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A dirty rotten scandal: The leaky homes saga

New Zealand’s leaky homes scandal has been the biggest building catastrophe in this country’s history. But as Peter Dyer has discovered, the problem is much larger than anyone has admitted – and it’s not over yet. Mike White talks to Dyer about his new book  Rottenomics: The Story of New Zealand’s Leaky Buildings Disaster. 

When Peter Dyer began investigating leaky buildings, he had a simple question: What the hell happened?

For decades, we’d built homes that didn’t let water in and didn’t rot. But despite this, and despite technology improving, from the mid-1980s we began constructing buildings that leaked – thousands of them – homes, apartments, schools, hospitals, retirement villages and prisons. All failed disastrously, causing massive damage and a host of health problems for those living and working in them.

Dyer, a retired engineer, just couldn’t understand how this had suddenly happened, so started looking for answers. That was 2011, and since then, he has become increasingly astonished, not just at the many deliberate acts that allowed the disaster to occur, but also the scale of the devastation it wrought.

His book on the subject, Rottenomics, highlights the causes, gives examples of the personal despair that resulted, and labels it “the largest man-made disaster in New Zealand’s history”.

“Like a toxic mould,” he writes, “this national tragedy has been nourished in a culture focused on short-term cost cutting, providing quick benefits for a relative few, while offloading enormous long-term costs to future New Zealand homeowners, tenants, ratepayers and taxpayers.”

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Peter Dyer compares the leaky homes debacle to a toxic mould. “This national tragedy has been nourished in a culture focused on short-term cost cutting, providing quick benefits for a relative few, while offloading enormous long-term costs to future New Zealand homeowners, tenants, ratepayers and taxpayers.” Photo/Mike White
Ask most people what caused the leaky homes debacle and they might tell you it was untreated pine being used to frame new houses. Or that there were insufficient gaps for drainage between the outside and inside walls. Or that some of the in-vogue monolithic cladding (large sheets of exterior material, which are coated to give a seamless appearance) leaked. All of these are true. But as Dyer has discovered, the causes go much further than that, and are rooted in deliberate decisions taken by politicians and those in the building industry. Rottenomics traces the history of the problem back decades, but lays the blame largely on the economic upheaval ushered in by the 1984 Labour government, with its ideology that a free market should prevail.

Thus, various governments changed acts and regulations to allow the building industry much greater control and self-regulation. Oversight of materials and designs was significantly reduced. The use of faulty products was allowed. Training in the industry was undermined by labour reforms, and builders lacked necessary skills. Government bodies meant to ensure quality were abolished or underfunded. And when it became apparent repairs were urgently required, the lack of standards meant many jobs were botched and had to be done again.

While Dyer describes it as a perfect storm (“It’s a hell of a cliche, but it seems to fit”), he’s quick to point out the scandal was the result of conscious decisions taken in the name of efficiency and cost saving, leaving thousands of buildings simply doomed to rot.

“It was 100% preventable. We did it. We caused it. We brought it on ourselves. It wasn’t an act of nature – unless you consider ordinary rainfall in New Zealand an unusual act of nature. And nobody really thought, ‘If we turn the building industry loose, it might not work out so well.’ It was just a leap of faith – faith that they would make things better.”

Beyond the misery of those who’ve been saddled with leaky homes, Dyer says the irony is that, despite the changes promising lower costs, housing in New Zealand has never been more expensive. “Everybody was going to be better off because things would be done more quickly and they’d be cheaper and better. But real estate has skyrocketed and been placed beyond the reach of so many New Zealanders. It’s a terrible problem, and leaky buildings are just part of it.”

However, Dyer senses nobody is really willing to truly deal with the disaster because it would require greater regulation, and any suggestion of “big government” was anathema to politicians. “We had a structural revolution in 1984 and, to a large degree, that resulted in the problems we’re talking about now. If we want a solution, it has to be structural. But there are powerful interests who have benefited from this regime for the last 35 years, who’ll fight tooth and nail against something like that.”

Most of the responses to the issue have been “bottom of the cliff” stuff, says Dyer, such as paying compensation. Anything more seemed too difficult to contemplate for politicians who were overwhelmed by the issue, and resorted to using it as a political football.

“But neither Labour nor National,” Dyer writes, “has an edge in this dreary and distracting finger-pointing contest.”

Even homes that were identified and had repair work carried out frequently leaked again, because there was no clear standard for this work, and no penalty for mistakes.
In 2011, then-Building and Construction Minister Maurice Williamson told the NZ Herald the scale of the leaky buildings problem was “simply ginormous”. At that time, it was estimated the cost of the crisis was $11 billion. “A government that’s running very large surpluses would still struggle to find the money to help with this,” Williamson said. “But a government that’s running deficits… has to just sit there with its head in its hands, saying, ‘Well, I just don’t know how to do this.’”

Williamson’s comments relied on a 2009 report by PwC, which actually suggested the cost of the problem could be as much as $23 billion, but the government chose to use a less alarming estimate.

A second study was conducted in 2015, but remained hidden until Dyer used a complaint to the Ombudsman to force the Ministry of Building, Innovation and Employment to release it. This put the number of leaky homes built between 1985 and 2014 at 174,394 – a quarter of all homes built during this time. Applying a very conservative estimate of the cost per house, as used in the PwC report, Dyer concludes the total leaky homes bill is actually $47.7 billion.

But that’s only part of the story, Dyer stresses. These are only the homes that the 2015 report said were “very likely to leak”. A further 204,886 homes were considered “likely to leak”. In total, that is 60% of the houses built in this period.

Moreover, these estimates only deal with homes – not public or commercial buildings. And what’s more, Dyer says, the problem is likely bigger than even these estimates: some buildings in drier areas won’t have started to rot yet; some people have done their own repairs without reporting them; some owners have simply ignored the issue.

While successive governments have shrunk from confronting the scale of the leaky buildings problem, Dyer says many New Zealanders mistakenly think the problem is over – something that happened in the 90s. But some of those in the building industry Dyer spoke to said as few as 10-20% of “weathertight failures” have been made public.

Perhaps most worryingly, Dyer says, despite knowing all this, we’re almost certainly still constructing leaky homes with substandard designs, material and oversight. And even those homes that were identified and had repair work carried out frequently leaked again, because there was no clear standard for this work, and no penalty for mistakes.

“It’s an extremely complex, depressing issue that we’ve managed to address to some degree, and governments want it to go away. But it hasn’t and it won’t. It’s just in the too-hard basket.”

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Maurice Williamson, then Building and Construction Minister and former PM John Key announce a financial assistance package for leaky home owners in 2010. Screenshot.
David Kernohan says the housing sector has been beset by government indifference and industry incompetence, and the leaky buildings scandal was a devastating example of that.

Kernohan, a retired architect who has been an Environment Court deputy commissioner since 2007, was part of the government Weathertightness Overview Group, which issued a report in 2002 about leaky buildings, and he agrees with Dyer that a multitude of factors caused the disaster.

“There were lots of signs that could have been read but the attitudes weren’t right, in the sense that the demands of the public for Mediterranean-style clad buildings was prevalent, especially in Auckland. Monolithic cladding had just come on the market and was a cheap option, in parallel with the use of [untreated] kiln-dried timber which was being pushed.”

This was compounded by the downgrading of oversight for building construction, poor monitoring of materials, and the undermining of apprenticeships and “the basics of good building practice, learnt over 100 years. With the new materials and methods, some of the old basics just went out the window.”

Kernohan says the building industry remains largely unregulated and he’s sure leaky homes are still being built. “It’s still a debacle.” But he’s glad Dyer has finally put the scandal in historical perspective and shown the scale of its impacts.

Dyer is an unlikely investigator of our country’s biggest housing disaster. Born in America, he worked as an engineer in the University of California’s physics department, making one-off designs for scientists, staff and students. But America’s invasion of Iraq in 2003, which he believed was unjustified and indefensible, led to him migrating to New Zealand in 2004, with wife Cathy. He worked at Massey University before retiring, while Cathy continued her career as a vet.

Dyer first became interested in housing when he wrote a story for North & South about the mass sale of railway cottages in Ngaio, Wellington, where he lived. Another North & South story, on leaky buildings, in 2012 led him down a trail of research and discovery that has resulted in Rottenomics.

He spent countless hours in Parliament’s library, National Archives and the National Library, locating the political and industrial genesis of the disaster, and the critical decisions that saw it become a reality. And then he spoke with a wide range of those involved in the issue, from builders to bureaucrats to victims.

The more he learnt, the more he realised how the event had been completely avoidable. “There’s certainly anger there. I think anybody would feel anger. But what I remember most about that process was ‘click, click, click’, this all fits together, this all makes sense, it’s all part of a pattern – because I’d lived through the big changes of Reaganomics and the gospel of the free market. But some of the things here were even a bit more extremist, especially after the 1984 election and the turnover of the economy to that completely new paradigm.”

However, what Dyer – a quietly spoken, 66-year-old, guitar-playing, dog-loving, tool-shop creator turned author, whose computer monitor sits propped on a stack of country and western books – feels more than anger is sympathy for the homeowners, the innocent victims of the disaster.

“Nobody should have to worry about living in or buying a house that will rot because of the way it was built and the materials. That’s not right, nobody deserves that. They should have the right to get what they pay for, get what they expect. We can build houses that don’t leak and we do it all the time. But we build far too many houses that fail.” 

Rottenomics: The Story of New Zealand’s Leaky Buildings Disaster, by Peter Dyer (Bateman Books, $40).

This article was first published in the November 2019 issue of North & South. Follow North & South on Twitter, Facebook, Instagram and sign up to the fortnightly email for more great stories.