Podcast: Study reveals $2m in defective thinking

When NSW Building Commissioner David Chandler commissioned a case study into what happened when serious defects were discovered in a new block’s balconies, it revealed a trail of denials, delays, obfuscation and bloody mindedness.
The case study, called “Broken Promises, Blame Games and Balconies”, shows in granular detail how the deeply flawed process just to see residents being allowed to step out on to their balconies cost the owners and developers a combined total of more than $2 million in legal fees, and still didn’t get the problem fixed (at least in the short term).
Needless to say, if the defects had just been dealt with as soon as they were identified, the cost in financial and emotional terms would have been considerably less.
In this week’s podcast, we pick the bones out of the case study and ask if it helps or hinders the commissioner’s aims to make people feel more confident about buying apartments off the plan.
On a lighter note – or maybe not – we look at the potential use or misuse of artificial intelligence (AI) in apartment blocks. That’s all in this week’s Flat Chat Wrap.

TRANSCRIPT IN FULL

Jimmy  00:00

We are a bit later in doing a recording this week.

Sue Williams  00:02

Yes. How come?

Jimmy  00:04

Well, we were at a book festival in Ulladulla, over the weekend.

Sue Williams  00:09

Yes, Story Fest.

Jimmy  00:12

That was quite interesting; you were one of the guest speakers on a panel.

Sue Williams  00:16

Yes. I was talking about disentangling, fact from fiction, in historical novels.

Jimmy  00:24

Well, I guess we’d better do the same here then; disentangle some fact from fiction. We’re going to talk about a big, big report. It’s actually a case study; a detailed case study, of a problem in a building in Sydney, and then we’re going to talk about artificial intelligence and what it might mean for apartment blocks. And I think that’s going to give us pretty much all we need for this week’s podcast, so we’d better get on with it. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue Williams  00:56

And I’m Sue Williams and I write about property for Domain.

Jimmy  00:59

And this is the Flat Chat Wrap.

So, you might be aware that David Chandler, the Building Commissioner’s office, commissioned what they’re calling a ‘case study,’ of what happened with one building in Rosebery in Sydney and the building’s called Otto 2.

Sue Williams  01:30

Okay. And has it had problems?

Jimmy  01:32

Well, yes. This is the whole thing; how it started having problems and what happened with the problems and how it just seemed to get deeper and deeper into a mess.

Sue Williams  01:43

That feels familiar, really.

Jimmy  01:46

It does, doesn’t it? So the case study; this report is called ‘Broken Promises, Blame-Games and Balconies.’ It’s written by Bronwyn Weir, who is an eminent lawyer, who’s an expert in building regulations, and was the co-author of the Shergold Weir Report, which is quite iconic, I suppose. It was a blueprint for what to do in apartment development, which has been until recently, largely ignored by the government, but now is taken as a kind of touchstone for how things should be. So she wrote this report… The project was originally; the Sydney Christian Life Centre wanted to build a church, and they bought some land off the state government to do that, but local opposition meant that it was never built. So they decided that they would build a couple of apartment blocks there. They contacted a well-known developer, called Capital Developments, or something like that. And they in turn, passed the development onto Icon. Does that name ring a bell to you?

Sue Williams  02:57

Is that the same people as Sydney Olympic Park?

Jimmy  03:00

The Opal Tower; the famous evacuation… That was Icon. So they built the two tower blocks, Otto 1  and Otto 2. They had the standard strata management arrangement of one year initially, and then three year’s maximum after that. So Otto 1 continued with their original strata managers, but Otto 2 were not happy about the pursuit of defects, or lack thereof. So they got a different strata manager.

Sue Williams  03:31

Okay, so did both towers have defects in?

Jimmy  03:34

Well, we can assume, but the one that had the more serious (or the one that’s got everybody’s attention), is Otto 2. They had various little things; a variety of significance. Some serious and some not so serious, but then they got their own inspection done of the building, and the inspector said “your balcony balustrades are not safe.”

Sue Williams  04:00

Oh, no!

Jimmy  04:01

Which would ring a bell with you, as well.

