Have your say: National Govt proposes paying for 25% of leaky building costs (Update 4)

By Bernard Hickey

The National Government has proposed paying for 25% of the cost of repairing leaky buildings, more than double its initial offer last year of 10%. This would leave homeowners paying 50% with the help of a government loan guarantee and councils paying the remaining 25%.

(Updates with; full Q&A detail, projected NZ$1 billion cost to the government, actual cost estimate of 29% after fees/loan guarantees, My view it is not fair on most New Zealanders, Banks welcoming the plan)

The government will guarantee loans to home owners and had informed the major 8 banks of the plan, who were willing to work with the government on the detail, Housing Minister Maurice Williamson said. The banks welcomed the plan.

Officials had estimated the plan would cost the government around NZ$1 billion over the next 5 years, although previous estimates had put the total cost to repair as many as 89,000 leaky homes at up to NZ$23 billion.

"If, as officials forecast, 70 per cent of affected homeowners within the 10-year liability limit take up this package, the Government is anticipating its share will be around NZ$1 billion over the next five years," Mr Williamson said.

Williamson compared the scale of the leaky homes issue to a "natural disaster of huge proportions" and it was having "a considerable impact on the wealth and health of many thousands of New Zealanders and their families."

"Affected homeowners have been stuck in a complex and costly disputes process for too long with little prospect of being able to fix their leaky home," he said.

“Even though the Government has no legal liability, the magnitude of the issue means central government involvement is essential if we are going to find a way forward," he said.

"This package will assist affected homeowners to get access to money so they can get their homes fixed and move on with their lives.”

My view

The government's description of the leaky building issue as a "natural disaster of huge proportions" is both a clever device and a dangerous precedent. The natural disaster terminology suggests it was no one's fault and that it's legitimate to ask all taxpayers help pay for the repair bill because almost everyone was affected.

But this was no natural disaster and only a relatively few were affected. The National government estimates it will spend around NZ$1 billion over the next 5 years paying for 25% of the rebuilding costs for 16,450 houses. Local councils will also pay a further NZ$1 billion over the next 5 years and will no doubt pass on that cost in the form of higher rates.  75% of the costs will fall on ratepayers in the Auckland Super City.

So around 1 million Aucklanders will be paying more than NZ$1.3 billion to around 12,335 home owners. Many of the home owners will own more than one house. Investors are covered under the scheme. I could understand the spreading of the cost if public buildings or  public infrastructure was damaged in the 'natural disaster'. But the benefits will be received by less than 1.2% of the population.

So why have governments both central and local authorities and from both the left and the right decided that this group of people owning 16,450 properties is worthy of such special treatment? What about the more than 188,652 account holders in finance companies who have lost as much NZ$3 billion? See our Finance Company Deep Freeze list. It could be argued their loss was just as much a 'natural disaster' as the leaky building issue.

Government regulators failed to spot or police the property developing finance kings when they raised so much from Mums and Dads and then failed to repay. The official protections did not work. Why shouldn't they receive a payout too? What about the Northland Dairy farmers facing big losses from the drought?

Why are mostly Auckland property owners so different?

Why should renters and owners of non-leaky home owners, particularly in Auckland, pay to rebuild these properties? Why should taxpayers all around New Zealand subsidise leaky building owners and investors to the tune of NZ$2 billion and take on the risk that a further NZ$2 billion may not be repaid? Why are taxpayers being asked to help reduce the risk for the banks? Many of these banks are exposed to the risk that the building assets underneath their loans are worth less than the loans.  Now both the risk and the cost will be transferred to taxpayers.

I keep coming back to this question. Why is this group receiving such special treatment?

The National government is clearly exposing itself as the party of property owners, particularly property owners in Auckland. This issue is white-hot among the strongest National Party supporters in the blue rinse seats of Eastern Auckland and the North Shore. This the issue that MPs, Ministers and the Prime Minister will have been harangued about at every party meeting and dinner party for months.  What the tragedy of a lack of affordable housing in South Auckland? What about the thousands of young New Zealanders who leave New Zealand because they can't afford to buy a house on their salaries here?

