Report on financial assistance package due next month

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Parliament’s Local Government and Environment Select Committee is due to present a final report to Parliament on the Weathertight Homes Resolution Service (Financial Assistance Package) Amendment Bill on April 28.

The Government’s financial assistance package for leaky home owners, announced in May last year, is due to be up and running some time this year, despite talks with the major banks dragging on.
However, building materials manufacturer and distributor Fletcher Building noted in its interim results last month that the package is now not expected to get under way until mid-2012.

A Department of Building and Housing (DBH) report in January estimates there are 23,500 eligible leaky dwellings to be fixed. This figure is based on a consensus forecast from a PricewaterhouseCoopers (PwC) report commissioned by the Government in 2009 suggesting 42,000 dwellings were likely to be leaky homes and only about 3500, or 8%, had been repaired.

At the time of the PwC report it was estimated about 9000 homes had fallen outside a 10-year liability limit, with another 6000 homes estimated to have fallen outside this limit since the report was issued.
“It is estimated there are 23,500 eligible households, so if, as officials predict, 70% of them take up this financial assistance package, that equates to 16,450 leaky homes,” the DBH says.

It says the Government expects its share of the financial assistance package to be about NZ$1 billion over five years.
The Government says home owners who think they have a leaky home should lodge a claim under the Weathertight Homes Resolutions Services Act with the DBH. This “stops the clock on the 10-year limitation for claims,” the DBH says.

The PwC report, however, estimated between 22,000 and 89,000 homes were leaky, with the consensus forecast of 42,000. PwC estimated the total cost of fixing 42,000 leaky homes, including repair and transaction costs, at $11.3 billion.
The Government is currently incurring costs of about $19 million a year running dispute resolution and related services.

The Government estimates the average cost of repair at $27,500 to $410,000 for stand-alone houses depending on the level of repair needed from minor to full reclad, and $16,250 to $156,250 per unit for multi-unit dwellings.

The Government’s plan envisages taxpayers paying for 25% of the repair costs of fixing or rebuilding a leaky home, while local government ratepayers pay 25% with the home owner covering the other 50%.
But the package is dependent on home owners borrowing from their banks using existing lending criteria, even though the loan will be backed by a government guarantee.
The problem is many home owners are not in a position to borrow more because they are either already heavily indebted or there is little or no equity left in the property to back a loan.

Apparently discussions between the banks and the Government were focused on what form the government guarantee for the loan would take, and what sort of arrangements there might be to share potential losses.

The Government says the Bill is designed to facilitate the supply of financial help to eligible leaky homes owners. It aims to improve the home owner’s access to the finance required to repair their homes, and to divert litigation costs toward repair costs.

What the new Bill says:

The Bill sets out that:
• the Crown and the participating territorial (local) authority will each provide a 25% direct payment to agreed repair costs. However, the participating territorial authority will only make a direct payment if it signed off the work;
• if an eligible home owner opts into the scheme, the home owner must agree not to sue the participating territorial authority and the Crown (eligible home owners will still be able to pursue legal action against other parties); and
• the Crown will provide assistance to eligible home owners in accessing bank finance for the remaining agreed repair costs by offering credit support to banks (by way of a limited Crown guarantee or indemnity) for loans made to eligible home owners who can meet the banks’ lending criteria.

Key features of the Bill include:
• capping the liability of participating territorial authorities (in accordance with a contribution agreement) and the liability of any other contributing parties (for instance, other solvent defendants) for claims being addressed through the financial assistance package.

This is designed to ensure that the financial assistance package diverts litigation costs toward repair costs. If participating territorial authorities or other contributing parties are joined to litigation where they have paid a contribution through the financial assistance package, they will face both the cost of the package and potential ongoing costs of litigation, if any;
• removing the Crown’s liability for the failure of repairs made under the financial assistance package and any losses suffered as a result of the actions of the DBH or the Crown under the financial assistance package process.

The amendment recognises that the Crown is making a significant contribution to solving the leaky home problem where it has no liability to do so;
• authorising the appropriate Minister to give a Crown guarantee or indemnity in respect of loans for repairs made under the financial assistance package; and
• limiting the period in which eligible home owners may apply to enter the financial assistance package to five years from the time the financial assistance package becomes operational.