Residents facing huge flammable cladding bills as builders go bust

By Leith van Onselen

Perhaps the Victorian Government needs to copy New South Wales and set building guarantees to two years to protect their property mates, because a major Melbourne building company facing millions of dollars in claims for flammable cladding has gone bust. From The ABC:

Residents in apartments bound in combustible cladding fear they will have no option but to pay millions of dollars to make their homes safe again, after construction company Hickory placed its subsidiary, H Buildings, into voluntary administration.

H Buildings was facing up to 13 claims for rectification works in the Victorian Civil and Administrative Tribunal, four of which are cladding related, when it was placed into voluntary administration in August, administrators confirmed.

One of those claimants is a Brunswick apartment complex, Anstey Square, which was revealed to be wrapped in non-compliant combustible cladding after a faulty air conditioning unit sparked a fire that spread from one balcony to the one above in 2017.

Creditor documents show residents are seeking $3.8 million from H Buildings for rectification works, which include costs to replace the combustible cladding, but residents have been told legal avenues for compensation are now virtually gone…

Residents in the apartment complex were already dealing with skyrocketing insurance costs after the cladding was identified as non-compliant…

“We’re on the property ladder and all of a sudden the rung that we’re on has been broken,” [resident Andy White] said.

“It was by no fault of our own that that rung of the ladder has broken.

“Owners are left saying, ‘Great, I’ve got no money, I’ve got no life, and I can’t sell'”…

So far, around 100 apartments have been ordered to remove the potentially dangerous material.

The Victorian Building Authority has identified about 45 high-risk apartments.

H Buildings is the first major builder to go into administration since the audit.

As I noted last time, the widespread use of flammable cladding is a text book case of neo-liberalism gone mad.

In the rush to slash evil ‘red tape’ (i.e. health and safety rules), the government effectively watered-down the construction standards and handed over compliance to the developers themselves.

This was a recipe for disaster, facilitating the creation of a shonky industry whereby greedy developers and builders make out like bandits selling thousands of dodgy apartments and other structures to feed the population ponzi, all with the blessing of lax building regulators and policy makers.

Now, apartment owners are facing hefty remediation bills to bring their properties up to code, or worse risk being torched to death as they sleep. It’s market and regulatory failure of epic proportions.

As a point of comparison, New Zealand experienced a systemic problem of leaky homes built in the mid-late 1990s, affecting between 22,000 to 89,000 dwellings, which has cost the New Zealand economy an estimated $11.3 billion (in 2008 dollars) in repair and transaction costs.

Given the magnitude of Australia’s apartment boom, and the shoddiness of construction, Australia’s remediation bill could also be very expensive.

At least it will be good for GDP!

[email protected]

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments

    • ErmingtonPlumbingMEMBER

      The subbie who won the contract to clad the building was no doubt required to use nonflammable cladding, but chose to use the cheaper flamable stuff.
      Its kinda like a dodgy plumber using Stormwater grade PVC pipe (thinner) for the sewer stack work or downpipes.
      Its all self certification these days, only the ingroung Sewer gets inspected by our state regulator, Dept of Fair trading in NSW.
      The combination of self certification and Race to the bottom on price competition laws are to blame.
      Private certifiers are a dime a dozen, bankrupting them will feel satisfying but it wont solve the problem.

    • If you read the Shergold Weir Report into non-conforming build products from August this year, you’ll see all the professional consultants getting a touch up, and rightly so in some cases. However they (Professional Indemnity Insurance policy holders) are not to blame, they are all under immense commercial pressure driven by the competitive tender process.
      The Shergold Weir Report completely ignores the root cause of the problem – the owners, developers and their lawyers. This group is responsible for driving commercial pressure and risk down the supply chain. This group uses Design and Construct contracts and the competitive tender process as weapons to beat their contractors into submission.

      • Maybe some of the commercial pressure should be removed then? Possibly by requiring compliance inspection by government inspectors that aren’t under pressure to certify or not get work? Maybe that has been tried before and actually worked?

  1. As a renter, I feel I should help these unfortunate homeowners, through both increased taxes AND a special levy.

    • I agree. I think we should petition the government to raise a levy on rents to pay for this. Very easy to implement via income taxes with the added bonus that it may spur more renters into buying property to avoid the tax.

    • I’m a renter too, and I feel an overwhelming urge to provide money any way I can to the poor tower block appartmenrt owners.

      They’ve had their rung on the property ladder smashed to pieces, leaving them stuck high in the air, the poor dears.