Now the pressure from the Eastern Suburbs and the North Shore has told. But who is speaking up for the millions of renters or the millions of taxpayers outside of Auckland or who live in non-leaky houses? When will the finance company investors ask for a bailout too?

This is New Zealand's own version of the debt shuffle that governments in Britain, Europe and the United States have been criticised for. Private risk and losses have been socialised. This didn't stop the capital gains from the property boom being privatised from 2002 to 2007, some of which was against the very houses that will now incur costs for taxpayers.

Debt is shuffled off the books of the banks and the home owners and shuffled onto the taxpayers, both now and in the future. This is no better than the bank bailouts in Britain or the United States or Ireland, or the sovereign debt bailout just unveiled in Europe.

This is simply not fair on most New Zealanders and it sets a dangerous precedent.

What happens if house prices were to collapse 20-30% in the next four to five years because of government policies announced in the budget? Would the banks and the rest of New Zealand's homeowners nursing big capital losses come asking for a bailout?

I feel another natural disaster in the wind.

Your view? I welcome your comments and insights below

Here is the full statement below from Housing Minister Maurice Williamson.

The Government has today announced its financial assistance package to help people get their leaky homes fixed faster.

The package centres on the Government and local authorities each contributing 25 per cent of agreed repair costs and affected homeowners funding the remaining 50 per cent backed by a government loan guarantee.

Building and Construction Minister Maurice Williamson says this is about the Government stepping up and tackling a significant issue.

"The Government wants to ensure we get a fair solution that will assist affected homeowners to move on with their lives," he says.

Mr Williamson says the scale of the leaky homes issue is equivalent to a natural disaster of huge proportions and it is having a considerable impact on the wealth and health of many thousands of New Zealanders and their families.

"Affected homeowners have been stuck in a complex and costly disputes process for too long with little prospect of being able to fix their leaky home," Mr Williamson says.

“Even though the Government has no legal liability, the magnitude of the issue means central government involvement is essential if we are going to find a way forward," he says.

"This package will assist affected homeowners to get access to money so they can get their homes fixed and move on with their lives,” Mr Williamson says.

There are a large number of homes in New Zealand that are leaking, damp and mouldy, and are rotting over time.

In July 2009, a PricewaterhouseCoopers report estimated that between 22,000 and 89,000 homes were affected with a consensus forecast of 42,000 dwellings that were likely to be leaky homes. Only a minority – around 3,500 – have been repaired to date.

"There could be more than 80,000 people living in leaky homes, many of whom can't afford to sell or access money to get them fixed," Mr Williamson says.

The financial assistance package will see the Government meet 25 per cent of homeowners' agreed repair costs, local authorities contributing 25 per cent and homeowners funding the remaining 50 per cent, with a loan guarantee underwritten by the Government, provided applicants can meet bank lending criteria.

"The Government will also cover the administration cost of the new package. This means the Government's actual contribution is around 29 per cent of the total cost of the package," he says.

Mr Williamson says the package was today presented to Auckland Transition Agency Executive Chairman Mark Ford and Mayors Kerry Prendergast and John Banks as the key representatives of those local authorities most affected by the leaky homes issue.

“Local authorities have been invited to participate and asked to respond to the Government's offer by Monday 31 May 2010."

Mr Williamson says the eight major retail banks have been briefed about the financial assistance package and have indicated their willingness to work with the Government on the detail of the proposal.

"If, as officials forecast, 70 per cent of affected homeowners within the 10-year liability limit take up this package, the Government is anticipating its share will be around $1 billion over the next five years," Mr Williamson says.

"Once the local authorities have responded, the Government will begin working through the complex details of how it will work with the parties involved. We are aiming to have the new package up and running early next year," he says.

Affected homeowners will need to make a claim under the Weathertight Homes Resolution Services Act to access the financial assistance package once it is launched.

"In the meantime, homeowners can apply to the Department of Building and Housing to make a weathertight claim. If their claim is accepted, that ‘stops the clock’ on the 10-year limitation for claims."

