The Hidden Agendas Behind Australia’s Failed Building Industry 18

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Wednesday, July 13th, 2016
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The recent reform of the Building Act and the Domestic Building Contracts Act (purportedly introduced to aid consumers) seems to have merely tinkered with what wasn’t working without really honing in on the real problems.

Those problems have diminished consumer (home owner) rights to the point that consumers now spend over $3 billion each year in Victoria alone futilely chasing the builders of their decrepit homes for what they see as their basic right to have their homes brought to a reasonable standard.

Once we’ve gotten inside the heads of those who wrote these acts and standards and discovered the basic agendas of those people, we can really get at the root causes of why consumers are failing time and time again. Then we can commence proper reform and create a fair playground for both consumers and builders. Surely everyone wants that.

For instance, if we want fairness for home owners in the outer western suburbs of Melbourne, where the volcanic clay soils are so reactive that slabs placed on these soils have failed in the thousands under the present regime (some built after the 2011 changes to Code AS2870), then we’ve got to change a few things that go way back to when enterprise was protected at every level and consumers were of secondary importance.

Quite recently, we saw the hidden agenda of the committee for Australian Code AS2870 revealed in an admission spelt out in a recent VCAT case (and later appealed at Supreme Court) – Softleys v Metricon Builders, where the head of those responsible for writing Code AS2870 (Residential Slabs and Footings – Construction), Eric Fox, explained the basic thinking behind the writing of that code.

During the VCAT hearing, Fox said the Australian Building Codes Board (via its Building Code of Australia) required his committee to limit the strictness of the code AS2870 requirements so that the cost of footings would not result in the cost of housing being raised to the point that the price of new homes became economically damaging.

The requirements were framed such that even when complied with, “in some rare instances” houses would still fail through no apparent fault of anyone. But what about the fault of those writers? They deliberately relaxed the rules knowing that some house footings and slabs were likely to deform and distort past the design limits they set in their code even when home owners complied with the large list of after-care maintenance requirements placed on them via soil reports.

What a rotten and economically misguided thing to do.

Based on the Softleys v Metricon Homes precedent and an earlier similar precedent (Hooper v Metricon Homes), let’s just suppose conservatively that 10,000 of the worst affected Victorian new homes with grossly distorted slabs are eventually pulled down and replaced (at $300,000 each) to make those replacement homes likely to reach a reasonable life expectancy without regular, ongoing surprises such as cornices falling off and three-metre long plaster cracks appearing overnight. This equates to a $3 billion payout on those homes. That amount is doubled when legal costs are added, bringing the total to over $6 billion. That is equivalent to 200,000 homes that could have had the necessary bolstering of their slabs (at $30,000 each) to avoid such disasters.

That’s just waffle-pod slab failures to date. Soil heave can continue for years and years.

The unfair hidden agendas of the Australian Building Codes Board and the Committee for Code AS2870 have turned out to be far more damaging for the economy than simply being conservative at the outset.

But there are a multitude of other defects out there too. One medium sized structural engineering firm just condemns trussed roof installations.

There are also more than 10 commonplace non-structural defects in nearly all of the 500 new homes I inspected – those commonplace defects worth $10,000 or thereabouts per home to rectify properly. These are defect items not even discovered by the vast majority of building consultants, or certifying building inspectors, or building supervisors. If they were identified by those parties, they wouldn’t exist in virtually every new home.

The aforementioned precedents also apply to other defects (maintained but not rectified) during the warranty period, by virtue of the fact that they have failed (sometimes several times) in less than 6.5 years. Definitions of defect should have covered this (basic right to last a reasonable time) warranty, but it doesn’t rate a mention in any Act, Standard, Building Contract or Authority publication including the famous Guide to Standards and Tolerances.

Many other, more obvious poor workmanship defects fought over by home owners and their builders have resulted in enormous expense for all. Only the dispute industry has profited, and for this Australia’s economy may pay dearly.

A 2011 Audit by the Building Commission, which was supposed to look at thousands of badly affected waffle-pod slabs, was stymied by 12 larger building companies refusing to be included. Only 625 slabs were audited instead of the intended thousands. Then the VBA took over, refusing to make it public “so individual builders would not be unfairly penalised.”

