Red Alert

Deregulation and Leaky Buildings

Posted by on February 1st, 2012

For most Kiwis the pedagogically sounding term “Chicago School of Economics” may not mean anything. However, that particular school of thought – believed to be an old mantra of right wing politics (particularly the Act Party in the NZ context) – is blamed as one of the main reasons the western world is in the doldrums.

Worse, Chicago School of Economics which advocates unfettered free market and less government intervention, came under attack in the wake of the financial crisis we currently experiencing. It has also been blamed for growing income inequality in Europe and the United States.

Unfettered free market leads to deregulation which, in the New Zealand context, caused various problems.

New Zealand taxpayers have paid a very high price for deregulation in a range of sectors, and, the financial sector aside, the building sector would be leading the way. I wonder whether people have actually made the connection between deregulation and things like leaky buildings.

34 Responses to “Deregulation and Leaky Buildings”

  1. Draco T Bastard says:

    I wonder whether people have actually made the connection between deregulation and things like leaky buildings.

    Some of us have but we’re struggling to point it out to everyone else. Standards and regulation is what allows a market to work and without them the market becomes irrational. An individual doesn’t know what’s best for themselves. To have that sort of knowledge available requires the community working together and not fighting competing against each other.

  2. Ben says:

    this has nothing to do with Chicago school, which would vest any consideration of liability for poor building practices in tort law – not the mess of regulation and buck-passing that you mistakenly characterise as “deregulation”. the only similarity is that there was a devolved responsibility to check buildings. turned out it was devolved to councils who were not legally liable for wrongly certifying building practices.

    Poorly designed accountabilities and feedback mechanisms to signal failures perhaps, but the building regulation reforms were not a reliance on the free market and ‘caveat emptor’. Risk-based regulation is hard to get right, it it turned out it was not right.

  3. David says:

    If they had followed the Chicago school there would have been no bailouts from taxpayers but the fat cat bankers would have carried the can, much better system.
    And leaky homes may not have happened if consumers had to arrange their own inspections rather than relying on a hopeless government department and incompetent council building inspectors. House buyers may have employed their own inspectors who have decent indemnity insurance who would have been a lot more careful knowing their backsides were on the line.
    Leaving things to the market makes people a lot more self reliant and careful. Just a thought.

  4. Nick K says:

    The Building Act 1991 has 451 sections and four Schedules.

    There are 21 sets of Regulations prescribed under the Act, comprising hundreds of clauses.

    There is liabaility under the Fair Trading Act, the Contractual Remedies Act, the Companies Act, the Local Govenment Act and also the tort of breach of Statutory Duty, amongst many others.

    What is this deregulation you are talking about Raymond?

  5. Thomas says:


    (i) Sure, liberalisation is “blamed” for the financial crisis, inequality, global warming, pestilence, disease, and even death itself. But it certainly isn’t responsible.

    (ii) I think you are being dishonest with your language. If I say “Labour is blamed for NZ’s current fiscal woes”, it sounds authoritative. But what I really mean is “I blame Labour for blah”, which sounds a lot more subjective.

    You are using the same trick to make your personal belief in heavy regulation sound more objective.

    (iii) The leaky homes saga is a lot more complex than just “deregulation did it”. Government had a big hand in it and you are again being intellectually dishonest by only telling half the story.

    The reason the government and councils are paying out so much money is because they were partially responsible. Councils inspected and approved shoddy buildings, thereby failing their duties.

  6. Draco T Bastard says:

    turned out it was devolved to councils who were not legally liable for wrongly certifying building practices.

    And a lot of those councils used private contractors as inspectors so why are councils paying out rather than the private contractors?

  7. IMpact says:

    Raymond, since you’re an expert on the Chicago School, could you please list which of Hayek, Friedman, Fama, Lucas, Posner, Becker or Fogel advocated the bailouts of banks? Which of them advocated neverending and unlimited fiscal deficits? Which of them said that it’s okay for Governments to incur such huge debts without the ability to ever pay them back?

    Or have you got another leading light from the Chicago School who advocated this?

    I think you’re on shaky ground on leaky homes, Raymond. The last time your party was in government, the PM denied that leaky homes existed, said it was a beat-up, and then did nothing about it.

  8. gn35 says:

    I (unlike you) actually know something about the whole leaky building thing, and to blame it on “deregulation” shows an astounding level of naivety on many levels. Shame on you.

  9. KH says:

    Your premise that Chicago School of Economics “won’t mean anything to most New Zealanders” is patronising. I learnt about it in fourth form. Is your view that that most New Zealanders don’t make it past fourth form education?

