Leaky homes a disaster and a $2b tax windfall

Leaky buildings top the most expensive disaster list, while Cyclone Bola only comes in at fifth. Photo / Martin Sykes

The leaky-building crisis is New Zealand's most expensive catastrophe, but it will enrich the Government by at least $2 billion, says a study commissioned by the North Shore City Council.

The study puts the cost of rotting homes as three times that of the annual road toll and more than any natural event.

But it also claims that the Government reaps at least 25c for every $1 paid on leaky-house repairs.

The Government has previously rejected council claims that it would gain financially from GST on leaky-home work.

North Shore Mayor Andrew Williams said he would present the findings of the study, by consultants Covec, to today's Auckland Mayoral Forum meeting.

"This is a man-made disaster, the scale of which far exceeds the cost of any of New Zealand's most common large-scale natural disasters, i.e. floods, earthquakes and cyclones," Covec's report said.

GST and company tax paid on spending for materials and experts' fees generated the $2 billion.

Architects, trades workers, labourers, timber, cladding, insulation, paint, window and roofing materials, wall linings, flashings and other goods all incurred tax.

A Court of Appeal ruling this week went against the council, finding in favour of apartment owners in Byron Ave, Takapuna, and Sunset Terraces in Mairangi Bay.

Mr Williams expected insurer RiskPool would appeal in the Supreme Court because the decision had big implications for all councils, including the Auckland Super City.

Late last year, he was one of six mayors trying to reach agreement with Building and Construction Minister Maurice Williamson on how to pay the repair bill.

But those talks broke down just before Christmas and Mr Williamson said last month that the bill was so "gi-normous" that the Government had almost despaired of finding a solution.

The Government had no liability for leaky homes, he said, but he had taken steps to improve the building industry.

Yesterday, Mayor Williams said the Government response was weak and the council commissioned Covec's report to emphasise the seriousness of the disaster still unfolding.

Mr Williams backed Justice Terence Arnold's Court of Appeal decision identifying government deregulation of the building industry in the 1990s as the root cause of the leaky-homes disaster.

"The Government must accept its own liability for the deregulation experiment inflicted on the building industry and local government," the mayor said, "and take responsibility for the liability accumulated by the private sector builders, designers, architects and certifiers who are now insolvent and unable to meet their responsibilities to leaky-home owners.

"Unless these wider issues are dealt with, and dealt with soon, the ratepayers of the new Super City will be burdened for years, and the Government's brave new world for Auckland governance will never be fully realised."

Mr Williamson said a government running large surpluses would struggle to pay for the crisis, and a government running deficits was in a worse position.

COUNTING THE COST

* Leaky buildings: $11.3 billion.
* Road accidents, 2008: $3.7 billion.
* Napier earthquake, 1931: $648 million.
* Lower North Island/Marlborough floods, 2004: $470 million.
* Cyclone Bola, 1988: $332 million.
- Source: Covec report to North Shore City Council, 2008 dollars.