The masonry at Mascot Towers isn’t the only thing cracking in Sydney this week. The entire edifice of silence and self-interest which has encouraged government and the market to turn a blind eye to the true extent of building defects in new strata developments is crumbling.
For 20 years, new residential strata schemes have been plagued with building defects. According to one estimate, 80 per cent of all new residential strata schemes are constructed with defects. Yet the government response has been to shrink consumer protections. Statutory warranties have decreased as has access to home building insurance.
New laws will bring tougher regulation in the building industry by the end of the year
The most common defects are those that allow water penetration and the absence of fire safety requirements (fire collars around slab penetrations and dampers meant to seal off service ducts to prevent spread of fire). Facades falling into the street come in at third place.
Typically, building defects take years to be identified by which time the statutory warranty period of 6 years has expired. Even if the fault is discovered within the warranty period, the builder/developer can be hard to find. They often disappear to the bottom of the harbour.
Keeping silent and fixing the defects with special levies had the benefit of enabling owners to resell without a capital loss.
This conspiracy of silence has helped successive governments focus upon the “procurement of housing stock” at the expense of consumer protection.
The building industry makes a significant financial contribution to government at every phase of the development process. Successive governments have been “hooked” on the stamp duty bonanza which comes from the creation of strata housing stock. Building booms are a “sugar hit” for a government selling lower taxes as an electoral policy position.
Every level of government has enjoyed the building gravy train. Local government enjoyed an increase in its rating base. The federal government enjoyed the income and capital gains tax revenue.
Ever increasing property prices have masked the strata building defects story. Until now, owners stuck in buildings with leaking roofs and cracking facades were able to on-sell their apartment in the defective building without making a loss. They could even turn a profit selling their lot while the building work was ongoing. Purchasers seemed happy to buy in a building which was “remediating common property”. Everyone felt their investment was safe.
Mascot Towers – and Opal Towers earlier this year – suggests the tide is going out on the conventional wisdom that it is impossible to lose money by investing in strata. These buildings have defects so great it is not possible to “remain silent” and fix the problem quietly. Worse still, these defects have occurred at a time when there is less certainty in the strata property market than at any other time this century.
Last February, in response to Opal, the NSW government told the Australian Council of Governments meeting in Hobart that if re-elected, it would introduce legislation to:
- Create a Building Commissioners Office;
- Require architects and engineers to sign off on building plans;
- Require builders to sign off that the building was constructed in accord with the certified plans; and
- Enable Owners Corporations to sue in negligence if the building code was not delivered.
The first 100 days of this new government are fast approaching. Where is the promised legislative reform agenda?
The building defects facade is tumbling down. No longer can bad building practices be hidden by increased capital values. Preserving whatever is left of public confidence in strata living requires action now in this and all our states and territories to adopt the measures NSW took to COAG earlier this year.
A failure by government to act means prudent purchasers cannot buy strata “off the plan” or, given that most defects emerge within a decade of construction, any residential strata building less than 10 years of age.
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