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Issue #1880      August 7, 2019

Free market chaos

Residential building industry nears collapse

There has recently been a nationwide series of appalling failures of high rise apartment buildings. Some of the most shocking cases are in Sydney. Last December the Olympic Park Opal Tower apartment building was evacuated after the building began cracking. Subsequent investigation revealed old structural cracks filled with adhesive resin.

Last December the Olympic Park Opal Tower apartment building was evacuated after the building began cracking.

A few years ago the Sydney City Council approved construction of the 127 Sugarcube and Honeycomb apartments in Alexandria, provided that the former industrial site was cleared of asbestos, hydrocarbons and heavy metal contaminants. However, the decontamination plan was subsequently amended without Council authorisation, and a private certifier then allowed construction to proceed.

Last year Sydney City Council banned apartment owners from moving in. The developer told them the Council needed to test roads and walkways, but didn’t mention contamination.

In June the Mascot Towers building was evacuated because of major structural defects. Another building 150 metres away has water penetration, concrete cancer and structural movement. The developers say it isn’t sinking, just “moving in a downward motion”.

In a Zetland building, upper-storey loft apartments were recently evacuated because of contamination, fire concerns, and water penetration. Lower-level occupied apartments are now unsaleable because of water seepage and combustible external cladding.

In 2015 a private certifier allowed owners to occupy apartments in a converted Alexandria warehouse, despite fire safety defects and major design variations that contravened agreements with Council and neighbours.

The certifier was fined $50,000 and in 2016 the Council issued orders to demolish and rebuild parts of the building. The Land and Environment Court later ordered the developer to carry out remedial work, but this wasn’t done.

Human waste from a collapsed sewer line recently spread through 48 apartments in another new residential block. Other problems require $1.1 million of repairs, but the developing company has been “phoenixed”, (wound up with its assets transferred elsewhere), so residents can’t sue for compensation.

Residents have little right to financial restitution. Mascot Towers is more than ten years old, but NSW warranties against structural defects are only valid for six years, or two years for lesser issues.

Evacuated apartments are virtually worthless. Mascot Towers owners have in effect lost $740,000 on average, and they face repair costs ranging between $100,000 and $300,000.

Nationwide, more than 162,000 apartments are expected to be built over the next decade. But 85 percent of NSW apartments built since 2000 have defects.

A group of economists and property consultants recently condemned construction of new “high rise death traps”. Consumer groups say don’t buy apartments in buildings less than ten years old or with more than four storeys, and don’t buy “off the plan”. Not surprisingly, there’s been a steep drop in interest regarding new high rise accommodation.

The problem

Referring to multiple building failures, Chris Johnson, spokesman for developer lobby group Urban Taskforce, said “I can’t understand how that happened.”

But construction law expert Ian Bailey unequivocally blamed the problem on “the delusional process of private certification”, and “the abandonment by state governments of the responsibility to impose on strata unit developers an obligation to comply with building regulations.”

Two weeks ago NSW Premier Gladys Berejiklian admitted frankly: “We let the industry self-regulate and it hasn’t worked”. She says she’ll appoint a building construction Commissioner, but she’s not tackling the problem at its source.

And self-regulation isn’t the only problem.

Developers don’t have to be registered, and those whose buildings fail can cease business and establish a “phoenix” company. Four of the five firms that built Mascot Towers have been deregistered, but their directors still run development projects.

Developers can hire unregistered engineers. Engineers deregistered by the peak professional body, Engineers Australia, can still practice in NSW, where there’s no government registration of engineers.

Developers also hire unlicensed tradespeople to carry out building works. They’re cheaper to employ and will cut corners to achieve a quick result. Unfortunately, they’re also far more likely to make mistakes.

The rot set in about eighteen years ago, when the NSW coalition government allowed developers to hire their own building certifier. Dozens of council building inspectors became private practitioners, and it was inevitable that some would succumb to pressure from developers to approve sub-standard work.

The solution

The solution doesn’t lie in developers hiring extra supervisory staff. If they’re paid by the developer, they’re not independent. Councils must appoint inspectors themselves, preferably from their own staff but if not, from a list of approved and fully qualified inspectors paid by the council, and developers must pay a service fee adequate to cover the council’s costs.

Apartment owners must have greater rights to restitution. State governments must address the massive problems owners now face, not just focus on improving controls in future.

Ian Bailey also recommends establishment of a federal insurance agency to compensate those affected by developer non-compliance and cladding issues, and introducing legislation to force developers to take out premiums with the agency.

A compulsory building defects insurance scheme existed in NSW, but in 2002 it was removed for buildings over four storeys. A new scheme for buildings over four storeys was introduced in 2018. But the levy is a miserly 2 percent, and after two years if there are no defects the money is returned to the developer rather than being kept to deal with further cases, even though many defects appear after two years.

The negligent behaviour of developers and certifiers must be legally controlled, otherwise the residential building industry will collapse because of failing public trust.

Attempting to “Change the culture” of the residential building industry certainly isn’t the answer. As a result of letting it self-regulate, thousands of apartments around Australia are now at risk. Hundreds of Sydney apartment dwellers are homeless, with many facing bankruptcy.

Recently there have also been major residential building failures in Melbourne, and in Brisbane some owners can’t move into their apartments because they get drenched after rain. Development corporation Ralan has gone bust after building one of four planned towers on Queensland’s Gold Coast, leaving many “off the plan” owners with no apartment – and, indeed, no building.

But then, all that is what you get when someone takes the brakes off capitalism.

Next article – Editorial – Needed: A new foreign policy

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