This action by the Victorian Government (via the VBA) told us more than the report did, pointing to the hidden agendas in nearly every action taken ‘on behalf of consumers.’ So how can we trust the recent (or the proposed) building industry reforms being carried out now by the same writers who wrote the acts that resulted in this ginormous yearly $6 billion combined expenditure by new home owners and builders in Victoria?

With thousands of waffle-pod slabs failing, considerable revisions to AS2870 were made (extra classifications, stronger slabs, considerable additional information, even long-term droughts), but the code can still be misused.

The incorrect bypassing of Appendix D for highly reactive clay sites by the word ‘normal’ being misinterpreted, has still not been prevented, I think because of the same (unnecessary expense) mentality.

The main cause of inadequate soil classifications – the selection by soil report writers of the ‘Ys estimation method for normal sites’ being (wrongly) chosen for sites that are not normal – will likely cause the current disaster to continue unabated, with structural engineers and relevant building surveyors wrongly continuing to accept resultant inadequate classifications.

But something fair can still be done to achieve adequate footings whilst keeping house prices affordable.

Secret agendas will be exposed, and the changes may impinge on perceived rights of broad-acre land owners, by alerting the public to problems associated with their land – land that in 1962 was earmarked as being unsuitable for residential construction by Melbourne University’s Soil Chemistry professor Geoffrey Leeper in his lectures and publications.

With full-steam-ahead Federal Government immigration, the Victorian Government needs more and more residential land and makes sure that it becomes available. Unfortunately, it is made available with inadequate checks and balances that would prevent the unfair exploitation of consumers.

The following reforms however, could ensure that new housing (house plus land) prices do not rise uneconomically:

  1.  A (fair) covenant could be placed on the titles for land sold for housing in highly reactive clay soil areas – one which alerts buyers and conveyancers that allowances must be made for likely increased costs associated with footings and slabs for new houses so that the prices reflect those allowances. This would ensure that the price of a new house plus land is similar to its counterparts in nearby less reactive clay soil areas.
  2. The Code AS2870 could be altered to require that all soil reports in highly reactive clay sites comply with Appendix D of the code unless normal conditions can be proven. In this case, by-passing it via the (very often wrongly perceived as permissible) short-cut the ‘Ys’ factor estimation method for ‘normal’ condition sites is stopped, because many of those sites are still nothing like normal due to the long-lasting on-going influence of the longest (13.5-year) drought in our history and the associated influence of trees past or present.

I wonder if similar mindsets involving the protection of enterprise is why the authorities have failed dismally to help new home owners.

And when will the current Ombudsman and Auditor General follow up on the serious revelations of their predecessors? Their predecessors bravely alerted the public only a few years ago as to just how unfair current Builders Warranty Insurance is, and how unfair the standard of workmanship is in the residential building industry. Despite their warnings, we all know these problems have not been resolved.

So far the silence of their successors has been deafening.

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18
  1. Barry B.

    Great breakdown Mark – legislators and regulators have really dropped the ball on this issue.

    • Mark Whitby

      Thanks Barry,

      I wonder do you know that those least likely to know or attempt to find out about these issues are the new home owners themselves.

      I think all we can all do is alert every would-be new home owner / home owner parents we know of these extremely important issues that may wreck their lives down the track. I think the legislators (Justice Department(?) and their advisors) and regulators must have their hands tied firmly behind them to come up with the latest (first stage) Building Industry Consumer Protection Reforms in Victoria (which although it basically seems to have been repressive in its increased pressure on home owner via compulsory conciliation by people with no requirement to have expertise in what are defects, did improve the appointment of building surveyors scenario to avoid some of the cronyism). I hope the proposed insurance reform makes insurance FIRST RESORT with the insurers required to chase the builder, not the home owners as seemed to be the case when the HGF Limited was the insurer; but based on the first reform, I don't hold out much hope for that now.

