What a load of cladding. Victorian cladding.

Picture this ….

A group of people (individually, not collectively) buy shares in a company.  These people did not just buy the shares, they bought them on margin (with loans).

Before buying the shares, these people did not do a lot of research into the company they were buying shares in.  They though investing was a good idea and the shares in this particular company were in the right sector or the right geography.  The did not look closely at the business model, the management or the risks.

One day, the company these people invested in announced that one of the risks in the business, unfortunately eventuated and that shareholders would need to stump up additional money to fix the problem.  Numbers in the order of 2-5% of the value of the investment.

The investors were furious.  The managers who made the bad decisions that led to this additional capital requirement, were long gone and sitting pretty having already cashed out.

What to do, what to do?

Do the investors suck it up and put up the extra capital?  Do they sell their shares, albeit at a loss?  Do they go after the managers who created the problem?  Do they go after the people did the due diligence on the sale (their lawyers)?  Do they go after the people into the investment (their brokers or the promoters)?  Do they do all of the above and more?

What to do, what to do?  Such a hard question.

Well.  If if these investors are in Victoria, they don’t have to do anything because it seems that the Victorian government is again in the business of bailing out investors and making them whole for problems caused by other people.

Buy a unit in a block in Victoria.  Do no research into a problem that has apparently been around for 20 years but only recently highlighted by Grenfell and Spencer Street towers.

Get the numbers for remediating the problem and then go to the Victorian government, with the aid of course of a prior Liberal Premier (liberal in name not in political value).  And Bob’s your uncle —- bail out.  Let the Victorian tax payers make whole a handful of Victorian investors, many of whom are sitting on large capital gains anyway.

And then, with extreme chutzpah, the Premier of Victoria, having committed to bail out a handful of Victorian investors, demands that the Commonwealth government bail the Victorian government and then cry poor when he gets a no.

Follow the train.  A (relatively small) handful of Victorian investors ask for money from every Victorian citizen to protect and enhance the value of their private investments.  And then the citizens of Victoria ask every Australian citizen to make the Victorian citizens good for making good the investments of a handful of Victorian investors.

Social justice – Victorian style.  Get the poor unemployed in remote Australia to compensate property investors in Melbourne.  Political economics Victoria style.  Sorry.  Venezuela style.

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30 Responses to What a load of cladding. Victorian cladding.

  1. stackja

    Who approved the cladding?
    Government or private certification?
    Cladding certification wrong?
    Guarantee not enforced?

  2. Does not matter who approved the cladding. What checks did the buyers undertake. If there was a guarantee it was not from the Victorian tax payers. Go after the guarantor.

  3. If there is a problem with the certification system let the buyers price in a risk discount and see how quickly there emerges a market in quality and rigorous certification.

  4. stackja

    People complained about slow paperwork for building approvals. Government cut paperwork assuring all would be well.

  5. stackja

    Government ultimately controls planning approvals. Many people probably naively believe government. Will voters demand better government?

  6. I_am_not_a_robot

    That’s a bit harsh, should the investors in the Sydney apartment blocks have been expected to carry out detailed structural surveys before beforehand?
    The analogy doesn’t work because of the serious risk to life posed by dodgy cladding and because the state does have responsibility for making and ultimately enforcing building codes.
    The average buyer would expect the buildings to be designed and constructed in accordance with the code and if composite panels were permitted then the state must take some of the responsibility.
    However I agree that when the dust settles the final costs must be recovered from whoever the courts decide are ultimately responsible.

    I haven’t seen any criticism levelled at the architectural profession; the cladding materials in most cases I guess would have been specified by architects.

  7. Behind Enemy Lines

    Dunno about this one.

    You can’t scratch yourself in this country without the government taking a cut via some form of tax and paperwork and permit. Doubly so for real estate. After having paid and paid and paid again, it’s not unreasonable (in principle) for people to expect that the relevant government has ensured that a new building is safe and properly built.

