No easy fix for leaky home woes

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I don't believe there is any one way or any one person who can fix our leaky-building issues, with a positive result for all parties who are affected financially.

A holistic approach needs to be taken and I expect all parties are going to have to hurt a little more before anyone sees positive results.

Ultimately, we need affected homes to be reclad and issued with Code Compliance Certificates by councils. Ideally, homeowners should end up with affordable debt levels. Without fixing the problems, the value and saleability of these properties are reducing further as time goes by. Once fixed, the home is more sellable and people can move on with their lives. If the owner can't afford their extended mortgage, they at least have a home that can be sold.

Affected homeowners are certainly hurting; it is their equity component that first gets eroded as the value of a home falls after being diagnosed. Banks also hurt if the value of the home falls below the amount financed to the homeowner, or debt increases to unsustainable levels.

There are some homeowners who remain with their heads in the sand, not willing to get on-board with the process. If they are in stand-alone properties, they are not affecting others, but for those in larger developments where owners must act together, the process is being slowed or is unable to move forward.

Due to large costs involved, it is essential that owners keep their banks informed of the process, and work with them to fund the work required. In multi-unit developments where owners have mortgages with various banks, it may be necessary to present a united front to all those banks. Banks will want to ensure that owners will be able to meet additional mortgage requirements with adequate security on completion of the re-cladding process.

For homeowners who are eligible, the contribution from Government and councils toward the remedial costs could be a saving grace. I'm not aware of any such projects yet, but reducing the remedial cost by half must surely place the homeowner and the bank in a better position.
The longer it takes from diagnosis to repair, the less value a property has in the market. The market discounts the cost of time, or put another way, discounts the cost of financing
the project from now until the property is rectified. If that is six months, the discount is considerably less than a job that will take two years. In Auckland, the land value component of many properties (without weather-tightness issues) is substantial, often over 50 per cent of the total property value. When we assess the value of a home that requires re-cladding, after taking off all associated costs, the value of the property often equates to a value close to just
that of the land. A little scary for the homeowner.

Our basic valuation approach is to assess the likely value of the home on completion of the proposed remedial work (as if it were rectified today using current market sales, and with a Code Compliance Certificate), less associated costs.

These costs include labour and building materials, finance, council fees, architectural fees and a profit and risk component. This assessment looks at what someone would be willing to pay for the property now, with a view to remediate the issues and make a profit on its sale at completion.

The profit and risk component discount is essential as it reflects the reward to the person taking on the project. Should the project costs exceed those estimated, the return to the owner is reduced. Conversely, if it comes in under budget, their reward is greater. If sold on the open market, potential buyers would factor this into the price they would pay for the property as is. Of course, should the remedial work be undertaken by the current owner, this profit
and risk component is their reward, or the equity they recover by completing the remedial work themselves. If the owner is eligible for the Government/council contribution, the risk component of the project will be reduced, as will be the cost of financing.