Yet more reports of shoddily built apartments

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By Leith van Onselen

Last week I noted how a new 400-page review by former NSW treasury secretary, Michael Lambert, had found practices for ensuring apartment fire safety were “totally ineffectual” and had caused unsafe buildings to be approved across NSW. I also noted how this review had followed in the wake of numerous reports of shoddy high-rise apartment construction.

Specifically, there were several reports last year (here, here and here) of cheap combustible being used to cover potentially thousands of buildings across Australia. Engineers Australia also released a report claiming that 85% of strata units built in NSW were defective on completion, whereas the Metropolitan Fire Brigade in Melbourne identified up to 50 Melbourne city towers as being high fire risks. Meanwhile, it was reported that some multi-storey buildings recently constructed across the ACT are so shoddy that they would be cheaper to demolish and rebuild than to repair.

Over the weekend, The Age published a detailed article claiming that the proliferation of shoddy high-rise apartments has created a “nightmare taking a tall toll on residents and investors”:

All across Melbourne, new apartments riddled with faults have been sold to investors and residents. Some of the problems are so costly to fix that it would be cheaper to build the apartments again.

There are cracked and leaking buildings, glass that falls out of high-rise dwellings, diluted paint, windows that are not quite square, sinkholes and car-park fumes funnelled directly into living areas.

Often these cases play out behind closed doors or, quietly, in the courts. After all, who wants to tell the world that they’ve bought a disaster?

Many people involved in the strata industry say faults in Melbourne’s proliferating apartment buildings are common, blaming poor enforcement of construction standards and an influx of cheap materials…

Strata Community Australia (which represents Victoria’s body corporate managers) is aware of at least 58 apartment buildings in Melbourne with defects, valued at a total of about $49 million.

“That’s just the tip of the iceberg,” the group’s Victorian general manager, Rob Beck, said…

Strata Community Australia is calling for a new system, where developers have to put aside a “bond” worth 2 per cent of the cost of their residential development.
“Within two years of being built, they have to fund a defects report. If there are defects in the building, there is money in the kitty,” Mr Beck said.

“It may not be enough in a lot of cases – but it’s a very good start.”

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As I noted last week, similar phenomenon occurred in other bubble markets, such as the ‘ghost estates’ of Ireland, Spain, California and Las Vegas, and the ‘ghost apartments’ of Miami.

Developers and builders attempt to make hay while the sun shines by selling/building as many homes as possible in a short space of time to frenzied buyers (in Australia’s case, many of whom are foreigners). In the process, build and design quality gets thrown out the window.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.