    Yet at the same time, anyone who’s bought or rented here knows that contemporary Australian buildings are designed and tossed together by utter chimps.

    While I can dream up all sort of philosophically satisfying answers to these issues, in the end I’m simply left with a sort of exhausted frustration at Australians still allowing themselves to be farmed like animals by people like Gerry Harvey and Kevin Rudd. We’re decades into the internet age and there’s no excuse for not knowing better.

    Meanwhile, we can’t fix this by ourselves, and we certainly aren’t getting any help from the rest of the populace.

    Real estate shines a special sort of light on this country, and what it reveals isn’t flattering.

    Times like this tend to reinforce my general view that fixing a system can’t be done from within the system.

  8. Barry

    Even worse, the only reason cladding is used is to increase the energy efficiency of the building, to reduce global warming.

    Another unintended but entirely predictable result, in the same vein as the roof insulation scheme by Rudd.

    History not only rhymes, but repeats.

  9. Were all of these people investors, or were they buying a home? Note how tight regulations are for ordinary homes and the checks and balances required throughout the process. Sure, some shonky builder get through the hoops, but overall it’s tightly regulated.

    Why aren’t these builders held to the same standards and maybe there should be an developer’s insurance scheme or such to cover things like this. On the other hand, how are consumers supposed to understand and even check such things as architectural, material, structural etc design and application?

    I have far more sympathy for these people, who purchased in good faith, than those who lost properties in bushfires, had chosen not the have insurance, but then went crying to the government when the worst happened.

  10. max

    This has similarities to the collapse of the Pyramid Building Society back in the eighties. From memory, John Cain refused to compensate investors but there was a protracted legal bid to recover the money which succeeded. Cain was right. Andrews is wrong.

  11. Home owners are investors. How are the consumers to understand? Pay for adviceike everyone else and price it into the property. Or don’t buy. Rent. The market will adjust without the meddling of the dull hand of government.

  12. Jonesy

    Barry is on the money. Cladding has an nice R value but comes with risks. However, the bailout, I believe, is not to protect consumers but to protect the union controlled super funds from taking a monster devaluation in their artificially inflatted high rise property portfolios. This is a very real ponzi scheme. All those super investment returns have to come from somwhere.

  13. Dr Fred Lenin

    Caveat emptor , was invented for real estate I spent my life in the building industrty and have seen most things . There is a big cowboy element in building these days ,full of administrators and hardly any real builders . The speed these apartment buildings are erected is amazing , is there time for proper finishing ?
    Another thing they are all built with borrowed money ,thus the speed and corner cutting . Every day saved is a days less interest it seems .

  14. BoyfromTottenham

    So I might ask, are the state governments that decided to deregulate that part of the building industry that certified that buildings were safe to occupy not liable for the negative outcomes of those decisions? I should be so lucky!
    I am old enough to know that the old system (where the local council issued the Certificate of Occupancy, having had oversight of the whole building process, aided by certified professional engineers who took legal responsibility for the quality of the design work within their specialty area) very rarely had bad outcomes, whereas the new system (where it seems no one is legally responsible for anything) appears have led to a tsunami of shoddy work which could cost the country, one way or another, $billlions to fix over the coming years, and perhaps far more in lost confidence in this huge industry, one of the largest employers in the country.
    Sure, everyone complained about the costs and delays of the old system, but this was balanced by the high certainty that the building was properly built and safe. Does the move to this new system represent progress, or regression? One only has to ask the poor sods that own an apartment in one of these shoddy buildings to know the answer.
    One might also ask why this problem seems confined to the domestic housing sector – do the commercial and industrial property sectors not suffer from the same problem? If not, why not?

  15. I_am_not_a_robot

    Professional parties involved most likely have indemnity insurance and premiums have skyrocketed driving certifiers out of business causing increasing delays in building approvals.
    The eventual Owners Corporates actions and Class Actions will be a lawyers’ picnic, what a mess.