      Lets all pull together to raise money for the apartment owners. Sausage sizzles. Chook raffles. Whatever it takes, because supporting property owners is the Australian thing to do.

      • This I can picture out the front of every real estate agency on a Saturday morning. Won’t be a sausage sizzle though…. caviar and a glass of bubbles to match the beemers, mercs and flashy, gold-toothed smiles.

      • rob barrattMEMBER

        As long as no one tries to hold a barbie on their high rise balcony….
        Thank god our insurance companies now have a way out of having to pay in the event of a fire. It’s a bit like the Brisbane floods where home owners found they were covered for flooding – unless it was by rising water…. And yes, it’s good to see private health joining in the new high standard. It appears you’re now covered for everything but.. bad health.

        Viva la Rum Corps!

      • proofreadersMEMBER

        Yep – but it’s all really just a matter of some love as ScoMo has sermoned, to get this great country back on the right path? LOL.

    • Well, it certainly ain’t gunna be the developers, builders, insurers or construction industry who pay for it, so I guess it’ll be us the tax payer. No joke!

    • No need to worry, haroldus. They’ll just raise the rents to cover it. It’s a cost plus system, in case you weren’t aware.

  2. These builders that phoenix their companies or subsidiaries need to have their personal assets confiscated. It’s criminal that our laws allow this practice to continue, and whoever put the 2 year warranty legislation into effect needs to be investigated for links to property developers and also have their assets stripped. What a joke this country is now.

    • Pericles Alcmaeonidae

      $100 Billion cladding remediation. $50 Billion tunnel here, $50 Billion tunnel there. $200 Billion wiped off stock market. $100 Billion smashed from current account via currency depreciation. $100 Billion retaliatory trade war over Huawei ban.

      Drip drip.

      • They could …. and we would cheer, but in the end, introducing legislation retrospectively would simply confirm our status as a banana republic. However much we’d like to see justice served this needs to be addressed via other channels.

    • You get a gold star Timmeh!

      I was looking for the first comment about Phoenix builders because this is exactly what they will do.

      How about this for an idea. If you go bust, you can’t hold an ABN or be the director of a company or own a company for 3-5 years.

      Yes, it needs a lot more thought to turn into a workable solution but its a starting point.

    • This culture in Australia of “We’re on the Property Ladder” needs to be smashed. So no need to be an entreprenuer, invest in businesses, build something to get ahead and create wealth, you just jump on the property “ladder” and get a free ride to wealth over your fellow citizens with all the tax breaks and full government backing to contribute nothing to your society but just leach off it. This guy talks as if its a citizens right in Australia to jump on a gravy train. Why should property be a ladder at all.

      • The property ladder is actually supposed to be an escalator. You just stand their doing nothing, and you get wealthier.

        Sometimes though, the escalator breaks and you’re stuck. And sometimes the escalator chews you into mince meat. True…google for escalator death videos.

        There’s a lot of people on a very dodgy escalator right now.

      • Kind of like the risk you take as a renter that the owner of the property you rent turns out to be human garbage who decides that basic maintenance is optional and the customer is not king?

  3. I don’t understand this. Licensed trades, engineers etc have to certify compliance of their work effectively handing them the responsibility if they make a mistake or cut corners. So if someone now dies as a result from shoddy cladding will these builders and occupancy surveyors also go to jail too? Doesn’t the builder also need to pay for warranty insurance which covers the owner not the builder in the event builders go bust and can’t pay for rectification works?
    I’m no fan of greedy investors but this is bull, if you buy a new house or car or anything that affects safety you expect it should comply with AS and if not someone is held to account.

  4. Makes a new property much less attractive for a buyer who’s not sure if their warranty is actually worth anything.
    Should the parties involved set funds aside for these situations, so the owner (or the taxpayer) don’t get stung when the system fails? Just dreaming.

  5. Pericles Alcmaeonidae

    False.

    Victoria removed all warranty requirements for builders for any structure over 3 stories.

    Sweeeeeet as Brah !

  6. It’s too easy for orgs in Australia, create a subsidiary and put it into administration to avoid the potential legal battle, whilst the parent continues to operate without a scratch

  7. – Disagree. This is NOT neo-liberalism at work. It’s simply corporate greed. It’s simply capitalism at work. This is simply how capitalism undermines the entire society and ultimately destroys itself.
    – The fact that this (part of the) building company went into administration is simply a sign that they either haven’t got either the money or the willingness to pay.
    – I am wondering what’s in the contracts. Did they know that they were using flammable material ?

