System flaws mean dodgy buildings ‘almost impossible’ to spot

Researchers from UNSW’s City Futures Research Centre and UTS discovered that defects are common and are often poorly documented in a systematic review of strata schemes registered over a 10-year period.

These schemes were examined in a random sample of half of all strata schemes completed between 2008 and 2017 in the Sydney, Parramatta, and Canterbury-Bankstown local government areas (LGAs).

The sample produced evidence of defects in 26 per cent of the 635 schemes studied, and researchers said the numbers could be higher if there was transparency and accessibility of information.

For LGAs with more robust documentation, they discovered evidence of defects in 51 per cent of the sample schemes, with 28 per cent having three or more types of defects.

Researchers took a closer look at the types of defects and learned that water issues were the most commonly documented defects, which were conservatively estimated to be present in 42 per cent of the schemes with more robust data.

These findings are consistent with the NSW Building Commissioner’s estimate based on a survey of strata managers that four in 10 buildings have “some form of major defect”.

The ‘buyer beware’ system

Dr Laura Crommelin, lead author of the report and a planning law expert at UNSW’s school of built environment, said that the pressure of constructing schemes with speed at reduced cost and a trend towards deregulation over the past decades resulted in a “buyer beware” system, a situation where it’s “almost impossible for a regular consumer to conduct proper research on what they’re buying”.

“The drive to construct more buildings more quickly has been a huge part of the urban planning orthodoxy for the past 20 years, not just in Sydney, but in all cities where higher-density development rather than ongoing urban sprawl is seen as a way of dealing with population growth,” Dr. Crommelin expounded.

“But with the pressures for speed and reduced costs, and the trend towards deregulation, high-quality oversight and documentation can be among the first things to fall by the wayside.”

Even though her team of experts knew where to look and what to look for to determine which projects had defects, it was a challenge to accomplish this task.

If the researchers found this a tough task, what about the ordinary buyer?

“Over the past 20 years, there hasn’t been a thorough process of collecting information about the quality of buildings and documenting issues with buildings. So it’s currently almost impossible for a regular consumer to do proper research about what they’re buying – and this is in a system based on the idea of ‘buyer beware’,” Dr Crommelin explained.

Transparency, availability, and accessibility of information

There is information power play involved when it comes to the kind of buyers of strata housing. Some information, even when it’s available, is not as accessible to buyers as it is to sellers. The researchers call this “information asymmetry”.

“In the apartment market you have a very significant power imbalance between the vendors – in this case, developers – and the buyers, who are essentially a fragmented group of individual purchasers.

“When you look at other types of high rise, like a big commercial building, you don’t see the same endemic problems with defects because the clients are powerful – usually big companies – so they can look after their own interests and are often involved in the design and delivery of the building.”

When it comes to strata housing, the issue isn’t just that there are defects, but also about the prospective buyer’s opportunity to learn about defects before purchasing or to have them repaired once they’ve been discovered.

Dr Crommelin lamented that “even good developers have some defects. But it’s about what they do after their discovery. The good developers will come back; they’ll fix the problems, they want to make sure that their clients are happy because they care about their reputation”.

“The real concern is the ones who do everything they can to avoid coming back to fix problems.”

Tipping the scales

The NSW state government established the Office of the Building Commissioner to reform the building and construction industry after the evacuation of Mascot Towers (2018) and Opal Tower (2019) due to cracks in the building.

“When you have the kind of market dynamic where the vendors have all the information, you need strong oversight to make sure that power balance doesn’t warp the way the market operates,” Dr Crommelin said. 

Although government reforms are noteworthy, it takes time to effect change, after decades of industry deregulation, to truly put the consumer’s personal and financial safety at the forefront. But Dr Crommelin said it could be done if the government ensures the strata housing industry’s transparency and accountability.

“You need the government to step in and play that role on behalf of consumers because they can’t play it by themselves. It’s been great to see renewed regulatory activity in NSW in recent years, but there’s still a way to go. We hope the report recommendations will help to keep us moving in the right direction, so that apartment living can feel safer and less stressful in the future,” Dr Crommelin added.

Here are some of the report recommendations that could help tip the scale in favour of consumer protection: