MEDIA RELEASE

Time to act on leaky homes for homeowners’ sake
For immediate release on 8 October 2008

“It’s time to do the right thing by New Zealand’s homeowners, says Local Government New Zealand Vice-President Kerry Prendergast.

“We need to fix the thousands of leaky homes that still exist, over a decade after the leaky homes problem erupted. This has to be an urgent priority for the incoming Government.”

Local Government New Zealand today released the costs of a new model it has proposed to central government to resolve the leaky homes crisis.

“The proposed model is based on central government, councils and homeowners agreeing upfront to pay a proportion of costs to fix these homes, rather than continuing to put homeowners through the stress of making a claim.

“The current model of homeowners being forced to pay huge legal fees to make a claim to the Weathertight Homes Resolution Service (WHRS) is
not in their best interest. We need to move away from the process of apportioning blame and trying to decide where liability lies on a case by case basis.

“Too much time and money is being spent on the actual process of resolution. It’s time to tackle the fundamental problem of fixing this country’s
leaky homes and dealing with the social and financial costs head-on,” says Ms Prendergast.

Under the proposed model endorsed by Local Government New Zealand on behalf of councils nationally, homeowners won’t have to make a claim
to a body like the WHRS, which still has some 3610 properties with active claims on its books.

“Homeowners have already suffered the stress and health effects of living in leaking and mouldy homes, which research estimates will cost the
country $200 million in health care.

“The proposed model will abolish the WHRS so that homeowners don’t experience the added stress of having to make a claim with no guarantee
a positive resolution will be reached.”

The model proposes Government contributes $433.9 million to fix leaky homes.

“Projected costs for homeowners in our model are $510.0 million, a 48% reduction on the current model. We estimate that if nothing is changed, homeowners will pay $986.4 million to settle claims from June 2008 onwards.

“Under the proposed model homeowners will save a significant amount of money on the unnecessary legal fees incurred during the claims process.”

Councils will contribute $411.1 million under the proposed model, a small reduction on the current scheme.

“The proposed model aims to get the parties to look beyond old arguments about who is accountable, and come up with a solution that will fix these homes for good. It’s a sad indictment on this country that we have continued to let homeowners live in homes that have proven health effects,
such as respiratory illness and chronic stress.

“It’s time for all political parties to commit to fixing the leaky homes problem. Whoever comes into power must prioritise this issue for the benefit of New Zealand’s homeowners,” says Ms Prendergast.

Projections from Melville Jessup Weaver, Consulting Actuaries, September 2008

Current Resolution Model
Under the current resolution model the actuaries estimate the following costs (including claims processing costs) will apply to all claims settled from June 2008 onwards.

Councils: $526.5 million
Owners: $986.4 million
Other defendants: $791.7 million
Total cost: $2,304.6 million (includes GST of $256 million)

Proposed Alternative Resolution Model
The projected costs under the proposed alternative resolution model are shown below (with the percentage reduction highlighted):

Councils: $411.1 million (22%)
Owners: $510.0 million (48%)
Other defendants: $674.1 million (15%)
Government: $433.9 million
Total: $2,029 million

Note: the figures include $64.2 million to cover “out of time” claims (these are claims that don’t fall within the ten year statutory limitation). Under the new model all leaky homes will be covered, not just those claimed for within ten years of the house being built.

ENDS

Local Government New Zealand is the national voice of councils in New Zealand.

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