TelferYoung Limited
Current | 2011 | 2010 | 2009 | 2008 | 2007 | 2006
Monolithic Cladding Systems - Stigma
16 March 2010
Leaky building syndrome
Leaky Buildings - Stigma - Leaky Building Syndrome - Untreated timber - Kiln Dried timber - Monolithic - Monolithic cladding - Monolithic building systems - Cavity system - Building Act 2004 - Blight - Remediation - Code Compliance Certificate - Recladding - Weathertight Homes Resolution Dispute Tribunal - WHRT - Obsolescence - Re-instatement costs - Targeted repairs - New Zealand.
Abstract
Purpose
The purpose of this article is to draw attention to the approaches required to quantify leaky building syndrome loss in value associated with leaky monolithic cladding systems and to address the potential outcomes that may arise through the process of remediation including claims pursued through the Weathertight Homes Resolution Dispute Tribunal and the High Court.
Methodology Approach
The methodology approach is that of a registered valuer required to assess loss of value (if any) as a result of a failure in a monolithic cladding system, within the 10-year period prescribed by government. This article does not address the costs of remediation as that is expertise associated with building surveyors and quantity surveyors.
Findings
Valuation research over a period of 10 years has identified a growing awareness that targeted repairs are unsatisfactory. Remediation with a cavity system is currently the Local Government approved method of remediation. Loss in value is frequently substantially less than the costs of undertaking remediation with a cavity system. Land value is a substantial component of the value of all properties and, given the high value of land, it may be more effective to continue to occupy a building or rent it until such time as it is demolished rather than remediate. Demolition is rarely recommended at the time of valuation in the current market.
Research - Stigma
Initially, there was no evidence that stigma applied to monolithic clad buildings. Up to approximately 2002, multi-unit dwellings sold at a premium. The premium eroded rapidly as the public became aware of leaky building syndrome and by 2003 multi-unit dwellings with a monolithic cladding were selling at a figure below other forms of cladding.[1] Single family houses maintained a premium of approximately 5% up to 2002. That declined in 2003. A small premium above other forms of cladding persisted for single family houses until 2006. Monolithic clad houses of most types now sell at a discount to other forms of cladding systems whether or not the building has leaked.
Introduction
It is a given that all buildings at some time in their life will leak. There is nothing special in that expectation as structures are subject to physical deterioration.
Unlike buildings sheathed with traditional materials, built prior to the 1990's most residential buildings constructed in the 1990s in New Zealand were built with a kiln dried timber framework. Many were sheathed externally with monolithic clad materials such as fibrecement sheathing or plastered polystyrene. A combination of what are now recognised as poor building practices, a lack of appreciation of the nature of the materials, knowledge of how to fix monolithic cladding systems over a timber framework and inadequate building practice controls have combined to create a massive housing failure.
All buildings that have a monolithic clad finish built in the 1990s to early 2000s are given to deterioration under conditions of moisture ingress and those buildings have a limited life. Penetrations through the cladding system into the framework, coupled with a lack of head and sill flashings and/or poor sealant practices, ensured that at some point, and generally earlier than later, the buildings would leak.
Leaking gives rise to a rapid deterioration of untreated kiln dried timber framework when it becomes wet. Not only would the framework deteriorate and fail, but fungal growth such as a toxic mould, (stachybotrys atra) could flourish. When dried and released into the air, the spores may cause breathing or other respiratory related human health problems.
Deterioration in the building framework is particularly rapid because most buildings at the time were constructed of kiln dried timber which had no preservative treatment and therefore no resistance to rotting if they remained wet for any length of time. The integrity of monolithic design and construction practices were therefore entirely dependent on moisture not reaching the timber framework.
Monolithic Cladding System Types
Monolithic cladding systems are many and varied. Most commonly known are those relating to fibrecement products, plaster systems over a polystyrene backing, plaster and mesh over a fibrecement or ply backing and plaster over concrete or a concrete substrate.
The integrity of joins between sheets to stop moisture entry was largely reliant on silicone products where they were used. Flashings/sealants were used around joinery, to prevent water penetration.
It is a given that:
"Monolithic clad houses and monolithic clad apartments built with kiln dried timber with face fixed aluminium joinery, constructed prior to the introduction of a cavity system are a failed system. Most must be remediated or they will be demolished within 10 years if they don't deteriorate to the point of being uninhabitable within that period. Remediation to current building standard practices is the only viable method of extending their life."
Stigma
Stigma is defined as:
"... a diminution of value resulting from a property's bad reputation, regardless of whether or not it has a history of problems" [2]
Monolithic cladding systems have an "inherent stigma" associated with leaky building syndrome, inherent stigma being a diminution of value that cannot be removed by remediation.
By that it is meant that stigma is inherent in the design and the construction methods. It is neither added to nor removed because a building leaks, because all buildings of this type have the potential to leak.
Remediation does not remove the inherent stigma as it is associated with the design and construction. The market is now particularly wary of monolithic clad forms of construction of all dwelling types.
Stigma with respect to leaky building syndrome is a term valuers used to describe "a loss in value - that cannot be accurately quantified but is known to exist and may change over time". For leaky buildings it is inherent in the market value as the result of inadequate building practices.