    • THe architect or the specification will have required the use of compliant cladding
      That it wasn’t compliant is too easy to establish, so foresencially, its a simple path to find the deviation.
      then the litigants have to bankrupt those responsible.
      much easier the chineee method

    • It is neoliberalism at work. It’s the result of the self-regulation, de-regulation, privatise absolutely everything mentality. If building inspections were carried out by an independent government inspector as they used to be then it would be impossible for this to have happened as the non compliant cladding would have been spotted early and cost the builders money to rectify at that point so they would have no incentive to cut corners with the non compliant stuff.

      • rob barrattMEMBER

        Yes, but the cost of compliance wouldn’t leave them with any money to make political donations to the high rise Harry party and the building unions wholly owned party, not to mention the council development planning honchos. Can’t be having that…

  8. Sometimes I wonder how many hits you would get for the price of 1 dogbox?

    Surely it’s worth one of those owners’ time and money to find out.

  9. Plenty of builders already to the wall because of the drop in construction activity. This is going to deepen the bloodbath

  10. I think confiscation of the assets of those responsible, followed by application of the Chinese technique would be the way to go.

    • The only reasonable response is for the government to pay for replacing all the flammable cladding. After all, it is our politician’s duty to ensure property prices only ever goes up. That’s why we elect them!!

  11. Am I the only one that sees good news in these building stories of woe.
    Lets be honest here a lot of people that should have been more cautious and circumspect got caught up in the whole apartment bubble mania. The cost for this abdication of responsibility rests fairly and squarely on the shoulders of those that thought they’d make a quick buck…turns out they were wrong. How wrong only time will tell but it’s not my problem that they F’ed up, it’s not my problem that their builders deceived them because part of the due diligence, they should have undertaken, includes the builders reputation.
    These costs must be allocated to the apartment owners that thought they’d profit, it’s their cost, they earned it through their greed, through their ineptitude and through their laziness. If we’re lucky the lessons learned will flow through to the broader community and help direct our future capital investments away from shelter, in the end people have to get burned bad before they accept the error in their ways and thus modify their behaviour.

    • Checking for dodgy builders is one thing, but I don’t know how many people test the flammability of the various materials of their new apartment. That would go beyond the due diligence of most. I do feel for them there, that sort of practice is what regulations are meant to protect the punters from.

      • My dad was a reputable builder and faced some hard times when those with lesser scruples forced the industry to adopt “dodgy” practices, Dad of course never did go down the dodgy path and over the longer term he profited from the higher standards that he held himself to. When wealthy people wanted something done properly they knew that he could be trusted, the materials would be up to the job and the workmanship would be first rate, he didn’t accept a lesser standards from subbies and simply didn’t employ subbies that wanted to pass off lesser quality materials or workmanship.
        In the end all of our actions have consequences and shopping for the cheapest builder is seldom the best long term solution.

    • “accept the error in their ways and thus modify their behaviour”
      Like maybe having government building inspectors ensuring that buildings actually comply with relevant laws, rather than letting builders self certify? Or sending people to prison for knowingly building, certifying and selling non compliant buildings?

      • I’ve got no problem with sending dodgy builders to prison. No problem at all with that solution.
        Government certification however was a process that didn’t really work all that well, the stuff the inspectors could see was done to the code while other aspects of the build, that often have a much greater impact on build quality were simply hidden under a shiny new facade. Customers thus wrongly equated “inspected” with high quality. There is also the problem of builders wanting to deliver quality well above Australian standards (many European trained builders are appalled by our so called standards yet can’t easily provide higher quality workmanship because the building blocks of a higher quality build are often not part of our Aussie standards. Things like high quality German triple glazed windows come to mind, I remember Dad lamenting the fact that he couldn’t use these products at the time (late 1990’s) because they were not accepted as Australian certified so the building inspector wouldn’t pass them.
        Dad wanted to use these products, his customers wanted only the best and were not short of a quid, nobody that even glanced at the product would think it anything but the highest quality but it was not something that teh inspectors were accustomed to seeing (back in those days) so it went in the too hard bin.

      • Those same non compliant windows would still not be allowed today. The only difference is that the building gets built with them, passes the self inspection, and then years later you can no longer get insurance and are required to replace all the non compliant stuff with compliant stuff.

