This could be a total game-changer
I’m still not sure that people are awake to what a big deal this could be for Australian property. It’s lying like a sleeper-cell, but if it gets activated, oh boy, look out.
I’m talking about cladding.
The cladding that goes on the outside of apartment towers, and was responsible for the London Grenfell disaster earlier in the year.
Apparently, it’s a problem here too.
The thing is though, no one really knows how much of a problem.
And that’s because the dodgy, flammable cladding is indistinguishable from the code-compliant stuff.
So even builders who thought they were doing the right thing, maybe have been wrapping their buildings up in dodgy imports and turning them into a powder keg.
Apparently, there’s no way to know unless you actually try and set fire to them. Maybe we have to make that a clause in any new building development? Cladding has actually had to have had a blowtorch applied to it at some point.
Every silver lining has a cloud in the modern economy. And so while open borders and expanded trade routes have brought all manner of cheap goods into our homes, it also means that we don’t really know where things are coming from, and our compliance structures hinge of the integrity of authorising bodies in Chinese provincial back-waters.
And the scale of the problem is potentially huge. In Sydney, Melbourne, Perth and Brisbane we’ve been building apartments like it’s going out of style.
Most apartments have now been built post-GFC. And that means post the era where cheap imports started washing up on our shores.
So we’re talking huge.
The Victorian government’s task force hasn’t reported back yet, but they reckon there are more than 5,000 buildings in Victoria that are non-compliant, according to the ABC.
So no one seems to be arguing the toss that we’ve got a problem.
The only question is what we do about it?
And on that front, surely complete remediation is the only option right? Surely you can’t have dangerous, flammable cladding stuck to the sides of buildings that people actually live in.
So obviously the dangerous stuff will have to be replaced.
But let’s run through another scenario.
Let’s say the problem isn’t as dangerous as we fear. Of those 5,000 buildings in Victoria, only 20% are actually Grenfell-level dangerous.
The rest are just non-compliant in a slightly dangerous way.
But then what message does it send if we say, oh well, there’s a bunch of non-compliant buildings that we’ve uncovered, but we’ve decided to turn a blind eye in this case because it’s just going to cost too much money to bring them up to code…
Could they really do that?
What message does it send about the codes themselves?
“More like guidelines. Ideal if you can afford it, but if not, don’t worry.”
What’s the point in having codes at all?
And what does it say about enforcement?
“As long as you’re not using kerosene-soaked rags as drapes, you can pretty much get away with anything.”
Neither of those options is viable in my mind. The whole integrity of the system is at stake here.
The government has to enforce the code and it has to order all faulty buildings to be remediated. I really don’t think it has a choice here.
I mean, imagine the PR disaster that would follow a human disaster if a building that was found to be non-compliant now, was not forced to refurbish, and then was involved in some sort of tragedy down the track.
And if we’re talking about refurbishment costs, who ends up footing the bill. The builder? The dodgy Chinese importer? The government? The property owners?
Right now, I feel for the 137 people who own units in Melbourne’s Lacrosse building, which caught fire in 2014 and was found to be using the same cladding as Grenfell. They’re now locked in a legal battle with the builder LU Simon.
They want to the builder to pick up the tab for the mandatory refurbishment costs. The builder is arguing that the panels they used were up to code at the time. It’s not their fault…
So this is all bad news, right?
Well, not exactly…
It’s bad news if you own one of these flammable shoe-boxes, that’s for sure.
But for the market overall, that’s a different story.
Basically, the only thing that’s kept a lid on prices in recent years, as the mining boom income works through the system, and we continue to support record numbers of immigration into our big cities, has been unit construction.
The phenomenal surge of apartment construction has helped us keep pace with population and income growth, and has helped keep a lid on prices.
(If you can call 50% in 5 years ‘a lid’).
And there has always been a qualitative difference between units and houses, but now we’re going to be looking at a markedly differentiated market.
There’ll be detached houses, with the little conveniences that come with having your own patch of turf.
And then there’ll be apartments, with a potentially hefty refurbishment bill hanging over their heads.
I mean, would you be buying into these things without being 1000% sure that the cladding was compliant?
(Hint: you shouldn’t.)
In my mind, there’s a massive TILT light going on, as demand tilts even further towards detached housing, and away from units.
And if this is as huge as it looks like it’s going to be, then we’re talking about huge price movements in the detached housing market.
But we still don’t know for sure. The true extent of the problem is hidden from view.
The giant is still sleeping…
But look out if he wakes up.
Do you see this having a big impact on the market?