  2. Branko Mladichek

    I fully agree and applaud you for your article but I think that reality for homeowners has just become more brutal. Whilst up till now they have been victims of failure to enforce compliance, now they will become victims of legalised fraud against the consumer (homeowner) How is that so?
    Consider my experience of thousands of inspections where overwhelmingly, completely innocent homeowners, complain about builders failing to deliver on their promise. The only reasonable remedy for that breach of contract under the common law is either redo defective work or compensation. But the law is not upheld. Now homeowners will be subject of conciliation. What is conciliation? It's negotiation in which each party has to give ground in order to reach settlement. The amount of "give" is owner's loss. The builder on the other hand, is only required to partly deliver on the missed performance
    Not only is the owner now compelled to conciliate "give ground" but also must do so in good faith or the costs will be awarded against him/her.
    It will mean that fraudulent lack of contract obligation delivery will now become legalised.
    How perverse and utterly fraudulent has our administration of consumer protection became?
    I have said this before and will say it again. We cannot trust government departments to administer laws of building control because they have a track record of interference from vested groups "stakeholders" that have.corrupted it.
    If we are really serious about fixing building industry and stop the slide into third world status we need to hand over administration of building compliance to construction police. Offenders need to be fined with on the spot fines or arrested and jained for fraud.

    • Mark Whitby

      Spot on Branko. The conciliation is designed by the same people who wrote the previous flawed legislation… which was also supposed to expedite the dispute process. Now it will be worse as you say it seems. There is a right of appeal, but VCAT precedents get in the way. It would be interesting to know what costs are involved with conciliation if anyone has gone through already.

  3. Outstanding article Mark. It reads nearly like a Gettysburg Address.

    On this subject the behaviour of governments and Standards is appalling.
    A good start is to question the mechanisms of Public Interest involvement in the development of Standards. Talking from personal experience, it is close to impossible to breach the fortress walls of Standards Australia to insist that the public interest is addressed.
    An overhaul is needed regarding the appointment and funding of the Public Advocate on Standards. This Advocate comes from the Consumers Federation of Australia, an entity of the ACCC.
    Such people are porns of the Standards Committees and will not stand up and defend the Public Interest with a fearless
    independent stance. This is one component of a broken system.

    A second component of the fortress is that public questioning of Standards is close to futile. Everyone closes ranks. It happens over a raft of Standards. View the Interim Report from the Senate Inquiry – Non-Conforming Building Products, which fortunately has been extended until September 2016.
    I would urge readers to deluge the Inquiry with any new submissions you can muster immediately now that a new Parliament is about to resume.

    The fortress of Standards must be breached and changes made. Why? Because building codes reference Standards – its a closed loop of profound commercial self interest with opaque or non-existent regard for the Public Interest.

    • Mark Whitby

      Thanks Tim and very good idea in my opinion… in writing definitely.

  4. Les Williams

    Again look for the influence that peak industry groups are having on legislation particularly the erosion of it. Look for the improper relationship between peak industry groups and regulators. How many issues do we need for some form of commission of inquiry as a pre-cursor to complete industry change. Peak Industry groups expect to and do set the agenda putting themselves forward as spokespeople for the industry. Until government see them for what they are — nothing will change

    • Mark Whitby

      Indeed Les,
      But what staggers me is that the risk for builders is now greatly increased for builders… and yet in dispute after dispute the approach of the builders is the same… bluff until the home owner gives up. And this approach is actually more risky for builders than just rectifying the defects alleged by the home owners, Fighting the owners actually costs them (on average) far more than just fixing the defects they built into the houses.

  5. Brett Bates

    Interesting article Mark. I'm in NSW but surely a professional and independent geotech engineering report as part of the consent conditions could mitigate against these risks without a huge cost impact? Most proposed projects require this as part of the DA consent. An investigation and interpretation of the site foundation materials along with recommendations as to footing type and general construction (ie: framed lightweight versus full masonry, slab on ground versus suspended, avoidance of cut/fill etc.) It costs a few thousand but is that what was of concern to the AS2870 committee? If so, it seems the bog standard quick and cheap waffle pod slabs beloved of the large volume spec home builders is here to stay. They have the gonads of both government and its advisory bodies in a firm grip! It's amazing how much influence a few hundred thousand dollars of political donations can buy. As the saying goes, grab em by the balls and their hearts and minds will follow.

