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The Rotten Problem That Keeps On Rising

The Rotten Problem That Keeps On Rising

The leaky homes crisis has been around for decades and, despite fading from the headlines, is tipped to stretch into the next century, Sally Lindsay discovers.

By: Sally Lindsay

31 July 2023

Homeowners and investors are still discovering years after their monolithic-clad houses were built that they leak. By the time leaks become visible extensive damage has already been caused, which can cost hundreds of thousands of dollars to repair, leaving many people in debt and with psychological trauma.

Auckland-based property specialist lawyer Adina Thorn says the crisis is probably one of the largest uninsured economic events per capita in the world. “Now we have to get the lessons learned.”

The problems, which first appeared in the 1950s with stucco houses, have been in existence for 70 years.

They surged when many timber-framed homes built between 1988 and 2004 were left leaky and rotting from multiple factors – the use of untreated timber, monolithic cladding and lax building practices.

Leaky buildings should have stopped being built about 2004 when the government made it compulsory again to use treated timber in residential construction and builders had to install cavities to drain water for monolithic cladding systems.

The leaky home problem – first appearing in 1950s stucco houses – has been around for 70 years.

“By 2015, most people thought the crisis would be over, but it has persisted,” says Philip O’Sullivan, a Prendos consultant and one of the country’s first building surveyors to discover water damage to homes built with monolithic cladding.

He first came across the problem when properties built in the 1990s to early 2000s were pulled apart for repairs, firstly from the interior and then through the exterior cladding once it was discovered problems ran deep inside the structure.

“When we started removing the cladding we realised the problems were a lot worse than first thought. I was drilling into timber and it felt like sludge. That was quite a shock.”

Untreated Timber

“We were suddenly confronted with the impossible situation that a new house wasn’t going to be watertight or succeed if it was built with untreated timber, as many had been from the late 1990s, and a monolithic cladding system with no cavity was going to be used. “The untreated timber was rotting in the timber yards even before it got to a building site. That’s how bad it was.”

Common problems included leaking, damp, rotting and mould. It became a national disaster. A 2009 PwC report estimated between 22,000-89,000 properties were affected and repair costs would be in the region of $11.3 billion. Those figures still remain the consensus, according to MBIE.

PwC’s estimates were blown out of the water 10 years later in the book Rottenomics written by Peter Dyer, who estimated the crisis might have already cost $47 billion in repairs, remediations and rebuilds.

O’Sullivan says there are no accurate figures, unless records from councils around the country are trawled to get the exact amount, and the final figures will be billions of dollars more than PwC’s early estimates.

Because the leaky home problems were vast, the Weathertight Homes Resolution Service was set up and a 10-year time bar on civil legal action was introduced under the Building Act. If people did not report a problem within 10 years of their home’s code of compliance being issued, they could not take legal action or seek financial help through the resolution service.

MBIE figures show claims for 12,828 properties were lodged with the service before its close-off date at the end of last year. Under those claims, $212 million in Financial Assistance Package payments has been approved to date and they are contributing to an estimated $850 million in repairs. The peak year for leaky home construction was in 2002. People with houses built in the 1990s missed out.

Another avenue for help with leaky homes was an Auckland-based funded class action against James Hardie over its manufactured monolithic cladding by 365 plaintiffs with about 1,000 leaky homes and commercial buildings. This was settled in James Hardie’s favour halfway through the trial after the London-based litigation funder pulled out.

Wellington proceedings, also against James Hardie, involving 144 owners of 151 properties, is winding its way through the courts and is now in the Court of Appeal.

Peter Dyer’s Rotenomics book estimates repairs, remediation and rebuilds might have cost $47b already.

Nowhere to go

Now many people with leaky homes, hundreds of thousands of dollars in repair bills and no avenue for compensation apart from expensive civil litigation, if it is not time barred, are being advised to hold on to their homes and sell when the property market comes out of the doldrums.

“One good thing in all of this mess is land prices have risen and are still going up,” says O’Sullivan. “Whether to sell or not is still a predicament for individual homeowners.”

O’Sullivan says he noticed during the 2021 property boom people ignored the leaky home problems in desperation to buy a house. “Most are heavily mortgaged and they are not going to even look at those issues. It’s just not going to exist in their minds, which is wishful thinking.”

