444 more buildings with cladding risks. Are these the slums of the future?

Warning – some high-rise apartment buildings will become the slums of the future.

And now it's been revealed that there's a list of  list of nearly 450 buildings across the state of NSW with potentially flammable cladding that the State Government is keeping it secret due to security concerns.

The list, developed by the cladding taskforce and provided to State Parliament, was given public interest immunity, which restricts public access.

NSW Police Counter Terrorism Command advised the addresses should not be published due to safety concerns.

The unit said the information risked prejudicing the interests of building and apartment owners.

While many apartments will make great investments increasing substantially in value over the long term, many of the high-rise towers built in the last fifteen years will continue to underperform with poor, if any, capital growth in the foreseeable future.

This sector of the property market has lost the trust of the buying public and confidence will take quite some time to restore as various stakeholders including state and local governments as well as the construction industry including building surveyors and certifiers scramble to shore up building sector.

You see…there tend to be three major types of building issues faces by apartment owners:

1. Structural defects – These are the ones that grab the headlines but, in reality, major structural issues only relate to a small number of buildings.
2. Fire issues – These often relate to inferior cladding used during construction. Cladding audits are ongoing, but so far 629 affected buildings have been identified in Victoria alone and now there's a secret list of 444 buildings in NSW.
3. Water issues – These are very common and occur to some extent in almost every new building – things like leaking balconies, showers and roofs. While these are a nuisance and can be expensive, they can usually be rectified.

Fact is, the buildings with major problems requiring mass evacuation are the outliers, but for those involved their losses will be significant as they will have hefty repair bills and have no real market for the sale of their apartment in buildings that could well become the slums of the future.

Tell us more about these NSW buildings

Speaking to ABC Radio National on Tuesday, Leighton Drury said the secret list of 444 buildings in NSW, compiled in the wake of London’s Grenfell Tower disaster, should be shared with people that live or work in those buildings.

“I think that everyone should know, certainly the owners of the building, the people that live and work in those buildings and certainly fire agencies should know if those buildings have cladding in them,” he told ABC Radio.

Mr Drury said the loosening of building regulations over the past several years meant firefighters were no longer required to perform fire safety checks on buildings.

He said this was compounded by the fact states and territories across the nation were cutting the budgets of fire services – a move he called a “recipe for disaster.”

“The government has admitted there is an increased risk of arson and terrorism and yet we’re not seeing them do anything about that in regards to regulation or increasing budgets for firefighters,” Mr Drury said.

How big is this problem?

It’s been suggested the high-profile stories that have hit the media are just the tip of the iceberg and many more buildings with structural problems – some big, some small – will come to light over the next few years.

CFMEU research found that over 3,400 apartment buildings across Australia had defective, non-compliant combustible cladding installed, and would require remediation work to make the buildings safe.

This could add up to a total cost of $6.2 billion in remediation and associated costs.

They estimate some of the remediation could cost up to $165,000 per dwelling.

Some developers will have the funds to repair their buildings, but others won’t.

Clearly some apartment owners won't be able to fund this, owners corporations will have difficulty organising these works and insurers won't want to insure these buildings.

And insurance often won’t come to the rescue of the unfortunate owners as sometimes it will be difficult to know where to lay the blame:

• Councils who have encouraged higher density development and at times been willing to negotiate building guidelines in order to promote development.
• Developers who have chosen the cheapest builder to increase profit margins
• Builders who been prepared to compromise to win the deal.
• Contractors who may have been willing to cut corners like import cladding from overseas because it was cheaper.
• Certifiers who approved the standard of construction.

And even if when the issues come to light, they are repaired, what rational purchaser is going to want to buy into these buildings?

That's why I suggested that some of these high rise towers built in the last 5 years will become the slums of the future.

The bottom line:

Demand for apartments is set to accelerate from a more diverse buyer profile as apartment living emerges as a preferred lifestyle for many, from the younger generation leaving home to the older generation wanting to downsize.

The peak of the current building cycle has now been reached and it has now emerged that many of the buildings built during the last construction boom will have a shadow hanging over them for some time.

At the same time reluctance from future purchasers will make it harder for new developments to have sufficient pre sales to get out of the ground at a time when tighter planning restrictions for apartments, particularly in suburban areas, will exacerbate the emerging undersupply of dwelling required by our growing population.

This will create two tiers of units moving forward.

Solidly built medium density apartments and townhouses developed by reputable builders and many of the towers that dot our big cities that could well become the slums of the future.

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About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.