Mr Williamson says the financial assistance package will be voluntary and in addition to the current disputes and litigation process.

"Those homeowners who participate in the package would forgo the right to sue local authorities or the Crown in exchange for a combined government and local authority direct payment of 50 per cent of agreed repair costs."

Homeowners will still have the option to pursue other liable parties such as builders, developers and manufacturers of defective products.

The intention is that homeowners who currently have claims in the weathertight system yet to be resolved will be able to apply for the financial assistance package.

Owners of leaky homes who would like more information should visit www.dbh.govt.nz or phone 0800 116 926.

Here is the Questions and Answers briefing document supplied by the minister's office:

1. What is a leaky home?

A. The term "leaky homes" refers to those buildings where water has penetrated the building envelope or cladding system and is not able to drain or dry for some time. The problem affects apartments, townhouses and stand-alone homes, mostly built between 1992 and 2005.

2. How many leaky homes are there estimated to be in New Zealand?

A. In July 2009, a PricewaterhouseCoopers report commissioned by the Government estimated that between 22,000 and 89,000 homes were affected in New Zealand with a consensus forecast of 42,000 dwellings that are likely to be leaky homes. This includes standalone homes and units within complexes.

3. Are the figures in the PricewaterhouseCoopers report accurate?

A. The Government is satisfied the process was robust and the data used was reliable and the best available. The consensus forecast of 42,000 is derived from the analysis of hard data and the views of industry experts who were consulted about this report. The forecast

does not, and never has, represented an “official” forecast but the Government has accepted these findings. The report suggests that only a minority of leaky homes – around 3,500 – have been repaired to date.

4. Where are most leaky homes in New Zealand located?

A. The six local authorities most affected by the leaky homes issue are Auckland City, North Shore, Waitakere, Tauranga, Christchurch and Wellington. The current dwellings, which are the subject of Weathertight Homes Resolution Services Act claims, are located in:

- Greater Auckland area: 75 percent of total dwellings under claim

- Wellington: 9 per cent of total dwellings under claim

- Tauranga: 4 per cent of total dwellings under claim

- Christchurch: 4 per cent of total dwellings under claim

- Queenstown: 0.1 per cent of total dwellings under claim

The social, economic and health costs of leaky homes are affecting New Zealanders. The scale of the leaky homes issue is equivalent to a natural disaster of huge proportions and it is having a considerable impact on the wealth and health of many thousands of New Zealanders and their families.

5. What is the Government's proposed financial assistance package for homeowners with leaky homes?

A. The financial assistance package will see the Government meeting 25 per cent of eligible homeowners' agreed repair costs on receipt of work done, with local authorities contributing 25 per cent and homeowners funding the remaining 50 per cent, backed by a loan guarantee underwritten by the Crown, provided applicants can meet bank lending criteria.

6. How much will the Government's share of the financial assistance package cost the taxpayer?

A. The Government is anticipating its share of the financial assistance package will be around $1 billion over five years. This is based on an estimated 70 per cent of affected homeowners within the 10-year liability limit taking up this package.

7. How many homes will be fixed if the estimated 70 per cent of eligible dwellings take up this financial assistance package?

A. Officials estimate there are 23,500 eligible households, so if as officials predict 70 per cent of them take up this financial assistance package that equates to 16,450 leaky homes fixed.

8. Where does the estimate of 23,500 eligible households come from?

A. In July 2009, a PricewaterhouseCoopers report commissioned by the Government gave a consensus forecast of 42,000 dwellings that could have been affected by the leaky homes issue. At the time of the report, around 9,000 of these homes were estimated to be outside the 10-year liability limit. The report estimates only a minority of all leaky homes – around 3,500 – have been repaired to date, which leaves a total of 29,500 households.

Officials estimate a further 6,000 dwellings have fallen outside the 10-year liability limit since the report was produced, which leaves a total estimated 23,500 eligible dwellings to be fixed. These figures include standalone homes and units within complexes.

