are damaged. Aluminium joinery can even be reused (with new reveals) and the cost of the remaining materials that needs replaced is not great, so it makes no sense at all to lay waste to the entire building.
Of course if there are severe internal plumbing leaks (from showers etc), the cost will be higher, but this is an area that any type of property built before 2004 may face problems with. Even if the bathroom needed gutted, timbers replaced and tanking, total cost for a basic bathroom would probably be only $15,000.
Irrational fear leads to silly decisions being made like in Christchurch where buildings which are entirely repairable are being leveled on sites where it is unlikely economic replacement of buildings will take place at any time in the foreseeable future.
Most of the value of these buildings is gone in 15 years anyway. Once you start you are left with a few 2x4s nailed together in the wrong places.
Basically the window joinery, bathrooms and kitchen are stuffed or obsolete. You can maintain the place in a just adequate state if you do it yourself but it is just not worth paying a builder.
These were just badly built. There is nothing to save.
Exactly - all the more reason "saving them" using taxpayer funded subsidies is so abhorrent.
From what I can gather - many of the unit title leaky buildings are rental investments - and its disgusting that we might commit our future health budget to further problems encountered by their blameless inhabitants.
That said however, it is clear Government stuffed up. So something sensible has to be done to rid us of the legacy of this bad governance, bad investment decisions.
Burning them down and claiming the insurance would be ideal except it's illegal.
Is there a way around this? Is there a way to strike down the insurance defence that they are not liable? From the owner's point of view it is a reasonable expectation they are covered for the building falling apart. Is there a case for a class action suit against the unreasonable terms of the building insurance. Surely a common law interpretation is that people who bought and paid for building insurance in good faith are in fact covered?
While I think it's great that Government and Local Government have finally come to the party, accepted their responsibilities in creating this mess and will help out those who have leaky homes, I do think the current proposals are very unfair on those who have leaky homes that fall outside of the 10 year time frame that has been imposed.
I know two people who fall into this category, one who spent his inheritance from his recently passed parents on fixing his home ($220,000) and the other who doesn't know what to do as his estimated cost of repairs are $350,000 and his current mortgage is well over $200,000. They are not greedy, grasping or stupid people and to characterise them in such a way is vulgar and distasteful in the extreme.
These are people who brought a home for themselves and their families in good faith relying upon the competency and authority of Government and Local Government officials and departments to make sure the building rules were right. But the government didn’t do that. Yet that's what my friends pay their taxes and rates for, they have been savagely let down by this country. It was the authorities that changed the rules that allowed these inappropriate buildings to be built, not my friends, but it is my friends who now bear that cost with no hope of help from anyone.
In many respects the current limited proposals are just another way that this country's build it cheap and nasty approach goes all the way to government, and any way that can be found to avoid stumping up with the full price will be found.
Doesn't the 10 year timeframe however relate to the regulatory changes that lead to the problems and the introduction of the untreated timber?
I assume the thought there is that weathertight damage prior to those changes more likely relates to bad building practice under reasonable legislation - so buyer beware would apply?
Sadly no it's not. This is from the Dept. of Building and Housing which has the full details of the proposals:-
"Home owners who think they may have a leaky home should lodge a claim under the Weathertight Homes Resolutions Services Act with the Department of Building and Housing. This ‘stops the clock’ on the 10-year limitation for claims.
It is intended home owners with eligible claims under the Weathertight Homes Resolutions Services Act will be able to access the financial assistance package when it is operational. "http://www.dbh.govt.nz/ws-proposed-financial-assistance
The problem with this is that you can only lodge a claim with the Weathertight Homes Resolutions Service if your house was built within the preceding 10 years of the date that the claim was lodged. So currently anything built before 10 December 2000 is not eligible. And many homeowners with leaky homes fall into that category. When some found out that they actually had a problem, as was the case with my friends, their houses were already over 10 years old and the expiry period had passed. How convenient for the Government.
"While I think it's great that Government and Local Government have finally come to the party""""
David B - you seem believe that the Government is going to help. Govt will like you!
You need to understand this proposed legislation will never come to pass. If it does, it willbe very late, and hardly anyone will benefit from it.
From what I understand, the 10 years from completion only relates to the present legislation being considered.
Those homes completed more than 10 years ago (from the timeframe specified in the new legislation) and found to be leaky are/were covered by the 2006 Weathertight Homes Resolution Service;
The existing disputes and resolution process will remain under the proposed changes. Owners of leaky homes not opting for financial assistance can still pursue their claim through the Weathertight Homes Tribunal or the courts.
From here;
http://www.dbh.govt.nz/weathertight-services
So does that mean folks whose buildings were completed more than 10 years ago (i.e. outside the period specified in the new legislation) and found defective (whether reported/registered during that period or not) cannot claim under the proposed new scheme?
Seems unfair as I thought a great deal of the problems arose in buildings built prior to the year 2000?
So Kate, David and FYI are the first in NZ to realise how sad it is the Govt is pulling the wool over the eyes of their consituents.
This 50/25/25 solution was supposed to be a fake move to delay things while more and more leaky owners became ineligible for assistance. As I said, mainstream media haven't picked up on the ludicriousness of this 10 year issue - yet. But when they do Mr Williamson will be wanting a payrise to cope with the extra heat.
To clarify:
If your at risk home was built in 1999 you're cactus.
If your at risk home was built in 2000 you're about to be cactus.
If your at risk home was built in 2001 you're going to be cactus is you don't lodge a claim in 2011.
If your at risk home was built in 2002 you're lucky you have time to claim and you might get a few dollars out of Govt/council and (LOL) the bank!!
If your at risk home was built in 2003 you're lucky you still have time to claim....
If your at risk home was built in 2004 you'll be one of a handful because homes were generally being built properly by then.
Same in 2005/6/7/8/9/0.
If you're the Govt you'll be hoping like hell this legislation hits roadblocks and the banks throw a hissy fit and throw their toys out of the sandpit when it's time to talk tough to them.
Here's an excellent backgrounder from Alex on leaky homes and how the negotiations between the banks and the government are crucial. Who will take the losses? Taxpapers? Or banks?
http://www.interest.co.nz/news/government-needs-finalise-guarantee-bank…
cheers
Bernard
Its an absolute disaster for those homeowners that owned or capable to own standard-construction houses. They seems to be fooled and defeated if they will own house is something that gives them headache in the near future.
Regards.
Gerry of http://caldwells.com/
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