Leaky homes throw up $6bn repair bill

Janine and Greg Hornigold's devastated Unsworth Heights home on Auckland's North Shore. Photo / Martin Sykes

Think of it as a natural catastrophe, says Waitakere mayor Bob Harvey.

"When Napier got wiped out with an earthquake we had to rebuild it. It's a category A disaster. We have to help because it's not going away and it's New Zealanders that are suffering."

As a former ad man, Harvey knows how to make a pitch.

He and other Auckland mayors have been urgently pushing this Kiwis-in-distress message to the Government over the past few weeks.

If ministers refuse to help, they say, councils are staring at an estimated $6 billion legal bill to fix the country's leaky homes.

Most of them are in Auckland, so the crushing debt would fall mainly on the new regional Super City and its ratepayers.

Even the most optimistic predictions by Auckland mayor John Banks are for an immediate 5 per cent rates increase, based on a $1 billion bill spread over 10 years.

The true cost for Aucklanders could be as much as $3 billion, depending on whether the mayors can strike a deal and how much the Government is prepared to chip in on behalf of taxpayers.

That's why Harvey conjures up the image of a national disaster - "imagine that last night half of Dunedin fell down" - and Banks picks up the theme of concerned New Zealanders rushing to the rescue.

But any deal still looks to be a long way off. Senior ministers last week rejected splitting the cost between councils, the Government and home owners and tabled a counter-offer understood to put most of the cost and liability back on the councils.

But the mayors, who have more negotiations with Building and Construction Minister Maurice Williamson on Monday, remain optimistic that a breakthrough is closer now than it has been for years.

They have every reason to aim for a cost-saving deal. Courts have estimated that council negligence, including sloppy building inspections, should account for 25 per cent to 30 per cent of leaky home payouts.

In fact, the councils usually pay far more because the obvious targets - builders, developers and architects - have wound up their companies or do not have enough money.

As the "last man standing", councils and their ratepayers are potentially liable for nearly all the $6 billion repair bill calculated in a confidential report prepared for the Government by Price WaterhouseCoopers. The full cost, thought to include non-liable claims and those already settled, is estimated at $11.5 billion.

And while ratepayers have so far been shielded from most of the impact, this will soon change. Last month Riskpool, which insures most councils, ran out of money to cover claims from 2002 to 2004. Its $4 million levy on councils was just a taste of the bills to come in what Harvey calls "this sticky, terrible, tragic mess".

The Government's motives are more complicated. National shares Labour's fear that the leaky building scandal is a massive financial and legal liability which should be avoided - even though it was the result of a slack, state-approved building code which allowed both monolithic claddings and untreated timber.

Senior ministers, including Finance Minister Bill English, are worried about the risk to the country's credit rating if the Government takes on more debt, on top of the $40 billion extra it is borrowing to cope with the economic downturn.

But unlike Labour, National is on record about wanting to fix the problem.

"It's just dreadful," Mr Williamson told the Building Research Association's Build magazine last month. "The whole weathertight resolution process so far has seen huge chunks of money go into the hands of lawyers and litigation and tribunals and almost nothing going into fixing the rotting buildings. Everything we do from the new policy will be targeted to fixing the problem and lawyers won't like me at all because it won't be going to them."

A briefing document given to some council chief executives reportedly accused "cartels" of lawyers, experts and builders of fleecing home owners, who were left with no money to repair their homes. One expert was said to have quoted a $350,000 repair bill for a $160,000 house, which did not have extensive problems.

Auckland lawyer Stuart Robertson, a specialist in construction litigation, has also called for change. The Kensington Swan partner told the Herald last month that less than a quarter of cases seen by his firm resulted in houses being fixed.

The criticism covers all three branches of the current system; the Department of Building and Housing (which can cover claims up to mediation), the Weathertight Homes Tribunal (created in 2007 to rule on claims independently) and the civil courts.

Some of the recent horror stories include:

Owners of leaky units at the two-tower Hobson Gardens in central Auckland are likely to pay $1 million in fees to lawyers and experts before their claim even gets to court, and $1 million if it proceeds to a full hearing. The leaks were discovered seven years ago.

English immigrant Wilna White claimed $475,000 from the Weathertight Homes Tribunal to fix her leaky Whangaparaoa home, where the deck floorboards were so rotten that a child fell part-way through. After an eight-year battle, she got $173,000 - nowhere near the cost of repairs.

The country's leading leaky home lawyer, Paul Grimshaw, takes issue with such figures and the way politicians have used them.

Grimshaw acts for about 6000 property owners, including owners at Hobson Gardens whose $20 million claim could be the biggest to date.

"The fact is that lawyers and experts are helping owners to recover millions of dollars in repair costs," he says.

Councils may be offering to pay 25 to 35 per cent of costs under the proposed deal with the Government but "if the owner can recover 100 per cent, why would I advise them to accept a third?"

Leaky home campaigner John Gray is also sceptical of the backroom deal. The airline pilot and affected home owner now runs his own advisory not-for-profit service through the Home Owners and Buyers Association, which guides clients through the state system, rather than the courts.

He argues that expensive, drawn-out defeats for home owners are the exception, but councils make sure they are widely known to scare off other claimants.

"We've taken dozens of these cases where councils have been the only man left standing. They've written very big cheques to make these things go away and they're all stitched up with confidentiality agreements."

Gray believes the system does need improvement. For instance, he says, many claims turn out to involve serious structural problems which the Weathertight Homes Tribunal cannot address, so payouts often do not cover the full repair costs.

But he thinks home owners should be very suspicious of any Government-backed agreement to limit councils' liability.