    • …in the end people have to get burned bad before they accept the error in their ways…

      Lol. I see what you did there. 🙂

    • Say what you want but when you buy a new apartment or house you expect it to meet AS for safety and someone must be held to account to ensure it meets the regs. Imagine buying a brand new car that doesn’t meet the AS, then you crash it, the whole thing falls apart, dodgy airbags etc, the manufacturer goes bust and no one is held responsible if someone dies let alone cost of replacement. Not a good news story mate, we’re not talking about quality but safety and accountability for actions which has been thrown out the window.

      • Hmmm, it appears that you trust “standards” whereas I trust individuals whom time/experience have proven to be honest and deserving of my “trust”. That trust is hard earned, that trust is the honest builders greatest asset, that trust must be rewarded and part of the reward process is higher price we must learn to willingly pay for non-dodgy product.
        Surely you don’t believe that Toyota builds high quality cars because Australian standards demand this quality? GM and by extension Holden build some pretty woeful cars in the 1980’s/90’s they were dreadful quality by any standard, Daimler on the other hand built some very high quality product in the 1990’s and I’m pretty sure Australian standards played absolutely no role in their decision to create a quality product.

      • How many cars did GM build with no seatbelts? Or seatbelts made of paper? or with single sheet non laminated glass for a windscreen? Or with petrol tanks that leaked fuel everywhere?

      • BJ
        Plenty of cars still built today for countries which do not require the bells and whistles dodgy add ons
        Next to be foisted on us wealth punters is automatic braking systems. FFS

      • Bells and whistles are a lot different to minimum safety standards.
        My current least favourite driver aid is brake assist. Push the brakes a little too hard and the car decides it’s an emergency and tslams the brakes full on and almost puts you through the window.

      • Hmmm, it appears that you trust “standards” whereas I trust individuals whom time/experience have proven to be honest and deserving of my “trust”. That trust is hard earned, that trust is the honest builders greatest asset, that trust must be rewarded and part of the reward process is higher price we must learn to willingly pay for non-dodgy product.

        And for people lacking the knowledge to expertly assess the quality of everything they buy, and/or the financial resources to purchase and test multiple products in the process of ascertaining quality through trial and error, they should just resign themselves to be deceived, potentially to the point of death ?

        When, say, mass food poisonings occur because some restaurant hasn’t met the standards for food preparation, etc, that’s a failing in the regulatory regime, not a problem with the concept that restaurants should have to meet minimum levels of hygiene to be allowed to operate.

        GM and by extension Holden build some pretty woeful cars in the 1980’s/90’s they were dreadful quality by any standard, Daimler on the other hand built some very high quality product in the 1990’s and I’m pretty sure Australian standards played absolutely no role in their decision to create a quality product.

        The post was about safety standards, not “quality” (whatever ryou might mean by that). The purpose of such standards is to set a baseline, not a constraint that cannot be exceeded.

        Caveat emptor is an acceptable approach when you’re trading baseball cards, not when you’re dealing with people’s safety or substantial fractions of their annual (or lifetime) income.

      • @Drsmith,
        I would suggest that maybe these individuals shouldn’t be actively participating in markets where they lack the skills to assess build quality and safety. If they wish to participate anyway then they should insist on purchase contracts that are subject to a successful inspection which would include things like the nature of the materials used in the construction.
        There’s no path to satisfaction that begins with the lowest price possible, contains no trusted intermediaries and ends with completely satisfied parties. That’s human nature and has nothing to do with safety or regulation or anything else.

        I included the example of Mercedes because I wanted to point out that their commitment to build a high quality car is reflected in the choice of materials they use and the safety features that they willingly incorporate. Even In markets where there are no regulations compelling them meet any safety compliance standards they still sell lots of cars because these buyers trust Mercedes .These individuals recognize the overall quality and safety of the product and willingly pay extra for it.
        There was a time when I was young that Holden cars were regarded as high quality in markets like Singapore and these cars competed with the likes of Mercedes on an equal footing, did AS regulations help them to maintain this market position or was the market won by the producer that willingly went way beyond these standards?

      • I would suggest that maybe these individuals shouldn’t be actively participating in markets where they lack the skills to assess build quality and safety.

        So… Buying houses, cars, eating out, sending children to school, going to the doctor. They should just not do that stuff ?

        If they wish to participate anyway then they should insist on purchase contracts that are subject to a successful inspection which would include things like the nature of the materials used in the construction.

        Right. So exactly the kind of thing a regulatory body is supposed to do ?