9. What are some of the health impacts of leaky homes?

A. Damp and some mould or fungi can have serious health implications for people living in a leaky home and can worsen the symptoms of illnesses such as asthma, bronchitis and other breathing disorders. In addition, some fungi which grow within wet wall cavities are toxic and may cause flu like symptoms.

A book published last year by University of Otago Professor Philippa Howden- Chapman says the significant personal mental and physical health costs of leaky homes are conservatively estimated to be $26 million a year.

For more information about the health effects of leaky homes visit here

10. How does this financial assistance package fit with the current Weathertight Homes Resolution Services Act?

A. The financial assistance package announced by the Government is another option for owners of leaky homes to get their homes fixed. It will be in addition to the current disputes and litigation process. In exchange for a combined government and local authority direct payment of 50 per cent of agreed repair costs, those homeowners who participate in the package forgo the right to sue local authorities or the Crown. Homeowners still have the option to pursue other liable parties such as builders, developers and manufacturers of defective products.

11. What if an affected homeowner has already lodged a claim under the Weathertight Homes Resolution Services Act – can they still apply for the financial assistance package?

A. It is the intention that homeowners who currently have unresolved claims in the system will be able to apply for the financial assistance package.

12. Who will be eligible to apply for the financial assistance package?

A. Those affected homeowners who are eligible under the Weathertight Homes Resolution Services Act 2006 will be able to apply for the financial assistance package.

We expect the eligibility criteria for access to current services will continue to apply, i.e. the dwelling is used as a private residence; it is up to 10 years since construction or alterations that have leaked; there is water ingress (leaking); the leaking has caused damage.

Local authorities will not be making a contribution to repair costs if they were not involved in the building work (i.e. where inspection and sign-off was done by a private building certifier). However, owners in those cases will still be eligible for government assistance.

Bank lending criteria will need to be met. Details of these criteria are still to be worked through and agreed with the major retail banks.

13. When will the Government's new financial assistance package be available?

A. Local authorities have been invited to participate and asked to respond to the Government's offer by Monday 31 May 2010. If the local authorities accept the Government's offer, the Government will begin working through the complex details with the parties involved.

The Government is aiming to have the new package up and running by early 2011. However, there is a lot of work with local authorities and banks to be done to achieve this. In the meantime, homeowners can apply to the Department of Building and Housing to make a weathertight claim. If their claim is accepted, that ‘stops the clock’ on the 10-year limitation for claims.

The length of time it will take for homeowners to access the financial assistance will depend on their individual circumstances. However, it is expected to be a lot faster and less costly than the disputes and litigation process.

14. What if a house wasn't signed off by a local authority and was signed off by a private building certifier instead?

A. Eligible homeowners will still get the Government's 25 per cent contribution to agreed repair costs but the local authorities will not be liable for the other 25 per cent therefore the homeowner will need to fund the remaining 75 per cent. The Government will still underwrite a loan guarantee for the 75 per cent, provided the applicant can meet bank lending criteria.

15. Will there be enough builders (and other specialists, including assessors) to meet any surge in demand?

A. There is currently spare capacity in the building sector as a result of the recession and the flow on downturn in building activity. The proposed financial assistance package will provide some much needed stimulus for the sector and enable it to maintain skills and capacity.

Experience of remediation work suggests the increase in building work from the proposed financial assistance package will be spread over several years. This is because assessments need to be completed, consents sought and approved and contracts let, and so on.

The Department of Building and Housing already has plans in place to increase the number of assessors available to manage the anticipated increase in demand.

The Department of Building and Housing is also preparing information and guidance for designers targeting how to comply with the Building Code when designing remediation works for a leaky building.

16. Will investors who own leaky homes be able to apply the financial assistance package?

A. Yes, like other homeowners, investors will be able to apply for the financial assistance package. The important thing is to get these homes fixed for the benefit of those living in them.

17. How is the Government ensuring an issue like leaky homes does not happen again?

A. The Building Act 2004 made changes that ensured the leaky homes problem will not arise again. These measures were aimed at reducing the risk of building failures and increasing the skills of those working in the building industry, and include accreditation of building consent authorities, introduction of licensing of building practitioners, a review of the building code and product certification.

