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Questions and Answers on the PricewaterhouseCoopers Report “Weathertightness – Estimating the Cost”

Q1. Why was the PricewaterhouseCooopers (PwC) report prepared?

A1. The Department of Building and Housing carried out a review of the approach to the weathertightness problem in 2009. The first part of the review was to identify the scope of the issue. PwC was contracted by the Department to carry out research, analysis and modelling to provide a re-estimate of the size and cost of the leaky homes problem. Homes are defined as both houses and apartments. This was the first comprehensive research carried out on the scale and cost of the problem.

The research had the objective of re-estimating:

  • The number of dwellings, built between 1992 (when the Building Act 1991 came into force) and July 2008, at risk of being leaky buildings;
  • The number of leaky homes that have been repaired to date;
  • Who is bearing what costs, under current policy. Costs included: repair costs (e.g. labour, materials, professional fees), legal costs, transaction (e.g. council consent fees) and other costs.

Q2. What data did PwC research?

A2. A mix of quantitative and qualitative data and information was used to develop the re-estimate.
Quantitative data included:

  • Council building consent data: 10 Territorial Authorities collected information about single and multi-unit dwellings from a random sample of their building consent files from 1992 – 2008;
  • Weathertight Homes Resolution Service (WHRS) claims data;
  • Statistics New Zealand building population data;
  • BRANZ building materials survey data;
  • Weathertight Homes Tribunal adjudication decisions and Court decisions;
  • Survey of WHRS claimants and other parties.

Qualitative information

A number of interviews and workshops were held with a range of experts in the building sector, including architects, building surveyors, the Registered Master Builders Federation, the Certified Builders Association, council staff and WHRS assessors. The experts were asked for their views on both the size and cost of the leaky homes problem. The qualitative information was used to test the quantitative data.

Q3. What Territorial Authorities provided you with information?

A3. Rodney District, North Shore City, Waitakere City, Auckland City, Manukau City, Tauranga City, Wellington City, Christchurch City, Upper Hutt City and Dunedin City all supplied samples of their building consent data. Their contributions ensured a greater availability of data than previous years.

Q4. How many homes are affected by the weathertightness issue?

A4. The PwC report shows there is a wide range of the possible number of homes affected, from a low of 22,000 to a high of 89,000. The wide range reflects the fact there is a high level of uncertainty about the number of homes affected that prevents an exact, and accurate, estimate to be made. Nevertheless, the report goes on to estimate it is most likely approximately 42,000 homes (called the ‘consensus forecast’) built between 1992 and 2008 have been affected. The evidence suggests only a minority have been repaired to date.

Of the leaky homes covered by the ‘consensus forecast’ approximately:

  • 3,500 have already been repaired;
  • 9,000 are likely to be outside the 10 year limitation period for legal liability.

Using the ‘consensus forecast’, it is therefore likely up to around 30,000 dwellings have already failed, but not been repaired, or will fail in the future (within the 10 year limitation period).

Q5. What is the total economic cost of the leaky homes problem?

A5. To remediate all of the 42,000 affected dwellings in the ‘consensus forecast’ would incur a total economic cost of an estimated $11.3 billion. Some of this cost has already been incurred in the past for dwellings that have already been repaired. But the future total economic cost is likely to be around $6.3 billion.

Q6. What were the other key findings in the PwC report?

A6. The review confirms what we have known – that there is no single cause of the weathertightness problem. The causes include:

  • Poor design – such as buildings without eaves;
  • Poor workmanship, reflecting a low skill base in the sector;
  • Introduction of new materials and products, without good knowledge about how to use them;
  • Weak inspection processes by councils.

Q7. Are design or architecture fees, legal fees and alternative accommodation costs included in the total $11.3 billion figure?

A7. Yes, such costs are included in the figure.

Q8. What about the cost of repairs that have already been undertaken?

A8. The total cost of the leaky homes problem ($11.3 billion) includes repairs and costs which have already been undertaken and paid for.

Q9. Who is currently bearing the costs of the problem?

A9. The cost of the weathertightness problem is currently being borne mainly by owners: 69%. Territorial Authorities are meeting approximately 25% of the cost and other parties (e.g. builders and developers) just 4% of the total cost. This is mainly because repairs on most homes are paid for solely by the owner, who often does not pursue legal remedies or obtain contributions from other liable parties.

Q10. According to the report, are multi-unit or single-unit dwellings more likely to face weathertightness problems?

A10. Multi-unit dwellings show a much higher risk profile according to the research and are therefore more likely to experience weathertightness problems. However, the high risk dwellings built more recently have used different building practices that provide greater capacity for drainage and drying. Therefore, the risk profile of more recently built multi-units does not equate to the same rate of failure for those built before 2005.

Q11. Are there regional variations?

A11. Yes, there are regional variations. In major metropolitan areas the single unit dwellings (houses) built are typically larger and more complex and multi-unit dwellings (apartments) that include decks, flat roofs and a lack of eaves are also more frequent in these areas. The style and fashion of dwellings with greater use of monolithic cladding and higher risk design features occur more often in the major metropolitan areas. Building practices in these metro areas are also different to the rest of the country and likely to have contributed to the higher rate of failure - around 95% of eligible WHRS claims so far come from these areas.

The level of skill and supervision for some large developments in these areas may have been lower than elsewhere, particularly for multi-unit dwellings where large numbers of labour-only contractors were hired.

However, there are exceptions. In Christchurch, there is a higher proportion of brick veneer homes with low risk design trends (as is more common in the South Island). On the other hand, some dwellings built in Queenstown and Wanaka are similar to those in the metro areas with many sizeable and complex single unit dwellings.

Q12. Why was the original estimate for weathertightness so inaccurate?

A12. Previous estimates were based on very limited data and knowledge about the causes and effects of weathertightness failure. Since an initial analysis by PwC in 2005, the passage of time has allowed a longer claims history to emerge in the WHRS and the courts; there has been an improved performance by building assessors in the estimation of repair costs; and the inclusion of a more detailed description of likely damage in costings. In addition to this, a greater volume of other information, in the form of evidence, anecdote and opinion as to the prevalent and likely rate of nature of the weathertightness failures in New Zealand’s housing has emerged.

Q13. Are the figures accurate?

A13. The Government is satisfied the process was robust and the data used was reliable and the best available. It is highly unlikely a different process would have come up with a significantly different result. Even so, the report acknowledges there is a high degree of uncertainty about the numbers, but whichever way you look at it, the problem is big, the exact numbers don’t make any difference to that fact.

Q14. What is the 10-year limit?

A14. The Weathertight Homes Resolution Services Act 2006 gives homeowners 10 years to lodge a claim with the WHRS from the time the dwelling was built or altered. This is in line with the 10 year longstop period under the Building Act 2004 for commencing legal proceedings relating to building work. The PwC report concludes that the vast majority of leaky homes will show evidence of latent failure within the 10-year period.

Q15. Why has it taken so long for the Government to release the PwC report?

A15. The Government was mindful of the impact on homeowners and worked as quickly as possible, taking account of all the information that had been collected as part of the review. The report was released as soon as was reasonably practicable in the circumstances.

Q16. Is the Government directly liable for any of the leaky building problems?

A16. The Government has no legal liability to owners of leaky homes.