  16. Bruce of Newcastle

    The answer to this issue is easy.
    Don’t buy an apartment in a tower block.
    Buy a free standing house.
    That way you have a lot more control, especially if it is an established house.
    You can have a wall to keep out undesirable immigrants interlopers!
    And you don’t get a bunch of bossy body corporate nazis making your life miserable.

  17. Tezza

    Poor call, TAFKAS. The Vic Gov sets the technical standards for a product not plausibly evaluated for quality by the consumer at any level: the consumer can’t evaluate whether a particular fire resistance standard is adequate; still less can they evaluate whether a product claimbed by manufacturers to meet the standards actually does comply. The Vic Gov governs the certification process for ensuring the product meets the standards it specified. The Vic Gov profits from taxing buyers in a booming apartment sector pumped up in part by slack standards and slack supervision of compliance with standards.

    When the Vic Gov regulation and certification systems blow up, it is the Vic Gov that should be made politically and financially accountable for sorting it out. Instead, it has in effect squandered the revenue it collected under false pretences of regulatory competency on paying millions not to build a road, gender fluidity programs, starting negotiation with aboriginal tribes, initiating euthanasia, and so on.

    I’d like to see you try to negotiate an apartment purchase under the liability rules you reckon ought apply, and with no government role in setting or certifying compliance with standards for technical products. You’d be laughed out of the market and end up living in a cardboard box.

  18. No. Governments who deregulate are not liable. That are not party to the voluntary commercial transaction between the buyer and the seller. In as much as governments who regulate and stuff things up are not liable.

  19. Tel

    … the consumer can’t evaluate whether a particular fire resistance standard is adequate;

    Why not? Seems to me that’s the entire point of having standards. If it doesn’t work properly then we can save a lot of money by simply shutting down Standards Australia and firing all the associated bureaucrats.

    … still less can they evaluate whether a product claimed by manufacturers to meet the standards actually does comply.

    So there’s no such thing as a compliance certificate in this entire country … is that what you are saying? What are all those testing fees for then?

    https://certmark.org/scheme-codemark-australia-certificate/

    The CodeMark Australia Scheme is a building Product and System Certification managed by the Australian Building Codes Board (ABCB). The Scheme is enforced by the Joint Accreditation System of Australia and New Zealand (JAS-ANZ).

    CodeMark Certification for your product and/or system means a guaranteed acceptance for the clauses on the certificate by the regulatory bodies and is a clear demonstration that your product meets mandatory compliance requirements and areas of the National Construction Code.

    CodeMark Certification is based on the supply of test reports (from NATA or ILAC approved laboratories and testing facilities), manufacturing site audits, technical documentation, quality plan, installation site audit and on-going annual audits.

    Are you calling them frauds?!?

  20. Deplorable

    Of course the Victorian CFMMEU government will ensure that their union members will be the only workers used to replace the panels. I suppose with all the risks and skills required workers will only receive $400,000 per year plus other perks. All funded by the Victorian taxpayer.
    I bet all the marxists are so glad they voted for Red Dan and are so happy for all government taxes to keep rising at the pace they are.

  21. RBM

    The cladding issue is complicated.
    Investors, home owners bought a unit with approved cladding.
    The government changed the rules.
    The Queensland government has deemed wooden cladding as fire prone.
    And needs to be investigated by a Fire Engineer cost at least $13000.00 .
    So all apartments that have some weatherboards need investigating or cladding replacement.
    So weatherboards, around for hundreds of years may or may not comply.

  22. Behind Enemy Lines

    Tezza
    #3113244, posted on July 22, 2019 at 5:54 pm
    Poor call, TAFKAS. The Vic Gov sets the technical standards for a product not plausibly evaluated for quality by the consumer at any level: the consumer can’t evaluate whether a particular fire resistance standard is adequate; still less can they evaluate whether a product claimbed by manufacturers to meet the standards actually does comply. The Vic Gov governs the certification process for ensuring the product meets the standards it specified. The Vic Gov profits from taxing buyers in a booming apartment sector pumped up in part by slack standards and slack supervision of compliance with standards.