In addition, a specific building standard relating to weathertightness became effective in February 2005. The absence of new claims relating to houses built in the past five years, since the Building Act reform occurred, is a clear indication that leaky homes are not still being built.

This is backed up by the PricewaterhouseCoopers report conducted last year, which assessed the extent of the problem.

18. Why has it taken so long for the Government to make this offer?

A. This Government has been working on an alternative approach to leaky homes since it took office. Our commitment has been to find a way to get more homes fixed. This is a large and difficult issue and its taken time to work through the options. There is no single ‘silver bullet’.

The earlier proposal, discussed with local authorities last year, was developed in the context of the recession. Treasury forecasts for an economic recovery are now more optimistic than before Christmas and the Government is in a slightly better position financially. As a result it has made the decision to prioritise the leaky homes problem.

19. Why should taxpayers/ratepayers subsidise the financial assistance package?
A. There is no easy solution to this problem. This package is about spreading the costs as evenly and fairly as possible to get action. The priority is getting homes fixed and moving beyond the current state of endless disputes and litigation – the only ones winning out of the current system are the lawyers. Getting this done and spreading the financial burden may not be popular with everyone but this is a New Zealand-wide problem that this Government is not willing to walk away from, even though it is not liable in law.

This is a massive issue for many thousands of New Zealanders and their families who are suffering the social, health and financial impact of leaky homes. This solution provides another way of helping New Zealand out of this bind.

20. Why not extend the 10-year claim limit – what if you don’t discover a problem until later?

A. The Government has considered this issue and has decided to leave the10-year limit as it stands. The 10-year limit is well established in law and puts a necessary boundary around claims. The more time passes, the harder it is to identify the causes of damage to homes.

21. With local authorities facing budget constraints, won’t ratepayers be left footing the bill?
A. Ratepayers are already footing the bill as local authorities currently carry a significant liability and risk. They are also footing the legal bill from the costly litigation process. Some local authorities have already made provision for rates increases to carry the cost of their claims. This proposal provides a means for ratepayers to manage the cost imposed by the leaky homes problem in their district through capping liability and creating certainty.

The Government is leading the development of a fair solution that has the taxpayer contributing to the costs faced by homeowners and ratepayers. This is about New Zealand helping people move on by getting more homes fixed.

22. Why can’t the Government pay its share now – why does it have to wait for local authorities or banks?

A. This problem is too big for any one party to shoulder alone, including the Government. It requires a concerted effort. The Government's contribution is insufficient on its own to achieve the result required to help get more leaky homes fixed.

23. What commitment have retail banks made?

A. The eight retail banks have been briefed on the financial assistance package and have indicated their willingness to work with the Government on developing the details of the proposal. Any final commitment from the banks will be subject to this detail being developed and agreement of their respective approval authorities and boards.

24. Why doesn’t the Government consider pursuing those architects/builders/developers responsible for leaky homes that have since wound up their companies?

A. The Government has no role in pursuing claims on behalf of claimants. The main priority for government is to assist those affected homeowners to get their homes fixed effectively and quickly.

25. What about the companies responsible for producing inferior cladding products – shouldn’t they be held responsible?

A. Manufacturers of defective products will still be able to be pursued to obtain financial redress.

26. What if a local authority doesn’t participate?
A. For the package to work, and be viable, it will be critical for the key local authorities that are most affected by the leaky homes problem to agree to participate.

It does not require all local authorities, and some may opt in at a later stage.
Where local authorities are not part of the package, the support to affected homeowners will be limited to government contributions and loan guarantee assistance with no contribution from the local authority.

In this case, the homeowner retains the option to sue the local authority and other parties if they so wish.

27. Is the Government liable for the problem?

A. The Court of Appeal has held that the Government has no legal liability. Issues can be laid at the doorstep of a lot of people and organisations, but the blame game has been played for too long.

This Government-brokered solution brings the parties together, but requires the cooperation and agreement of local authorities, homeowners and support from retail banks.