    If you had googled leaky buildings, or perhaps read the Hunn Report from 2002 or any Herald reporting on the issue for the last 10 years before posting this, then you might have found that many people (rightly or wrongly) have already linked the leaky building crisis with deregulation.

    Unecessary. Clare

  10. nadis says:

    Raymond – you forgot the “humour” tag.

  11. Dion_makes_a_good_point says:

    *face palm*.

  12. SJW says:

    Oh boy do we have a lot of people in a serious case of denial in this thread…

    “Some of us have but we’re struggling to point it out to everyone else” you sum it up well Draco T Bastard.

  13. SPC says:

    According to wikipedia.

    The leaky homes crisis is an ongoing construction and legal crisis in New Zealand, in which many thousands of newly constructed houses and apartment buildings built in the 1990s and early 2000s suffered from severe weathertightness problems.

    The culpability for the crisis, and for its extent, is considered to lie with a number of factors:

    The Building Act 1991, passed by Jim Bolger’s Fourth National Government, which came into effect about 1994, reduced controls and standards (such as allowing the use of untreated timber and monolithic claddings) under the assumption that building quality would be mostly assured by market-driven forces.[1][2]

    Many developers, builders and architects involved knowingly or carelessly constructed buildings with numerous faults and short-cuts.[1] The changes also coincided with architectural design trends towards Mediterranean-style flat roofs (a traditional dry-climate design), low-angle monopitch roofs and buildings without eaves.[3]

    Numerous local authorities are implicated as having failed in their inspection duties, and now share significant financial responsibilities with the builders (which in many cases have closed or otherwise removed themselves from liability) and the owners.[1] Court cases have generally assigned around one third of the financial responsibility to local authorities.[2]

  14. SPC says:

    Many reasons are behind why buildings leaked from the 1990s period. One factor often cited was that in 1998 the New Zealand Standard for Timber Treatment was changed to allow untreated timber for wall framing.[4] As this timber gets wet it starts to rot, also due to increased insulation being used over this time any moisture that came into contact with the timber was slower to evaporate.

    Two government funded agencies (including the Building Research Association of New Zealand) also approved the use of cheap monolithic claddings over this time. These claddings are a textured plaster finish over the top of fibre cement or polystyrene material. There were cases where these claddings were not used within their specifications or not installed correctly. Many buildings built in the “Mediterranean” style used these types of cladding. Not only that, they had features such as recessed windows, flat roofs, minimal eaves, multiple stories, complex roofs, solid balustrades, balconies and penetrations of the exterior cladding. These features increased the likelihood of water infiltrating the structure.[5]

    Lack of detailed drawings for buildings was a contributing factor. Architects and building designers were allowed to specify weathertightness without drawing how it would be made so. Some builders were unable to make a weathertight structure without these details. This has partially been blamed on the breakdown of the apprenticeship system and unqualified builders.[6]

    Under the building consent regime that existed prior to the Building Act 1991, local councils were responsible for setting the building controls for their area. These local codes were prescriptive; building had to be done in a certain way using only the permitted materials for it to pass. Accordingly the function of the council inspector was not to enquire whether a subject building would be durable and weathertight, it was to check if the code had been followed. This function was of such general importance to New Zealand society that it was recognised that New Zealanders relied on their local council to ensure that buildings were constructed properly. This responsibility was unaltered in 1991, however all the various local codes were replaced by a national code. In contrast to the local codes, the national code was permissive. As long as the building would meet the performance requirements of the code then the means of achieving performance was irrelevant. Councils were given a statutory duty that they were satisfied on a reasonable basis that the building would perform to the standards of the code throughout its life. A particular problem that the councils did not respond to in the areas which experienced sustained building booms in the nineties and 2000’s was the corporatisation of building controls.

    Private building inspectors had been permitted under the 1991 Act to set up in competition to the councils. Facing an undercutting of their charges, some councils abandoned the inspection of buildings entirely (for example Tauranga). Many more set up the building control departments as business units of the council and they were run on the same philosophy as state-owned enterprises, they were expected to turn a profit. Under this regime, council inspectors were encouraged to inspect as many buildings as possible. Understandably, given the pressure to perform, the unfamiliar code and the lure of moving into a lucrative private sector which siphoned off the more experienced staff, councils frequently failed to inspect to the standard expected of them by society and by their legal duty.

  15. SPC says:

    I simply wonder why builders and architects are not liable and covered by insurance for their professional failures.

    And able in turn to sue building suppliers for material that was not suitable for the task.

    Of course we have a culture where the private sector is protected from fault by ACC and business responsibility is virtually unknown as a concept in this country.

