Radio New Zealand and the newspapers are reporting that the report commissioned from Price Waterhouse into the New Zealand leaky homes crisis has revealed that the potential fix up price is $11.3 billion, up from the still staggering $3 billion estimated last month.

Under the weight of such figures it appears that the National Government is prepared to move away from the current model of litigation against local authorities and solvent builders towards some kind of global settlement mechanism that would result in the central government also bearing part of the cost of repairs. The model discussed appears loosely to be based on that rejected by the Labour Government in the middle of last year.

If any evidence was needed that New Zealand's reliance on litigation to provide warranties to homeowners and to incentivise inspection was misplaced, this surely is it. Hamlin and the earlier building cases that established local authority liability may be part of the New Zealand legal canon, but good social and economic policy they were not.

Any after the event settlement system is bound to be difficult to implement. The questions are not just practical such as enabling pensioners to essentially reverse mortgage their homes to pay for repairs, but also conceptual. What will be interesting is the Minister's justification for the change in policy. Putting emotions aside it is difficult to conceptualise why investment in "homes" is different from other capitalistic investments, and why that investment should be protected when others are not. That does not mean that the Government should not come to the aid of those affected, and indeed the Government did so in creating deposit insurance scheme for those invested in finance companies, but rhetorically the government faces a challenge in explaining why it ought now to intervene. One justification might be that it was the central government failures in regulation that at least facilitated the crisis. But perhaps, in the end ,the greatest justification will simply be that the mess is too great to expect a private individuals to clean it up. Politically there will be the challenge of explaining to those live outside Auckland, Wellington and Christchurch why their tax money should be spent on fixing up problems in those cities. On the other side will those plaintiffs who believe it worthwhile be allowed to out out of the system?

Also problematic will be distinguishing between different classes of plaintiffs, either by perception of their own fault or the purpose for which they made their investment. What use will be made, for instance, of the current case law that limits recovery to non- commercial buildings.


Geoff McLay

18 August 2009





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