There’s an omission in an Australian report out on Monday which put a midpoint pricetag of $A6.2 billion on fixing the last 10 years’ worth of poorly constructed apartment buildings. The omission: That $A6.2 billion is money you no longer have available – for new construction or for anything else.
As in New Zealand, where the cost of repairing leaky & otherwise poorly constructed apartment buildings has also spiralled, the fix sucks up not just money but labour, expertise, materials, processing time devoted to a second shot instead of to once-only construction.
And it sucks up the funds of affected individual apartment owners, although they may get some recompense from litigation.
The Australian estimate is also a midpoint figure – the researchers said the actual cost could be up or down by $A1 billion, giving a range of $A5.2-7.2 billion.
The Construction, Forestry, Maritime, Mining & Energy Union (CFMEU) commissioned the research from Equity Economics & Development Partners Pty Ltd. The Shape Agency, established to help organisations with a social interest objective achieve their communications goals, funded the research.
The union’s final report version opened thus: “The economic costs of failure are piling up. In the short term, we are seeing professional insurance fees skyrocket, threatening a downturn in one of the economy’s leading sectors, as well as general cost blowout and delays that impeded the level of activity and decelerate the productivity gains that flow from infrastructure investment. In the medium term there will be the costs of remediation, estimated to be $A6.2 billion, and ultimately a loss of confidence & therefore value in the nation’s biggest asset class.”
Deregulation at any cost
The Australian Property Observer quoted union construction & general division national secretary Dave Noonan: “Australia’s building & construction crisis will cost a staggering $A6.2 billion to fix apartments they’ve already paid for. This includes the cost of remediating water leaks, fire safety breaches, structural failure & combustible cladding, and costs associated with increased insurance premiums, legal fees & alternative accommodation.”
Why? Mr Noonan added: “This is the result of the construction industry’s obsession with ‘deregulation’ at any cost, and poor oversight by government. It’s the result of years of not enforcing building standards and of allowing industry to ‘self-approve’ with little or no oversight. Often, it has fallen on the union to blow the whistle.”
He said the union would produce detailed policy solutions and work with government to resolve the issues.
Equity Economics said it “relied on publicly available information, used conservative costings and, where data was limited, applied a range to reflect the high level of uncertainty.
“Our analysis highlights that the cost to Australia will be substantial. We estimate the cost to building owners & state, territory & federal governments of addressing the structural & safety defects in these buildings will approximate $A6.2 billion ($A5.2-7.2 billion).
“This is a conservative estimate that excludes several potential costs including: legal costs, jurisdiction-wide building audit schemes and increases in insurance. In addition, it excludes the cost of defects for apartments built before 2009. The confidence interval around this estimate reflects that the scale of defects is not known and must be estimated using the available data.”
The modelling paper
In its modelling paper, Equity Economics said almost 50% of new dwellings in the last decade were apartments. New starts in 2018-19 were costed at $A31.7 billion, 14% of the sector’s forward book.
New starts trebled from 38,400 in 2008-09 to 117,500 in 2015-16. Consents were issued for over 500,000 apartment buildings of 3 storeys or higher in the last 10 years, under 250,000 for the previous 10 years.
Equity Economics said 2 studies of defects in apartment buildings found over 70% of apartment buildings in Victoria, New South Wales & Queensland had defects.
The Shape Agency
CFMEU final report: Shaky foundations: The national construction crisis
Equity Economics’ modelling: The cost of building defects – economic modelling of the cost of building defects in apartments across Australia
Property Observer, 19 August 2019: Cladding, cracks & shoddy apartments to cost Australians $A6.2 billion to repair: CFMEU
Attribution: Property Observer, CFMEU, Equity Economics.