    • Mark Whitby

      Yes indeed Brett,
      It is also amazing how often builders attempt to avoid the cost of the more detailed soil report and the delays caused by extra foundation preparation work (bored piers and so on)… now it seems to their own potential detriment. This article is for everyone including the builders to wake up. It also lays open the doors to negligence claims… but if there is so much gross negligence and AS Code writers cannot get past their misconceptions on what is good for the economy, then VCAT (in Victoria) is unfortunately the only forum left to the consumer and the builder against those report writers. I've had cases where builders and structural engineers colluded to reduce the soil classification just to avoid the cost of extra footing depth… and others who ignored the specific over-rider by a building surveyor to increase footings to 3 times the depth to allow for nearby large trees. The results of all these cases were floor level differences which exceeded 50mm… and they were all in M class base soil areas. The outer west and north western suburbs soils of Melbourne have for more reactive clay foundation soils… and still there is no requirement that Appendix D of the AS2870 code must be considered in the soil report writing process… staggering eh?

  6. Anne Paten

    Mark, another excellent factual article. How easily the privileged few, the powerhouse behind the political thrones can call the shots – and regardless of the horrendous harm to the 40-50% of consumers. As you say, the so-called 'Consumer Protection' legislation was never about reform. Rather, it was simply about self-serving 'Agendas'. Your AS2870 example is sadly just one of the many examples of how the system has ben corrupted – to advantage those who benefit and to disadvantage the silent, isolated and marginalized masses at the mercy of unfair, unjust 'laws'.

    The new 'laws' most definitely continue the same old 'con' – the deceit as disguise to hide even less consumer 'protection'! The carefully strategized plan was to have the industry remain uncontrolled, including all who work in the industry, all who make the rules and all who mediate/consult on 'disputes' – to 'legally' make more moolah. And those who devise the 'Standards' do so simply to ensure that they retain the upper hand, the failure built in to be 'nobody's fault'. A masterful magic wand – a 'get-out-of-trouble' trick. And all legal, all legitimate – but all very wickedly wrong!
    Under our 'new' laws, our old legal regime remains in tact, but worse. In effect, it amounts to more 'con-trolling of consumers' (those who fund the industry) into 'disputes', there to be compelled 'legally' into losing more money.
    As you say, had there been any intention of even the slightest consumer protection' improvement', laws giving owners some chance of finding out information, laws to ensure that the inherent risks could be 'discovered' and having a voice would have been addressed. No! And as well, our Human Rights nullified! It is heinous. Human cruelty covered up.

  7. beverley-jane

    In regard to Fox and his committee being forced to limit the strictness of code AS2870 to avoid raising the cost of new homes and thereby becoming 'economically damaging', is this not deliberately misleading/ deceiving homeowners who will be forced to pour more money into saving their defective homes?
    When does the financial security of families become important?
    Further, thousands of families have been betrayed by the VBA's blatant protection of builders who should be removed from the industry, exposed time and again by one enquiry after another, but nothing is done about it.
    Homeowners are nothing more than fodder for the building industry. It appears that government and regulators turn a blind eye to the dishonest and incompetent who infest the industry because the more defective a home is, the more rectification work there is down the line!