Sue Williams  04:04

We had a similar problem in our building, too.

Jimmy  04:07

The building inspector said the balcony balustrades weren’t safe, and residents should be instructed not to go on their balconies. The developers said, there’s nothing wrong with the balcony balustrades, so you’re asking us to fix something that doesn’t need fixing. And then it just spins out of control, constantly back and forth. Lawyers getting involved, obviously, on both sides. People digging their heels in and at one point, the office of the Building Commissioner offered to intervene, to mediate. But I think it was the strata manager that said “there’s no need for you to do that here. We’re in the middle of litigation.” I think basically, all the lawyers said “we don’t need you. We’re sorting this out ourselves and it’s inappropriate for you to intervene in something that’s already in court.” At the end of the day, to get these balustrades fixed, the litigation on both sides cost over $2 million. Way, way above the cost of just fixing the thing. And at the end of the day, the office of the Building Commissioner did get involved, because during the course of all this, the new laws came in, the RAB Act; the Residential Apartment Building Act came in, which gave a lot of power to the Building Commissioner, that he didn’t have before. So they were able to intervene and kind of push them towards a resolution. The owners corporation got money.

Sue Williams  04:13

Did they win their case? Did the court deem that the balconies…

Jimmy  05:50

I think they  settled before. But it’s interesting that this report comes out and says that they were first told they shouldn’t use their balconies, I think, in 2019 and in February this year, they were still not allowed to use their balconies. So for four years, they couldn’t go out on the balconies of their apartments.

Sue Williams  06:12

And as well, that means it’s really hard for any investors to let out their apartments to tenants, because they wouldn’t be able to use the balconies. Also, nobody would be able to sell their apartments if they wanted to, because the price would tumble, really. And of course, you’ve just got the lifestyle problems. You know, you’re going through COVID and you’re not allowed to use your balcony and go outside. It’s horrendous.

Jimmy  06:34

Just a disaster. It’s interesting that this report (we’ll put a link to it on the show notes, to go with this podcast). I mean, I’ve described it as ‘granular;’ the level of detail is quite incredible. Some of the participants refused to take part. The owners corporation lawyers had a couple of meetings with the Building Commissioner in his office and with Bronwyn Weir, I think. Certainly, the minutes of those meetings were passed over to her. And they said they hadn’t realised that the details of the meetings were going to be reported and so they withdrew their permission for their comments to be…

Sue Williams  07:21

I mean, this is something that would be great to educate everybody about; defects. For people to be looking after their own small patch, seems ridiculous.

Jimmy  07:33

And you look at this thing, and you realise there are several points in this, where people could have just gone “let’s just sort this out.” You know, the developers… Now the developers went into receivership (or at least the developers of that special; what’s it called? ‘Special purpose vehicle,’ which is where they create one entity, just to build one)….So the developers; Icon, the former Icon, that were in that special purpose vehicle, they went into receivership. They changed their name to their ABN number, so that the name Icon would not be seen to be in receivership, because Icon was still building elsewhere. And it’s all that kind of…

Sue Williams  08:21

No transparency…

Jimmy  08:23

It’s the lack of transparency; it’s the whole ‘smoke-and-mirrors’ thing. And you know, the new Icon (which has some of the same directors as the old Icon), say they’ve got nothing to do with the old Icon, and they’re not responsible for their defects, even though they have said that they would assist in remediation. You get a real picture of why people have been so suspicious of buying apartments off-the-plan. When you look at this, and people say “oh, all the legal infrastructure is there to protect you…” It was not; it is now, to a much greater extent.

Sue Williams  09:03

Well, hopefully because David Chandler is going in and inspecting these buildings as they’re going up, hopefully, they’re not being built with the same defects. But for those buildings that have already been built and do have terrible defects, it’s an appalling situation.