      • @drsmith,
        I don’t think we are as far apart as you might imagine.
        Form my understanding we’re both fundamentally saying that efficient commerce requires mutual trust, as such every society develops trusted people and trusted intermediaries. These roles might be fulfilled through some sort of governmental agency or through private agency in both cases commerce relies on the trust that is entrusted in such entities/individuals if they fail to continue to create value through their efforts than they ultimately simply diminish the value of their greatest asset namely trust. We can see this wrt many Australian standards organizations that lost sight of their true role as intermediaries and became beholden to one party or the other. In the end the system suffers if this role is not honestly and fairly executed.
        In my fathers case he made plenty of money in his later years because those with money to burn knew that he would deliver them the product that they desired, he would try to incorporate their wishes and work with Subises that he knew and trusted to get the job done for a fair price. Building his reputation however was neither quick nor cheap, as such he recognized that it was his greatest asset.
        The problem with any governmental Trusted Regulator is that they are never adequately rewarded for their efforts nor are they punished for their failures, as such the trust is never sustainable over the long haul.

      • The last few decades have been less about Governmental regulatory bodies “failing”, more about them being emasculated and disbanded.

        I see the problems originating from profit-driven regulation to be more significant.

    • With you 100% on this. Buyers of these apartments have abdicated all responsibility by assuming someone else has their back.

      When people buy established homes they generally employ an independent party to do a comprehensive inspection. Why on earth should it be any different for new builds — the quality is extremely variable, after all. A new building inspection could have a comprehensive check-list on materials/specs and comments on design (potential future problems) and general build quality — this would be a massive step forward for the whole industry. The trustworthy builders would benefit massively and shonky operators who refused play ball with inspectors would ultimately lose out.

      More regulation is not the answer because Govt employees have no skin in the game and, at worst, can be sacked for incompetence but will never be held financially accountable. They are frequently open to ‘inducements’. The answer lies with a market-based solution and the better builders will be the winners from this.

      • Thanks, I was beginning to think I was completely alone in my way of thinking.
        I guess in a way we are all saying that the system must have trusted individuals if it is to function.
        In my case I believe it should be the builder that is the Trusted one, others seem to think they can find a well meaning standards compliance official to fulfill this role, I guess, in the end, it all comes down to how a society builds and maintains these Trust relationships, in this respect I have more faith in markets than regulators.

  12. This should be interesting – strata corporations cannot be insolvent. If there is a special levy then the strata corp can seek funds from the defaulting owner as well as the rest of the strata owners. There is no liability limitation & the obligation to pay a levy can never be extinguished until levy paid, ie strata corp can force defaulting owner to sell their strata property to pay levy.
    More downward pressure on apartment prices…

    • Yeah…and there’ll be absolutely thousands of people queueing up to buy apartments being flogged by defaulting owners who can’t pay their strata fees because of the massive fire-risk remediation costs and lawsuits that aren’t covered by any insurance.

      That’s gonna go real well.

    • I strongly suspect/fear that that “thing” that will be charged and taxed is me and you and everybody else who doesn’t own a tenant incinerator.

    • That is how you sort it
      Get each of em in the dock, under oath, and watch how they twitter.
      Cladding is the tip
      Nearly all building services in many hghrise are substandard these days
      we are fortunate on the coast that concrete cancer is readily detectable, but it is in most highrise
      remember most high rise built 40 years ago have exceeded their structural life.
      What then?

      • Back in the day, like nearly a thousand years ago, craftsmen built places like Notre Dame Cathedral to last. And those buildings have lasted. Now, we build massive structures that are in danger of falling to the ground after 40 years, if they don’t go up in flames first.

        This is not how I expected the 21st Century to turn out.

      • Hey WW – I just got an ad for concrete cancer repair in the MB header!

        I blame you!

        And architect marketing too of all things.

      • Harry
        Someone could hang up a shingle as a balcony surveyor
        Most balcony structures on, anything come to think of it, are non compliant with AS.
        Particularly balcony hand railing.

  13. Demolishing reinforced concrete structures, with or without cancer, is stunningly expensive. Jackhammer away the concrete, cut the steel, crane off the section, dispose to landfill.

    The market value of raw land is calculated MINUS cost of demolition. In a falling land market, few will want to buy into such risk and uncertainty. Some Gold Coast sites could actually have negative values, prompting holders to abandon them to government, particularly if issued with rectification or demolition orders.

    A world of pain.

  14. Another drag on the property market. You would have to be a bit dull buying an apartment that has this issue.

    • You’ll have to be pretty thick, if you’re a local buying what is clearly built as “investment grade” for foreigners. Australian tax payers should not bailout foreign investors.