Stigma loss is based on a fear of the unknown. Purveyors of this fear are mainly:
- the media
- the "experts"
- the advisors
Words or phrases that refer to stigma include:
- Blight - (meaning there has been a problem in the past so it probably it hasn't been solved)
- Uncertainty - (it could happen again")
- All monolithic houses are suspect - (correct)
- Stigma decreases over time - (as the memory of an event recedes)
- Perception of risk - (what others think is probably right whether or not they are qualified to make an informed or balanced judgement)
Valuation Theory for Stigma
Because stigma is inherent in monolithic clad system designs and construction practices of the 1990's and early 2000s the value of a residential property is less whether or not the property has leaked.
Monolithic clad system houses sold at a premium above brick and weatherboard claddings up to 2002. They were valued in accordance with the market at the time. The premium had disappeared by 2005 and monolithic clad system houses now sell at a discount to other forms of construction whether or not they have leaked. The market discounts monolithic clad multi-unit apartments to a greater extent than single family houses.
Remediating a monolithic clad house does not remove the inherent monolithic clad system stigma. Remediating does not create some additional monolithic clad system stigma. Remediation does not get rid of a bit of stigma and leave some behind. Stigma is there as a function of the market - inherently before and inherently after.
It is argued by some that there is a "residual stigma" as a result of/or following remediation - The belief is that some or all stigma has not been addressed by remediation. Owners have suffered an additional loss over and above other losses suffered and should be compensated for that loss as it remains after remediation and is not a fault of the design.
The proposition is that stigma has been created as a result of a requirement for remediation and cannot be removed. The case for residual stigma is that this is the responsibility of the territorial local authority in the first instance and/or the builders, designers or engineers involved in the original building structure. The remediation has, according to this belief, not removed the leaky building stigma and it persists as a residual factor separate to inherent stigma just because the building leaked.
There are a number of reasons why this cannot be a correct analysis. The premise is that, by comparison, a monolithic clad building that has not leaked yet, or is not known to leak and is just as likely to leak as one that has already leaked and come to the attention of a building owner is better than a remediated building. Believers of this approach prefer the unknown to remediated known. However, once a building is remediated and a new Code Compliance Certificate is issued by a territorial local authority the building is granted a new 10-year guarantee against further leaking. It is therefore illogical that a purchaser would prefer to buy a monolithic clad building knowing nothing about its history or potential for leaking in preference to a building which has been remediated and a new Code Compliance Certificate issued.
Cavities between monolithic clad systems and the building framework have been required since 2004. Treated timber external wall framework is required and face fixing of joinery relying on silicone is not permitted.
On remediation the exterior is brought up to an "as new" condition. In many cases remediation now involves either changing the exterior cladding to improve the appearance or, both changing the cladding and altering the design during the remediation process say by including eaves, upgrading joinery and modernizing the building in a general sense to an up-to-date appearance.
In the process of remediation, buildings that are 10 or more years old are both remediated and refurbished. That is to say that by the time a building is remediated, it is likely that the appearance will be different and it will appear almost new.
The case for residual stigma also relies on there being a comparative market, that a building that has been remediated can be measured in value terms against a building that has not leaked. This could only apply if a monolithic clad building can be found which has sold, and which has not leaked, or will not leak. No such buildings can be identified.
An alternative approach relied on by residual stigma adherents is to attempt to measure a monolithic clad building's value over time against the value of other properties where buildings are clad in different materials. This approach is subject to the criticism that most other cladding systems are never likely to fail in a similar manner to monolithic clad properties. The market measures these properties differently in terms of value over time against monolithic clad dwelling units.
Another difficulty with this approach is that values occur within a range but a single value point must be established. Inherent stigma is unlikely to exceed 10% of a property's value. That percentage is within the range of opinion that values can be established in a less than perfect market giving rise to a need for interpretation of the data. If the data set shows a variation of plus or minus 10% the issue becomes academic; interesting but of little help in determining loss in value.
There is a perception that after remediation there is a reluctance by purchasers to buy a remediated building and they will pay less than for one that hasn't leaked. That belief is based on the assumption that a repaired article such as a repaired car after an accident is inferior to a car that has never had an accident but may have an accident in the future.
The analogy with a remediated leaky building is false as the car that has had the accident has only had targeted repairs and will always be different to the car that has never had an accident. It will always be less desirable as a result of the accident.
Conversely, the dwelling that has suffered leaking has been remediated. The distinction is important as remediation is different to targeted repairs. Remediation requires the dwelling to be brought up to a modern standard and meet current building practices including the provision of a cavity and replacement of all of the external kiln dried timber framework with preservative treated timber. The result is that the dwelling is now a superior model.
The Law To-date on Stigma
No Weathertight Home Resolution Tribunal has awarded leaky building syndrome stigma damages.[3]
There has been one late 2009 undefended High Court Case on leaky building syndrome that has awarded diminution value, said to be stigma damages. This together with other cited cases relating to stigma are not comparable to the comments on stigma referred to in this article, which assume full remediation and issue of a new code compliance certificate.
Claims for loss are frequently only sustainable at figures substantially less then remediation cost, based on actual value loss suffered.
TelferYoung (Auckland) Limited
Evan Gamby
©
[1] REHM, M. ‘judging a house by its cover' leaky building stigma and house prices in New Zealand'. International Journal of Housing Markets and Analysis, 2. Vol. 2, 2009.
[2] Arens, S. (1997), "The valuation of defective properties: a common sense approach", the appraisal journal, Vol. 65 No.2, pp.143-148
[3] Weathertight Homes Tribunal - TRI 2008-100-000001 Richard & Renee Sell and Kenneth Harris and Auckland City Council and Others - 13 May 2009
This monthly paper reflects the views of the writer and may not represent the views of all TelferYoung staff.