LEAKY HOME CRISIS—DOES IT AFFECT YOU?

by Carmen Maretic, CASH

Compensation and Accountability to Soaked Homeowners (CASH) Society is a registered nonprofit organization working to resolve the "leaky home" disaster at the least cost to the public. We refer it as the "soaked home" disaster, because it has impacted more than condos. Town homes, co-ops, social housing and detached dwellings have also been devastated.

The billion dollar direct cost of this crisis has bankrupted owners in unprecedented numbers, redirected consumer spending, increased municipal liability, significantly decreased housing starts and reduced provincial and federal tax revenue collected from a once vibrant housing industry. The indirect costs to the taxpayers and the public at large will conservatively double; probably quadruple if an immediate compensation plan is not adopted. This article highlights the hidden costs to British Columbian taxpayers that will far exceed the costs of the "fast ferries" and the proposed "transit levy" combined.

The extent of the problem:

The Barrett Commission estimated that multi-family homes built from 1983 to present have between a 30% to 75% risk of premature building envelope failure depending on the year and type of construction. Further, the Barrett Commission estimated that as many as 50,000 units would be impacted at a cost of between 800 million to 1 billion dollars. However our research shows this figure to be conservative. The Coalition of Leaky Condo Owners (COLCO) has attempted to document the legacy and provide the number of units impacted since the beginning of the crisis. They have noted over 900 buildings and 45,000 units impacted to date. According to the Homeowner Protection Office (HPO) estimates, we are about halfway in identifying homes with premature building envelope failure. As a result, CASH Society believes that the affected units could be as high as 90,000 and the direct repair costs to be between 1.5 to 2 billion dollars by the time all is said and done.

The hidden indirect costs

Property taxes:

Redistribution of property taxes: Leaky homes have depreciated significantly. Taxes are based on the market value of homes. As a result, owners of non-problem housing must make up the shortfall of lost tax dollars not collected from leaky homes.

Municipal liability: Freedom of Information requests found that most municipalities have seen insurance premiums and/or deductibles triple from 1990 to present. The City of White Rock for example, has 4 claims for premature building envelope failure to date. Costs for insurance has gone from $68,918 in 1994 to $129,800 in 1999. The deductible has remained at $10,000 per claim, but as more claims are paid out inevitably municipality costs will increase. The Municipal Insurance Association (MIA) insures most municipalities. The rise in insurance premiums and deductibles cannot be attributed solely to this issue, however, in MIA's 1999 annual report the Chairperson Mr. Howie noted: "We saw further harm caused by leaking and rotting condos with the collapse of the New Home Warranty."

Of particular concern is the municipal "joint and several" liability. This means even if the municipality is found only partially responsible for the construction defects, if constructors responsible have no assets and/or do not carry insurance, municipalities are responsible in paying judgments in full. In other words, by municipalities allowing companies to limit their liability by setting up shell or numbered companies for each project, the liability for defective construction has shifted from the constructors to the taxpayers of this province.

The litigation costs:

The Barrett Commission suggested that the litigation costs alone will exceed the cost of the crisis. John R. Singleton, QC a representative of architects and engineers, as well as other participants in the construction industry on professional liability matters seems to support the Barrett Commission by stating: "In any event, all of this (leaky homes) has given rise to what is probably the worst problem design professionals specifically and the building industry generally has ever faced. The costs associated with investigation, remedying and resolving disputes over liability in this area will likely reach into the billions of dollars."

Provincial/Federal income tax losses:

The lack of confidence in the housing industry, due in part to the "leaky home crisis", has seen housing starts fall to a third of what they were in 1993 taking almost $2.76 billion out of the British Columbian economy. That is $2.76 billion in taxes not collected by both the provincial and federal government.