Jimmy  09:22

They have this thing called Project Intervene, which is for buildings that are less than six-years old, which is still covered by the warranty legislation. And the office of Fair Trading and the office of the Building Commissioner will intercede and give people advice and negotiate on their behalf, I believe, with developers, to get them back into the building… To fix stuff that needs to be fixed. Which is great, for those relatively new buildings. The ones that are under six-years old; it’s terrific. Because as we know, as we’re constantly hearing (and certainly was the case in Otto 2), most of the owners had no idea what their rights or responsibilities were and that’s just such a typical story, right across strata; everywhere across Australia. People are buying into apartment blocks, and they’ve got no idea what they’re getting into. And they’ve got no idea what the problems might be, or certainly, how to fix them when they occur.

Sue Williams  10:25

Has Otto 2 been fixed?

Jimmy  10:26

Well, I don’t know. They’ve got the money to fix the balustrades. I think there’s a bit of concern around that the money they’ve got could be used to initiate further legal action, which I think the office of the Building Commissioner would be very annoyed about, if that was to happen.

Sue Williams  10:50

It’s understandable, though, isn’t it, because you get so angry. You really want to punish the people who’ve put you through this terrible situation.

Jimmy  10:57

Absolutely.

Sue Williams  10:58

Even if it’s not in your own interests. When people have taken advantage of you in your own home and it’s had such a terrible effect on you and your lifestyle and that of your family… You just kind of want to get even, and that’s what lawyers want to hear, isn’t it? They want to deal with angry people, who want to spend their money.

Jimmy  11:19

They are the five favourite words that a lawyer wants to hear; ‘it’s a matter of principle…’

Sue Williams  11:25

That’s right. So what’s David going to do with this case study now?

Jimmy  11:29

Well, he’s trying to get people to read it. You know, he’s trying to get it out there. And in some ways, it’s a little bit counterintuitive, because his crusade at the moment is to convince people that it’s worth taking the risk to buy apartments off-the-plan. And so that that money keeps coming into the apartment industry and apartments are getting built, but without the high-risk that we’ve known for years. And this report kind of highlights all the risks. In a way, it’s undermining what he’s trying to do, but his argument is, it actually shows you the kind of problems you can avoid, and how these things can be resolved now, that couldn’t be resolved in the past.

Sue Williams  12:15

So you can go in with clear eyes, really.

Jimmy  12:17

One of the elements of this that fascinated me; because I’ve always thought that David Chandler came in and said the government wanted him to sort out the certification thing and make sure that certifiers were much more diligent and professional and reliable, when they were covering buildings; signing off on buildings… There’s figures here; the original Otto 2 certifier, based on the legal requirements that they had at that time, charged $41,000 for certifying the building. He says that under the current legislation, that bill would be $340,000.

Sue Williams  13:07

Wow!

Jimmy  13:08

On this building, that would mean the cost of certification went up from $300 per unit, to $2,377 per unit, which sounds like a huge deterrent against having a more reliable and diligent certification process. However, David Chandler says because it wasn’t properly certified, they ended up with the owner spending more than $750,000 in legal and expert fees, and the developers adding in their legal and expert opinion fees, bringing up the total costs combined to $2.5 million, which works out at $17,500 per unit.

Sue Williams  13:58

Wow! So if it had been properly certified in the first place, it would have been a lot cheaper?

Jimmy  14:02

It would have cost them, you can say, $2,300 and that would have saved them $17,500.

Sue Williams  14:10

So sorting out the system now, means that it’s so much more efficient; it just works better.

Jimmy  14:18

And is more reliable. As we constantly say on this podcast, it costs 10-times as much, to fix problems once the building’s finished, as it does to fix them while you’re building it. That’s another object lesson in spending a little bit more money to save a lot more. And also save all that (as we know, only too well),  emotional grief… The pain; the strain, of having to go through these things, and the misery of not being able to step out on your own balcony.

Sue Williams  14:51

Oh, absolutely.

Jimmy  14:58

It’s interesting, in some of the summaries at the end of the report… Some of the people who didn’t want to take part. A lot of the owners didn’t want to take part and they believe it’s partly because they were just sick of it. They didn’t want to talk about it any more; they just wanted it to be fixed. The lawyers didn’t want to take part; the strata managers either didn’t respond, or declined to take part. But one of the things that came out was the bond… You know, the building bond, that was going to save the industry, a few years ago?

