Podcast: Why we’ll never get a Royal Commission into building defects

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I was intrigued this week by the announcement by the Federal Labor leadership that they plan to pour some of the money from their proposed “honesty tax” on banks into lawyers to help ordinary people get back what they’ve had chiselled out of them by unscrupulous money people.

What a great idea. Make the baddies pay for people to help their victims. Now, how about a defects tax on developers to do just the same?

OK, developers aren’t making the shed-loads of moolah that the banks are coining – the latter’s profits went UP the day after the Banking Royal Commission issued its damning report – but they are doing OK.

And we are never going to get a Royal Commission into property development for the simple reason that neither side of politics is squeaky clean in that regard, and irrespective of how upright and honest they are now, no Labor or Liberal Coalition leader wants to lift that particular rock to see what’s still wriggling underneath.

Also, in the week in which the Opal Tower report illustrated how a systemic failure of quality control – from inadequate design to poor construction – can lead to a building crumbling literally before your eyes, you realise that NSW’s defects bond is a droplet in a bucket when serious problems are discovered in a building.

Now, as I argue in my Flat Chat column out later this week, the Opal apartment owners’ experience may be very different from the usual one.

Given government support, developer concern for their public image and the whole of the state waiting to see how this pans out, you’d put your money on the defects being dealt with expediently and with minimal fuss.

But for too many apartment buyers in NSW, the experience is more akin to the Elara Apartments scandal in Canberra, where where unit owners have been left with a $19 million defects bill, after they had tried to sue over defects but the builder went into voluntary administration.

And just the other week, the Federal Court ruled that subsequent claims to the Master Builders Fidelity Fund, set up for situations just like that, were invalid as they had been lodged after the five-year deadline.

A more typical experience here is that the unit owners belatedly discover there are defects (allegedly in 85 percent of buildings, according to a UNSW report), they rush to get a survey done, the defects cost way more than the two per cent defects bond, the developer and the builder argue over who’s to blame, then whoever loses goes into liquidation and the other one hires lawyers to prove that they aren’t responsible.  Or they go into liquidation too.

So our new owners are left with a bill for the survey, for the lawyers and what’s left after the defects bond has been used up.

Now, I admit that’s a very cynical view and there are good developers who value their reputations and want to do the right thing by their customers.  They may even be in the majority – but there’s enough of the other kind to cause a lot of heartache.

By the way, there’s a theory that the less honest developers in NSW are factoring the defects bond into their budgets and cutting more corners than ever. The quality of the final product could be worse, rather than better, because they’re never going to get that money back anyway.

Now, if that sounds like a rant, that’s because I’m in a ranting mood.  This week’s Flat Chat Wrap Podcast takes no prisoners as the defects disaster, flammable cladding and, of course, Airbnb come on to my radar.

Enjoy.

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