    One famous lawgiver from Babylon called Hammurabi said only fear of death ensured a builder built a house properly, so whenever a house fell down and killed its owner, the builder would be put to death. Well given in our society status is based on having money, fault and compensation liability (via compulsory insurance) would probably suffice. Then the insurance sector would scrutinise those they insured and people would only buy houses designed by architects and built by builders who had insurance.

  16. marsman says:

    The following is a quote from an article by Elizabeth Martinez and Arnoldo Garcia who have seen the ravages of the neoliberal fantasy in South America.

    The main points of neo-liberalism include:

    THE RULE OF THE MARKET. Liberating “free” enterprise or private enterprise from any bonds imposed by the government (the state) no matter how much social damage this causes. Greater openness to international trade and investment, as in NAFTA. Reduce wages by de-unionizing workers and eliminating workers’ rights that had been won over many years of struggle. No more price controls. All in all, total freedom of movement for capital, goods and services. To convince us this is good for us, they say “an unregulated market is the best way to increase economic growth, which will ultimately benefit everyone.” It’s like Reagan’s “supply-side” and “trickle-down” economics — but somehow the wealth didn’t trickle down very much.

    CUTTING PUBLIC EXPENDITURE FOR SOCIAL SERVICES like education and health care. REDUCING THE SAFETY-NET FOR THE POOR, and even maintenance of roads, bridges, water supply — again in the name of reducing government’s role. Of course, they don’t oppose government subsidies and tax benefits for business.

    DEREGULATION. Reduce government regulation of everything that could diminsh profits, including protecting the environmentand safety on the job.

    PRIVATIZATION. Sell state-owned enterprises, goods and services to private investors. This includes banks, key industries, railroads, toll highways, electricity, schools, hospitals and even fresh water. Although usually done in the name of greater efficiency, which is often needed, privatization has mainly had the effect of concentrating wealth even more in a few hands and making the public pay even more for its needs.

    ELIMINATING THE CONCEPT OF “THE PUBLIC GOOD” or “COMMUNITY” and replacing it with “individual responsibility.” Pressuring the poorest people in a society to find solutions to their lack of health care, education and social security all by themselves — then blaming them, if they fail, as “lazy.”

    Good on you Raymond for speaking out against neoliberalism.

  17. Waterboy says:

    Leaky buildings had a lot of cause’s.
    I live in an area without the leaky building issue, it rains a reasonable amount here and its a rural area where everyone know the difference between the various amouts of treating or not treating of timber. Sadly i think people who live in cities want a flash house without consideration into how it will function.

    Leaky buildings were a perfect storm about to happen, you had the abolish ment of apprenticeship shcemes, you had lack of rules about how to build a weather proof house, and you had too many people wanting brand new homes.

  18. Tracey says:

    SPC – thanks for posting sense in this area. De Regulation undoubtedly had a role to play in the leaky building problem. It was not the sole problem, afterall designers and builders didn’t HAVE to build in untreated timber.

    I still maintain that the Government instituted the FAP (financial assistance package) as an unspoken acknowledgement of the stuff up of the de-regulation and the appalling failure of the Building Certifier insurance system/safeguard.

    before anyone starts blaming owners for buying “cheap homes”. Buyers were buying products that were represented to them to be many things, including durable, and weathertight. They relied on designers/architects/builders/trades/Council regulators to do their jobs with pride and integrity.

    The documents I see that were available at the time from 2000 onwards and were simply ignored by industry people (architects, builders, councils ) is staggering.

  19. Tracey says:

    “Sadly i think people who live in cities want a flash house without consideration into how it will function.” – which is why they go to experts like architects builders etc

  20. James Gray says:

    A true neo-liberal supports the rights of workers to organize (but not at the expense of the property rights of the employer), and opposes subsidies for business, but I’m sure there are plenty of self serving socialist politicians in the world too…

  21. Father Tim says:

    NotPC has some very informative posts on this subject. He makes a salient point that what happened was virtually the opposite of deregulation.

  22. David P says:

    btw, the Chicagoans don’t want an entirely “unfettered free market” as they do believe in a “strict, government-defined monetary regime”!

  23. SoftOnCommunism says:

    Offensive. Warning. Clare

  24. ghostwhowalksnz says:

    This days the latest designs for some streets is to get rid of footpaths, kerbs and road lanes and make it a ‘shared space’
    The theory ( Ill call it Chicago does peoples lives) is that the less regulation by means of signs and kerbs and so on will make it safer !

    Ideally the drivers will take more care and not kill so many people and the pedestrians will not walk willy nilly into vehicles.