Councils had failed three times over to carry out their responsibilities, he says, by giving building consents for leaky homes, passing them at inspections and issuing code compliance certificates stating they were properly built.

Even worse, the proposed deal is expected to either exclude or offer minimal help to thousands who do not have a legal claim against the councils. This includes owners who did not claim within 10 years of their house being built - often because they did not know it leaked - and houses passed by private certifiers, rather than council inspectors.

Gray estimates about 20 per cent of leaky home cases involve certifiers, who lost insurance cover and were wiped out of business by the crisis. The number of people falling off the "10-year cliff" grows every day, as home owners belatedly discover leaks and rot in homes built after the introduction of untreated timber in 1994.

For Gray the real problem is the lack of clear advice to builders on how to fix the problem. "We're short of really authoritative, well-articulated information around how a builder should approach the remediation of a leaky home."

As a result, he says, the industry still relies on a small number of "so-called building experts", who scare off competent builders and give ridiculously high repair costs which make many homes uneconomic to fix.

"These poor owners are having to go back to their banks a second or third or fourth time for money and they just run out of it.

"So people are being bankrupted left, right and centre and the legal fees have been bled out of these body corporate complexes."

Prendos director Philip O'Sullivan, who brought the issue to national attention through the Herald seven years ago, rejects claims that his firm and others like it are adding to the cost of the crisis.

A typical $300,000 case could easily cost $500,000 to take to court, he says, but "people will only write out cheques when they have to" so there is often little alternative.

"You can't really short-cut the process that easily. Everyone needs their own expert advice and you need that gun to the head, which is going to court. It's called human nature."

He warns that the mayors' push for a recession-busting influx of quick repair work is precisely the wrong way to go. "The simple reality is if you put lots of money into this area every shark will get involved and you'll have disasters occuring again."

Auckland leaky home owner Helena Carter, who faces bankruptcy over repair bills for her apartment has a novel idea to move the council negotiators along.

"Every person with a leaky building should get it revalued and pay rates at that value. How much income would they lose from that?"


ON THE BRINK OF BANKRUPTCY

Helena Carter faces bankruptcy because of her leaky apartment - and she doesn't think the proposed council-Government rescue package is likely to save her.

The beauty salon owner paid $235,000 eight years ago for her three-bedroom apartment at 3 Morningside Dr.

When leaks were discovered throughout the 64-unit complex four years ago, she managed to find $40,000 to pay for her share of repairs.

Then last October the estimated repair bill jumped from $2.5 million to $6.5 million and she had to pay another $80,000.

"My income from the salon has dropped by about 35 per cent in the last two years," she says. "Talk about bad timing."

She now fears that the body corporate will take legal action against her to force the sale of her apartment, as she cannot pay.

Recent sales of identical apartments have fetched about $120,000, but she has a $300,000 mortgage (at a fixed interest rate of 9.25 per cent) based on her apartment's last valuation of $385,000.

She predicts she could sell her business for about $80,000. "I then have to choose to either pay off the $100,000 for the rest of my life or let them bankrupt me. This will leave me in my 50s with no source of income and unable to run a business for three years.

"I guess this will be my big opportunity to go on the dole, finish my masters degree (funded by the taxpayer) and just sit tight for three years and then try to start again at 60."

The long-time National voter is urging Prime Minister John Key to push through a repair scheme for financially stranded home owners like her, especially as she blames the Government for creating the problem by allowing the use of untreated timber and monolithic cladding.

But she knows she is unlikely to benefit from any settlement, unless the Government extends it to include generous long-term interest-free loans for all owners.

The councils are trying to limit negotiations to the $6 billion of viable claims they face. This would not include thousands of properties like 3 Morningside Drive, which were signed off by private certifiers on the councils' behalf.

Carter says many other leaky home owners are staring at the same financial ruin. "The irony is that if you look a little further down track all the people like me - we're middle class, middle aged - we're going to end up as beneficiaries."


SAD STORY OF HAPPY VALLEY

Janine and Greg Hornigold discovered in April that their dream house was leaking like a sieve.

To make matters worse, it was 10 years and nine months old, so they couldn't even take legal action to recover the cost of repairs.

"We're just outside the 10-year time limit," says Janine. "It's so wrong. If they allowed untreated timber from 1994, why aren't they covering all those people from that time? It's all about saving money."

The South African couple, who moved to New Zealand eight years ago, are typical of thousands of leaky home owners who cannot claim now and look likely to miss out under a proposed deal between councils and the Government.

They bought their multi-storey, flat roofed home in Unsworth Heights on the North Shore three years ago for $495,000 and borrowed a further $110,000 to fix a list of known faults and get a code compliance certificate from North Shore City Council.

When Janine was made redundant they decided to sell and were advised to have the house tested for leaks.

Straight after the tests revealed problems, the leaks started. First a gush of water through the hall ceiling led to the discovery of rotten timber throughout that part of the house. Then a second leak revealed rot had spread "like cancer in the walls" through a cupboard and into their 11-year-old daughter's bedroom, making her sick.

A third leak appeared in the ceiling of another room.

The couple took their home off the market and spent about $15,000 on repairs straight away, ignoring the council's insistence that they must wait up to four months for a consent and move out in the meantime.

They tried to sell the house again in July but turned down a $501,000 offer, as refinancing their loan with the bank would have cost them about $800 a week.

Now they cannot get a code compliance certificate without spending up to $200,000 to reclad the whole house and re-roof it.

Janine, who from her deck can point out four other affected houses in their "happy valley for leaky homes", says the experts who tested the house didn't offer much comfort.

"They basically told us we'd bought a dump: we should either live in it or walk away.

"But we're not in a position to walk away."

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