  8. Graeme Doreian

    Congratulations Mark your article is so revealing, the issues discussed interconnects with what Anne Paton from the Victorian Building Action Group (VBAG) has exposed, the complete corruption of industry to protected Governing entities.
    Everyone forgets Standards Australia, are Industry, Government adapt Standards to write rules and regulations, usually lobbied by Industry. Government needs to create jobs. Should issues arise from misguided rules and regulations, this creates further jobs.
    Usually the legal profession, who basically steal people's money when appearing to be attempting to attain justice for the average consumer, because the rules and regulations are to appease Industry, usually written by the legal profession. You know, BIG BUSINESS, they are the engine room of the economy. AREN'T they? Yes, the protected economy of ripping the ordinary taxpayer just trying to put a roof over their families' heads, and enjoy what life they have, and can afford.
    Once a building dispute starts, almost all families on budgets are made destitute, while the builders and legal system make money, heaps of money ,aided and abetted by a legal and governance system that makes the rules and, the rulings.
    Some of the legal profession become politicians, who receive guaranteed super funds, AND work really long hard hours, and bureaucrats who go along for the ride only caring about their money, and to increase this, must "climb" the Government corporate "ladder," usually with little knowledge to appear competent to do their jobs. If they can't handle their jobs, bring in their favorite consultants, and hide behind them.
    There is a saying in academic circles regarding Government tenders I believe. "Tell me what you want me to say, and how much are you paying me?" Therefore, in most Government Departments, it is made to appear, it's all care (NOT), BUT no responsibility, while there is a "revolving door" mentality ensuring confusing, and at times flawed policy. Bit like "pass the parcel." "Rock the boat, no promotion."
    All this happens under banners of deception, with no accountability. The "political system".
    I believe the amount of money SPENT IN DISPUTES that the ordinary person is being "ripped off" by the building industry, can only be restrained with tougher, more rigorous enforcement and penalties, like home detention. Say, first offence 6 months home detention, only paid the Newstart allowance. Jails are overcrowded, with a prisoner I believe costing $100,000.00 per year of tax payers money.
    WHY SO HARD ON THE OFFENDERS? Because the culprits have assisted in destroying people's lives, some committing suicide, broken families, family violence. While these offending people usually live a lifestyle at the expense of the people they have "ripped off."

  9. Andris Blums

    First resort insurance as was the case with the HGF in Vic previously is part of the solution . The problem was that the HGF was a underfunded non profit mutual operated by the industry and set up to reflect there requirements . Half of all potential claims were rejected before acceptance . Of those accepted half were rejected on technical grounds and of those successful the average payout was a pittance . The reason being that the premiums were deliberately keep low to contain overall cost to consumers . False economy . More importantly payouts to consumers were subject to HGF recovery action from builders . Recovery action was a no no best avoided

    The solution is a comercial premium paid by consumers , a once of payment of 1% of contract price would provide the funds for a First Resort scheme that should be totally independent of the building industry . That is run as a consumer mutual by consumers

    Capture by the industry of the various regulators is a given . A simple example is the HIA claim since the early 70's that the builder pays the premium with his money . The fact is that the builder pays the premium with funds paid to him by the consumer under the contract . That is the consumer clients money

    Yet CAV argue that as technically the premium is paid by the builder to the insurer and the insurer covers the builder not the consumer that the funds to pay the premium are builders money. So how can the consumer win when the regulatory is capture by the industry . The insurer is loath to pay the consumer if the funds cannot be recovered from the builder and conciliation has to be a joke . Conciliators need industry expertise and are thus conflicted . A builder is repeat business . The consumer is not

  10. Grant Spork

    Yes I agree with the gist of this article. As the most desirable house plots are already developed, less desirable plots are generally the only ones available. This includes areas in flood prone land, developments in former swamps or near waterways, land in alluvial clay and contaminated naturally with acid sulphate conditions when exposed to open air, plots on previous landfill, steeply sloping allotments, land which has been recently excavated and has not settled and is more likely to be infested with voracious termites. When we consider land which has been affected by inundation and flooding in recent times we must consider a vast proportion of current housing stock, and I am speaking of Queensland and Northern NSW. The cost of rectification and remedial actions are likely to be catastrophic for insurers in the near term. Builders and developers are competitive, and are more than happy to push the risk towards soil surveyors or structural engineers, who may try to shield themselves by stating, "We design to the standards, explicitly." With the huge cost of termite infestations in Northern Australia, and fungal attack on timber after flooding, it is no wonder that insurance will become prohibitive and perhaps unavailable.

  11. Jenna Corbett

    Thankyou Mark for such an important, in-depth, investigative, informative article, so our Australian building industry corruption even extends back to what should be our construction foundations (pardon the pun), the Building Standards themselves! I agree, can these people not see how the long-term cost to our economy, via the sheer volume of losses by individuals affected, well outweighs savings based on defective work in the first place!

    • Mark Whitby

      Thanks Jenna,

      I fear they are too scared to upset the apple cart. I hope not but what else can you think?