Clayton Research Associates Ltd in October 1994 highlighted in their report called "Economic Impacts of Housing Sales and Purchases" that for every 100 homes sold the provincial tax revenue collected is $425,000. Comparing 1993 to 1999 MLS residential sales in only the areas hardest hit by the crisis (Fraser Valley, Greater Vancouver, Vancouver Island, Victoria) residential sales have decreased by 18,352 units. Using the Clayton Research figures, the province has lost $778,600.000 in 1999 alone. Although not all of these losses can be attributed to the "leaky home" crisis, roughly 50% of sales are in multi-family housing. The stigma associated with the "leaky home" crisis has seen buyer's reluctance to purchase strata units even in non-problem buildings.

Loss of jobs

Canada Mortgage and Housing Corporation (CMHC) acknowledge no single industry impacts the economy greater than the housing industry. The housing industry employs directly and indirectly 1 in 5 Canadians. The lack of confidence has led to job losses in both the housing and non-housing sector. Repair costs have redirected consumer spending which hurts local businesses.

Canada Mortgage and Housing Corporation (a crown corporation) losses:

Homeowners with less than 25% down payment must have mortgage insurance in case of default. The primary insurer is CMHC underwriting roughly 30-40% of new and re-sale homes. When CMHC is involved as a mortgage insurer, the crown corporation is paying an average $65,500 to satisfy mortgage guarantees to financial institutions versus funding the average repair costs of $23,000. In other words CMHC, a federal government agency, is paying almost three times more to force people into bankruptcy.

Bankruptcies:

The soaked homeowner forced into bankruptcy loses their good credit rating for up to 7 years. This limits their ability to buy a vehicle, purchase a home, or start a business. In some cases it means loss of employment. All creditors lose when a homeowner goes bankrupt not just the mortgage holder or mortgage insurer. These creditor losses will eventually be passed on to consumers.

Statistical information regarding the number of bankruptcies is difficult to obtain. Some estimates, however, indicate as many as 7,000 bankruptcies may be attributed to the "leaky home crisis." Many of our most vulnerable citizens forced into bankruptcy (seniors, young families, and people on low or disability income) will rely on the social safety net.

The health costs:

Many owners suffer from post-traumatic stress, depression and sleeplessness. The pressure of living in "leaky homes" has led to suicides. One of the larger concerns is the effect of toxic mould on occupants and repair contractors. After the Winnipeg flood, homes requiring repairs were assessed for mould infestation and risk to the occupants. The BC aboriginal community received federal funding to repair leaky homes, provide temporary shelter, and replace furniture, clothing and personal items. The Victoria Gorge Hospital removed patients from areas with mould due to the health risks. The health department has deemed homes uninhabitable because of mould to protect tenants, however this same protection has not been afforded to owner/occupiers. Some toxic moulds have been linked to bleeding lung disease, sudden infant death syndrome, asthma, respiratory problems, brain damage and cancer. At particular risk are seniors, children, and people with compromised immune systems. The health costs associated with this issue are immeasurable. Government inaction will escalate the costs of the "leaky home crisis" to the taxpayers and public at large. It should surprise no one that a "systemic failure" and lack of proactive governing always leads to a taxpayer bail out. CASH Society would like the citizens of this province to be limited in funding the "largest and costliest construction debacle in Canadian history." They are calling on the provincial government (current or future) to protect British Columbians by calling this a disaster. This could invoke a reluctant federal government to come to the bargaining table. Many Canadians have benefited from federal assistance. It is time British Columbia receives equal treatment and benefit from being part of the Canadian family. We hope you will take the time to write your local MLA and MP and demand action on the most shameful housing construction in Canadian history.

If you are an affected owner, you can visit www.soakedhomes.com or call Carmen Maretic at 604-469-8539 to find out how you can join thousands of owners from the Mainland to the Island who are raising this issue in the upcoming provincial election. Carmen Maretic, President, Compensation and Accountability to Soaked Homeowners (CASH) Society.

Ms. Maretic is a Realtor and not an owner of a "leaky home". She began lobbying in 1997, after many of her customers fell victim to this crisis. In the year 2000 she was recognized for her volunteerism on this issue by winning the Community Action Award in her local community (Coquitlam, Port Coquitlam, Port Moody)