Thorn, who led the Auckland action against James Hardie, says many leaky homeowners are now left with the horrible options of fixing their property at their own cost, leaving the house as it is, or hoping capital gains over the past few years have given them enough leeway to disclose the property’s leaky history and sell it, without taking too much of a hit.

For Wellington-based barrister Dan Parker, who is acting for leaky homeowners still tied up in court action, the next challenge is going to be for people when problems they weren’t aware of present themselves and the costs of fixing them is simply beyond their means and it affects the sale of the property. “Will the property have to be demolished? Nobody knows and it is going to become a huge challenge for owners and for the country.”

Thorn says the pain for most Kiwis with leaky houses is just immeasurable. “Lots of them are now time barred from legal action. The long stop-time period is just a killer for any sort of court action to be launched and in many cases there is nowhere for leaky homeowners to go, which is just heart-breaking. The Building Act 10-year long-stop needs to be reviewed by the government and increased to 15 years.”

Parker agrees and says it is a short period, particularly when dealing with building defects, which are often latent. “They are not the sort of things a reasonable householder necessarily becomes aware of until sometime later and then will often require examination to understand the extent of the defect. Homeowners then come up against the element of draconian time barring for a claim and it is too late to do anything.”

In many leaky home cases building materials have no real name, just a number or a code.

Time on claims

Claims can also be made under the Limitation Act’s 15-year long-stop. Generally, says Parker, claims have to be brought within six years of a breach but that can be extended by three years if a homeowner gets late knowledge of defects. Despite the three-year extension for late knowledge, the entire claim for defects must happen within 15 years.

Thorn and Parker believe this long-stop should be extended to 20 years.

Thorn says building issues have gone past leaky homes to more recently a whole plethora of defects – poor concrete, missing steel, structural planning, roofing materials. “It’s a long list and is a nationwide problem that won’t go away. Leaky homes are still being built.”

While the government has introduced new building product information requirements, Thorn says they don’t go far enough. Manufacturers are legally required to make available information about products sold in New Zealand, including how they comply with the Building Code.

“We’ve got all these defects because, in my opinion, this country is still soft on manufacturers and has no decent processes to check building materials,” she says. “For example, the jury is still out on a lot of cladding materials being used.

“Some of the standards building products are tested to are narrow and don’t really capture New Zealand conditions. Some of them aren’t tested at all. This goes on every single day.”

In dealing with thousands of leaky home issues, Thorn says she has seen many cases of materials that have no real name – just numbers and codes on them.

“After studying the codes, you might sometimes find a manufacturer in somewhere like Shanghai. Container loads of these products come in from overseas. They are untested, unproven, unknown materials. They are junk that are being thrown on properties by builders.”

She says there are no rigorous processes to actually look at these building materials, especially products that are key components of residential housing.

“I haven’t seen any serious engagement by the government to look at the regime for building materials being sold in this country, how it can audit that data, test the materials and put in place a system so we never go down the leaky homes road again. I don’t think we’ve actually learned lessons from the leaky building crisis, sadly.

“There has to be a collaborative effort by the building industry, councils and government. And I think government has not carried its weight here. It has basically left the councils with a lot of legal liability, that in some ways is quite unfair,” Thorn says.

Health Effects

One topic that doesn’t seem to have had enough research, says Parker, is what the health effects are of living in homes that are affected by mould and damp.

“Everyone knows that’s not good and the Building Act is designed to have homes that are safe and sanitary and avoid a build-up of moisture.

“There hasn’t been enough study done in New Zealand of the link between health issues and homes affected by weather tightness. More should be done around issues for older people and young children living in houses that have problems with dampness mould or inferior cladding. We don’t really want people living in these homes.”

What will happen if there is a similar leaky building crisis in the future? O’Sullivan says the system from top to bottom at a government level is still pretty hopeless.

When he first discovered the extent of the leaky home crisis no-one wanted to listen initially, until the early 2000s landmark Hunn Report officially confirmed the country had a serious problem and laid the groundwork for many of the changes made to the Building Act, treated timber and claddings.

He says if the country has a similar problem in the future, the government is not going to react to it because there is nothing at government department level to drive that reaction. “There’s no reason why a bureaucrat in Wellington is going to worry about an Auckland house that’s being built at the moment because it doesn’t affect his/her job.”