    We will see how it turns out , with death and injury as the KPI !

  25. insumnatio says:

    Never travelled in Europe then ghost? The socialists over there have your ideas. Works well too. I pity your Limited horizons

  26. Tracey says:

    Father Tim, he does make some very interesting points. And he is correct to not blame so-called de-regulation as the only culprit. However, low the standard for timber treatment for example (which many mistake for de regulation) was a major factor and was driven in no small part by the Manufacturers. BRANZ were, and are, essentially paid by a Manufacturer to give them an appraisal certificate, then they masquerade it to the industry as an independant assessment. However the driver behind Carter Holt and James Hardie was never better buildings or better building practices it was higher profit, and both (one through reduced regulation on treatment) and the other through acceptance of a product unfit for use in NZ, especially Auckland, achieved their goal. The former found particular profit from cutting out the treatment process companies.

    Had their been NO regulation why would either company have miraculously acted more ethically?

    “JUST TO CONCRETISE WHAT I mean, let’s look at two leading players in the drama : untreated dry-frame timber produced and marketed by the likes of Fletcher’s Origin Timber and Carter Holt Harvey, and James Hardie‘s Harditex – a low-density autoclaved board made with wood pulp and cement used to back monolithic claddings. Between them, and for reasons I’ll go into tomorrow, these two products account for more than eighty percent of the problems associated with the 7,571 properties registered with the government’s Weathertight Homes Resolution Service (WHRS). You know which houses I mean, don’t you: they’re usually the Mediterranean looking things around the place now covered with tarpaulins and scaffolding.

    Without jumping too far ahead to what I’ll say tomorrow, the primary problem found in houses registered with the government’s WHRS is that James Hardie’s Harditex “system” let water into the houses, and the untreated dry-frame timber they were built with rotted.

    Use of Carter’s and Fletcher’s dry-frame timber in wall framing was allowed because a committee of the New Zealand Standards Authority decided that it should be (and sitting on that committee were representatives of, you guessed it, Carters and Fletchers) and because the boys from BRANZ issued an “appraisal” declaring it to be fit for that purpose. (Without ticking those boxes, no building materials can be brought to market here in NZ – and as it was then, so it still is now.)”

  27. SJW says:

    There appear to be people on this thread keen to defend low regulation type ideology. This is the type of thing that having insufficient regulations cause:

    This is the type of scenario you support when you support deregulation. Come out of your heads and into the real world.

    Deregulation is simply another name for anarchy.

  28. peterlepaysan says:

    Actually I think it was Maurice Williamson who oversaw the deregulation of building standards that, among other things, led to to the “leaky homes” debacle.

    Perhaps questions should be directed his way.

    OBTW, how many leaky homes did we have before deregulation?

  29. Tracey says:

    be fair peterlepaysan, Ms Clark famously accused the herald of making a mountain out of a mole hill.

  30. Quoth the Raven says:

    Draco said “An individual doesn’t know what’s best for themselves”.

    There is no objective standard for what is “best” for oneself. What is “best” for oneself is subjective.

  31. Builders mate says:

    “Deregulated market”….oh God I’m in hysterics at that one. When in the history of NZ’s last 60 years has our economy,let alone the building industry been de-regulated? Re regulated sure…but never deregulated.

    And even with then state thankfully out of the equation a free market is not “unregulated”…in fact its far more so and at a far more efficient and micro level.The people ,who are the market, regulate by having the choice of how their money is spent left with them rather than a disconnected politician who’s clueless about conditions on the ground as it were.

    PC’s piece was bang on…that’s what I saw too.

  32. Nathan Mills says:

    Isn’t the cover article in North and South this month about deregulation and the Leaky Building issue?

  33. Draco T Bastard says:

    What is “best” for oneself is subjective.

    That would be true only in very limited circumstances like favourite food. On the other hand, the growing of the food is very definitely objective – we don’t want the food to be poisonous (ie, use of DDT) nor do we want the environment polluted (excessive use of farming).

    Favourite food is subject to taste, growing healthy food and protecting the environment requires scientific knowledge which most people don’t and will never have. Scientific knowledge is very definitely objective as it’s based on physical measurements.

  34. Quoth the Raven says:

    Draco – Scientific knowledge of crops is long way from the subjective knowledge of what is best for oneself; how best to lead one’s own life. The application of that knowledge itself can only be decided upon subjectively. Given the multitude of choices we face everyday in our lives that we must judge for the fulfilment of our own subjective ends your counter example seems incredibly limited. Value is subjective. Happiness is subjective. Virtue is subjective….