Weathertightness — estimating the cost


Why was the PwC report prepared?

The research had the objective of re-estimating:
• the number of dwellings, built between 1992 (when the Building Act 1991 came into force) and July 2008, at risk of being leaky buildings,
• the number of leaky homes that have been repaired to date, and
• who is bearing what costs, under current policy. Costs included repair costs (eg, labour, materials, professional fees), legal costs, transaction (eg, council consent fees) and other costs.

What data did PwC research?

A mix of quantitative and qualitative data and information was used to develop the re-estimate. Quantitative data included:
• council building consent data: 10 territorial authorities collected information about single and multi-unit dwellings from a random sample of their building consent files from 1992 to 2008,
• Weathertight Homes Resolution Service (WHRS) claims data,
• Statistics New Zealand building population data,
• BRANZ building materials survey data,
• Weathertight Homes Tribunal adjudication decisions and court decisions, and
• a survey of WHRS claimants and other parties.

Qualitative information
A number of interviews and workshops were held with a range of experts in the building sector, including architects, building surveyors, the Registered Master Builders Federation, the Certified Builders Association, council staff and WHRS assessors.
The experts were asked for their views on the size and cost of the leaky homes problem. The qualitative information was used to test the quantitative data.

How many homes are affected by the weathertightness issue?
The PwC report shows there is a wide range of the possible number of homes affected, from a low of 22,000 to a high of 89,000. The wide range reflects the fact there is a high level of uncertainty about the number of homes affected that prevents an exact, and accurate, estimate to be made.

Nevertheless, the report goes on to estimate it is most likely approximately 42,000 homes (called the “consensus forecast”) built between 1992 and 2008 have been affected.
The evidence suggests only a minority have been repaired to date.

Of the leaky homes covered by the “consensus forecast” approximately:
• 3500 have already been repaired, and
• 9000 are likely to be outside the 10-year limitation period for legal liability.
Using the “consensus forecast”, it is therefore likely up to around 30,000 dwellings have already failed, but not been repaired, or will fail in the future (within the 10-year limitation period).

What is the total economic cost of the leaky homes problem?
To remediate all of the 42,000 affected dwellings in the “consensus forecast” would incur a total economic cost of an estimated $11.3 billion.
Some of this cost has already been incurred in the past for dwellings that have already been repaired. But the future total economic cost is likely to be around $6.3 billion.

What were the other key findings in the PwC report?

The review confirms what the Government has known — that there is no single cause of the weathertightness problem. The causes include:
• poor design — such as buildings without eaves,
• poor workmanship, reflecting a low skill base in the sector,
• the introduction of new materials and products, without good knowledge about how to use them, and
• weak inspection processes by councils.

Are design or architecture fees, legal fees, alternative accommodation costs and the cost of repairs already undertaken included in the total $11.3 billion figure?
Yes, such costs are included in the figure.

Who is currently bearing the costs of the problem?
The cost of the weathertightness problem is currently being borne mainly by owners: 69%. Territorial authorities are meeting approximately 25% of the cost and other parties (eg, builders and developers) just 4% of the total cost.
This is mainly because repairs on most homes are paid for solely by the owner, who often does not pursue legal remedies or obtain contributions from other liable parties.

According to the report, are multi-unit or single-unit dwellings more likely to face weathertightness problems?
Multi-unit dwellings show a much higher risk profile according to the research, and are, therefore, more likely to experience weathertightness problems.
However, the high risk dwellings built more recently have used different building practices that provide greater capacity for drainage and drying.
Therefore, the risk profile of more recently built multi-units does not equate to the same rate of failure for those built before 2005.

Why was the original estimate for weathertightness so inaccurate?
Previous estimates were based on very limited data and knowledge about the causes and effects of weathertightness failure.

Since an initial analysis by PwC in 2005, the passage of time has allowed a longer claims history to emerge in the WHRS and the courts, there has been an improved performance by building assessors in the estimation of repair costs, and the inclusion of a more detailed description of likely damage in costings.

In addition, a greater volume of other information, in the form of evidence, anecdote and opinion as to the prevalent and likely rate of the nature of the weathertightness failures in New Zealand’s housing has emerged.

Are the figures accurate?
The Government is satisfied the process was robust and the data used was reliable and the best available. It is highly unlikely a different process would have come up with a significantly different result.

Even so, the report acknowledges there is a high degree of uncertainty about the numbers, but whichever way you look at it, the problem is big, and the exact numbers don’t make any difference to that fact.

What the building industry experts say:

Building experts say the Government has seriously underestimated the true scale and cost of the leaky buildings problem.
An expert panel — including representatives of the Home Owners and Buyers Association and the Institute of Building Surveyors — advised officials and consultants last year that 89,000 homes would fail at a cost of almost $23 billion.

They said:
• between 80% and 100% of homes built with monolithic claddings would fail within 15 years,
• 90% of apartments, terraced houses and other multi-unit homes built between 1992 and 2005 would leak badly at some point,
• 90% of multi-unit legal claims were stalled because owners could not afford to pay their fees to lawyers and building experts,
• the average cost of recladding a leaky home has reached $300,000,
• the report, Weathertightness — Estimating the Cost, described the 89,000 estimate as “the extreme view”, with Government officials believing it was likely to be an overstatement,
• a formula, called “the consensus view” in the report, had been devised, which applied failure rates only to homes considered high risk in the building code.

This cut the total, producing the official figure of 42,000 homes and an $11 billion repair bill.