It’s perverse, but this disaster could create a mini-boom in property.
Almost two years ago to the day I warned about how many tower buildings across Australia are using highly flammable cladding and are simply disasters waiting to happen. As I said then:
“Building standards a not being followed, and a major incident is inevitable. Here’s hoping nobody dies.”
Well, people have died. The Greenfell tower disaster in London claimed more than 50 lives and piped dramatic images into homes across the country.
This should be the wake up call we need. I hope it’s the wake up call we need.
I wonder if people realise how close to home the Greenfell disaster is.
As the Brisbane Times reports:
“The London tower devastated by a vicious building fire may have been installed with flammable cladding during a recent renovation.
Online records indicate contractor Harley Facades Limited installed “over-cladding with ACM cassette rainscreen” at Grenfell Tower.
ACM stands for aluminium composite material, which is the same combustible product blamed for fuelling nearly a dozen major high-rise fires globally in the past decade, including in Melbourne in 2014…”
That incident in Melbourne they’re referring to was the fire at the Lacrosse Building. A single cigarette left burning on a balcony started a fire that leapt 13 stories in 13 minutes.
All the fire safety measures in the world – sprinkler systems and all that – they won’t save you when the fire is coming from the outside in. This is an entirely new kind of threat and one we’re not prepared for.
It’s hard to finger exactly where this is coming from. Engineers Australia reckons that the codes aren’t being followed, or enforced. “No one is inspecting this stuff.”
The Master Builders Association on the other hand says it’s not so much about the builders, as it is about dodgy, counterfeit building materials coming into the country – things arriving that are stamped with a certain fire rating, but that simply aren’t.
What a mess.
The thing that’s really scary though is that we’re not just talking about the odd high-rise here and there. We’re talking about a systemic problem that potentially affects thousands of buildings across the country.
Australian Society of Building Consultants NSW president Chris Dyce reckons there are 2700 buildings just in Sydney that use this aluminium composite cladding. Half of the high-rises build in Melbourne over the past ten years are non-compliant.
Engineers Australia reckons 85% of Sydney’s recent apartment stock is defective!
Even if it’s only half as bad as they reckon, it’s still a terrifying prospect.
Because that’s the nature of risk that I don’t think people get.
If you have one dodgy building, then the risk of a single disaster is the risk of one person being careless with one cigarette.
But when you’re talking about 1000s of buildings and thousands of people and thousands of cigarettes, then the risk of a single disaster multiplies exponentially.
That’s why Engineers Australia reckons a major fire in Sydney is “inevitable”.
As I said, Greenfell was a tragedy. Let’s hope it’s the wake up call we need.
But now let’s step back a bit and think about what this means for the market.
I’m not one to profit from other people’s misery, but I have been known to profit from other people’s incompetence.
So we can pretty safely say that at some point or another, all of these defects – or at least the most dangerous ones – will have to be fixed.
The best-case scenario is that the remediation happens now and we get on the front foot with it.
The worst case scenario is that we need our own Greenfell to spur people into action.
But either way, it’s going to happen at some point.
Individually, as buyers, I think this creates a new risk that we need to cover ourselves against. It’s quite likely that individual unit holders will have to come up with the money for remediation. You might be able to pass it on the builder if they were dodgy (and you can pin it to them!), but if they were following standards (which themselves weren’t tight enough) you might be left holding the baby.
And we’re talking serious coin. Imagine stripping the cladding off a 24 storey building and putting new cladding on. That’s big bucks.
And if it’s not clear whether it’s the code, or the builders, or the materials manufacturers that’s the problem, it can be hard to defend yourself against.
I wonder if you might be able to get insurance cover..? A little extra in your premium to protect yourself against forced remediation costs. I’m not sure. Anyone got any ideas on that?
Whatever the case, as buyers in high-rises, an extra degree of caution wouldn’t go astray.
The other point I’d make is that if the government announces that all 2700 buildings in Sydney need to be remediated, all at once, then that’s going to spark an incredible building boom.
There’ll be incredible competition for builders and for new materials. That will affect the remediation costs as well as the costs facing new stock coming to market.
It will push the cost of new housing through the roof. And since existing housing keys of the price of new housing, the price of existing housing will surge as well.
And given Sydney is already struggling with a shortage dynamic, and needs to be bringing stock to market flat-chat just to keep pace with demand, this will create the conditions for a mini-boom.
I know, the modern economy is perverse like that. A cocktail of incompetence and corruption can be just what you need to see a boom in prices. Hate the game and all that…
And if you really want to double down on this dynamic, look at quality stock in areas where there are a lot of these buildings. Some of these buildings could become uninhabitable through the remediation. That might create a massive spike in rental prices in the immediate area as those displaced people look for a home.
I’m thinking quality town-houses in quality locations are set to do well.
Anyway, that’s what I see as the market impact, but let’s not loose sight of the fact that we’re talking about people’s lives here.
Here’s praying for a casualty free fix.
Any people in the insurance biz got any insight on this? Can you see any opportunities opening up?