    The Artist Formerly Known As Spartacus
    #3113255, posted on July 22, 2019 at 6:05 pm
    Don’tike the terms Tezza. Don’t buy.

    TAFKAS, I agree with you in principle, but I don’t get to live in a world based on principle – so I’m voting for what Tezza said. (With reference to what you both have actually written, not just what I’ve snipped.)

    This is one of the most frustrating things about the libertarian urge. It’s not enough to be right; we’ve still got to contend with the system we actually live in, and, whether we like it or not, pay for.

    Sickening to think that we’ve all been traduced from citizenship to customerhood. If so, however, I don’t think we should let goverment off the hook. Sometimes I think the only way out of this mess is forcing government to deliver what it’s promised, and watch it fall apart in the process.

  23. John Constantine

    Their peoples liberation army slave labour napalm cladding is right in plain sight and accessible.

    We can see that their developers cut costs, cut corners and cheaped out on the blindingly obvious stuff.

    Dare we wonder about the potential for cost savings in say the foundations?.

    The structural steel?.

    The electrical wiring?.

    The plumbing?.

    The odd apartment buckling because the cheap internal panels lasted a few months less than the developers hoped they would–is this a rare occurrence, or a sign of things to come?.

    Whenever you see one proven instance of sharp business practise, often this is just the only one they were caught at, not the only one they ever did.

    First patchup of the Ponzi establishes the State will throw $600,000,000 at a bail out to buy time, so this commits them to ‘whatever it takes’ funding.

    Funny enough, this removes any moral hazard from shoddy developers. As long as the buildings last long enough for them to flee the country with the cash, the poor bastard aussie taxpayer foots the bill.

  24. Pyrmonter

    @ TAFKAS – this is a story not entirely dissimilar to:

    – the Victorian State Bank, which the Commonwealth bought at the Victorians’ valuation. A state backed bank, but still, the feds put up the money

    – the Sons of Gwalia shareholder litigation, where the complainant shareholders succeeded in proving in the insolvency for being tricked into buying a lemon in the belief it was a apple, rather upsetting the natural order of priorities.

  25. Pyrmonter

    @ Tezza

    The developers and builders determine what and how they’re going to build; they have common law and statutory duties to build something that complies. The upshot of the Lacrosse litigation is that a good deal of what has been built has been built in breach of those laws; the developers and builders were supposed to work out how to comply with the law, and didn’t. They probably can’t afford to pay, but blaming the state governments in this is akin to a thief blaming the police for failing to prevent shoplifting: sure, law enforcement is part of their job, but the primary responsibility of complying with the law falls on the subject, in that case, not to steal.

  26. Rockdoctor

    Sorry I think the target should be the developers in the sights. Ultimately they built it, trumpeted their name on it for future sales. I am aware of how business works with contracts as the mining game is no different but saving money by farming the contracts out to lowest bid contractors & they probably farmed that out to lowest bid sub contractors has unintended consequences. Then throw in dodgy building accreditation people like in NSW… At the end of the day the buck has to stop with someone and the developer is ultimately responsible being the overarching manager of the project. Any professional that is in the industry would have had to have known of the downsides of the cladding if it has been known for decades as claimed above, however they used it anyway. I am not legally minded but that constitutes negligence in my mind.

  27. Socialist Premier buying votes with other people’s money.

    News at 6:00…

  28. Chris M

    the cladding materials in most cases I guess would have been specified by architects.

    Yes. I’ve used this stuff for years. The original Japanese producer would be Alpolic and they manufacture both a standard and a fire-rated version both clearly labeled and even colour coded. There are many many other brands available now.

    So the original building specification will state which version is to be used and the certifier would have signed off on that. So it’s a matter of identifying if the correct material was specified and if the specified material was installed – that then gives you which of the two responsible parties to talk to.

    Wait till people find out the polyester insulation in their stud walls, ceilings and ducting is even more flammable than the cladding and very much more likely to combust with embedded wiring and light fittings….

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