Damien Grant: Homeowners must pay for bad choices

Photo / Natalie Slade

In 2009 PricewaterhouseCoopers estimated that 42,000 dwellings were affected by the leaky home debacle and that the total remedial cost was just more than $11 billion.

The total number of homes may be as high as 82,000 and the cost much higher.

Last year, the Government, in a staggering display of populist largesse, committed the Crown and local councils to cover half the cost of this mess. Central government would meet a quarter of the remedial work and the local council another quarter. The homeowner must agree to forgo any further legal action and pay the balance of the work themselves.

Underpinning this generosity is a fallacy that those who currently own leaky homes are victims who warrant state support.

In a market economy, good people make bad decisions. Bad decisions have consequences. In this case, the consequences will be bankruptcy for some homeowners and a bad-debt bill for the banks that advanced the money.

There are three reasons for the Government to abandon the scheme.

First, the state should be there to support us if we cannot pay for food and shelter and not to protect our lifestyle from our own bad choices. Working-class Kiwis who struggle to pay their rent are being taxed to protect the equity of some middle-class homeowners.

Secondly the Government's accounts were looking sick before the second Christchurch earthquake. It is time to make some hard choices.

Third, letting the cost of the leaky home fiasco fall on homeowners and their bankers may help drive a stake through the heart of New Zealand's obsessive-compulsive desire to own property.

Our collective drive for property ownership is pushing up the cost of real estate and starving our productive and export sectors of investment income. The costs of this narrow investment focus has been well documented and debated.

The current Government's approach towards leaky homes reinforces the public belief that an investment in property will always generate a positive result and, if it doesn't, their losses will be underwritten by the state.

This mindset has been created over many generations of homeowners who made tax-free profits off the back of a rising property bubble. Seeing this, new entrants to the property market purchased houses in anticipation of easy capital gains.

Banks fuelled this nonsense with zero-deposit, interest-free loans. These only ever made sense if the value of the property was to rise and the bankers, and the owners, need to own their mistakes.

Some councils may have some legal exposure but their negligence was limited. They should not be forced to bear the total cost because homeowners contracted with flaky builders who have long since moved to the Gold Coast.

People who bought leaky homes are not victims needing counselling and a cash grant. They are speculators whose investment failed.

Let the chippies fall where they may.

Email Damien here.