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?
sanjay says
Hi Jon
Good you brought up this topic as this was public housing complex I would expect the local government should have hired a Engineering Consultant who would have allowed to use the cladding based on the building code prevailing in Britain (Which unfortunately is not very different to ours or New Zealand) so the alarm bells are ringing.
On the other note if the builder has strictly followed the building code (which they do) then the council and tax payer generally bear the cost of refurbishing as per my experience ( Leaky home case in Auckland NZ).
That is my 2sec worth
brian says
@ sanjay…. good luck getting the government to pay. In NZ, councils discovered it was cheaper to pay lawyers than to pay out or help towards refurbishing.
another K1w1 says
@brian – Yep, you are right, sad but true. Probably a case of “already knew” than discovered later, given my experiences. They broke the law for years because it was good money, and when they got caught, the courts simply opened their blind eye – reinterpreted the law to suit their deliberate misinterpretation. Same now with Insurance Companies and Earthquake claims. Lawyers paid first, claimants, oh, later, never if possible.
Tom says
Very interesting and important discussion John.
Upon hearing that the cladding was at fault in the Grenfell fire, my mind went straight back to your 2014 discussion. I recalled that at the time there were reports that some imported cladding which was being installed was falsely promoted as being compliant with the building regs.
Whenever large $$$ figures are involved, corruption inevitably sticks its dirty nose in the trough.
Maybe Legal Eagles in Your readership may be able to cast some light on what our laws say about legal responsibility.
In 2014, did the Victorian bureaucracy make any changes at the time to ensure compliance?
If they didn’t, then surely the State Government should bear responsibility for its servants’ negligence.
Whose responsibility is it to ensure that imported materials really do comply with State standards?
Is there any chance of corruption in obtaining the compliance certificates? Any corrupt official would be unable to service the huge claims which doubtless will ensue. So once again, the onus will be passed on to the tax-payers.
Are construction companies currently scouring through their records to destroy any evidence that they had been made aware of dodgy materials being used on their construction sites? You betcha!!!
Lawyers will have a heyday and you can rest assured that the ones who were responsible and those who benefitted financially will get off scot-free. It will be the poor suckers who purchased units who will foot the bill.
People who deliberately avoided being drawn into the shoe-box market must be heaving a sigh of relief.
If State Governments make retrospective changes to compliance regs, who is financially responsible for effecting compliance? The State or the individual owners?
All the flammable cladding on thousands of buildings MUST be removed.
The mind boggles! Espcially in legal practices!
Ken says
There was only one smart person in the London fire. They turned on every tap in the house.
ron goddard says
hi jonno,
a puzzling compexity.
i mean if the issue is refurbishing that which is a dud…who is liable? the dummies who purchased of course. but i do not mean legally..i mean practically. or do i mean practically not legally? that is the puzzle.
but then we have possibly billions of dollars of ‘good’ stuff: cladding to be imported from ‘overseas’. and THAT is the complexity. more off shore borrowings to add to our already burdonsome debt, a debt that is at the time writing some AU$500bn and rising faster than a bay of ‘fundy’ incoming tide. and who is to blame ? why, the public of course. if we dummies are stupid enough to keep voting hacks into parliament both state and federal, we deserve it. then there is the ‘public service’, in whom we trust 🙂 to administer the various laws pertaining to construction. they have failed!! so what to do?
we have a gross misdiscretian here in our melville city council. their behaviour borders on
insanity. but it is a form of government. so wherefor now miss democracy? do we slaughter the jews or cook the catholics? i favour every man for himself. in a world of the grossest mistrust ever possibly known, mankind is being shown up for what it is. forget the kgb or the mossads, to name just two conspiratorial groups. have you ever witnessed a bevy of beneficiaries of a will in a stoush? i see it quite often. the claws are out. anyway for the record those buildings under discussion. i would NEVER ever live in any of them, i do not care about how safe they are. i like the earth under my feet. see ya’ digger! ron from west oz.