Sue Williams  15:32

Was it 6% or something?

Jimmy  15:34

2% of the final cost. And everybody’s saying, it’s just not enough. And it’s too hard to get it back. It’s too complicated… It’s just a kind of half-baked system, that was never going to work anyway. And we all knew instinctively, that 2% was not going to be enough for a lot of buildings. And we also knew that builders would just factor that into the cost of the apartments anyway, so it wasn’t going to deter them from dodgy work. It’s a really interesting report. Like I say, it’s more than 30-pages. Very, very detailed, but kind of like a bit of a parable of how you can not do the right thing, and how it just gets worse and worse and worse. And of course, the only people who benefit in all this are the lawyers.

Sue Williams  16:29

Were you talking about getting David into the podcast maybe next week, and having a chat about this?

Jimmy  16:31

I’m hoping we’ll get him on here next week and he can answer some of these questions. But I’ve written about it for this week’s column in the AFR. I think I rewrote the thing about four times, because it’s so detailed. You end up going “look, I can just skim the surface here and people can read it on their own.” When we come back, we’re going to talk about something that’s maybe a bit more positive and that is artificial intelligence in apartment buildings.

Sue Williams  17:07

It’s funny when you said “we’ll talk about something more positive,” and I thought “oh, he’s not going to talk about AI.” I keep thinking really negatively about AI, just because I’m a writer, and I’ve seen how Chat GPT can emulate good writing and create good writing and it makes me feel really threatened.

Jimmy  17:34

Well, what I’m reading about Chat GPT is that it will emulate competent writing. It will not emulate good or great writing, because that needs the little bit of…

Sue Williams  17:52

The grey matter that we have.  Very colourful.

Jimmy  17:53

I was just reading Mark Twain the other day, funnily enough. He used the phrase, on entertaining people in bars “you can feed them and you can smoke them.” It’s a use of language there, which we know is not literally correct, but you get the impression. I’m not worried too much about AI. I’m trying to think of ways I can use it, to make my life easier.

Sue Williams  18:26

In apartment buildings, it could be really useful, because there’s companies appearing now, talking about how AI can really help the working of apartment buildings. And it’s things like aggregating building data… Kind of working out how to optimise performance of buildings. And it would be things like using energy not at peak times; using energy off-peak and so bringing down everybody’s bills. Using water off-peak as well, bringing down people’s bills. Say in our building, in our car park, we’ve got fans that come on at particular times, which are kind of peak -times, to try and dissipate the fumes. The fans are set at certain times, that we know are peak-times. Morning people are going out and night-time people are coming back in. But with AI, they’d be able to come on instantly, whenever fumes got to a certain level and switch off instantly as soon as fumes dissipated a bit.

Jimmy  19:31

Or it could be that the artificial intelligence in the computer that runs the building actually works out how often the doors open and close to let vehicles in. So you know, that’s probably a simpler way of working out how…

Sue Williams  19:47

Not if their electric vehicles, Jimmy.

Jimmy  19:49

Well, they’ve still got to open the door… Oh, I see!

Sue Williams  19:51

If they’re electric vehicles, then they’re not creating fumes.  But then again, maybe the AI will be smart enough to be able to recognise EVs and distinguish them from regular cars.

Jimmy  20:05

Talking about electric vehicles; that’s one of the things that is already in some of the electric vehicle charging systems. If you had a dozen EV charging links hooked up, and they’re all working at the same time, the systems that exist at the moment, they’ll deliver the power equally to the vehicles. But as soon as one vehicle is charged, then it switches to the other point, and boosts the power that they’re getting. They also work out the peak usage in the building, which tends to be apparently, between five and seven o’clock in the evening. People come home, they switch on the air conditioning, switch on their TVs, start cooking, switch on their extractor fans and all that stuff. In some of these buildings, if you put your car on charge, it’s not getting charged at that time, because there’s a limit to the amount of electricity you can pump into any one building. So you know, AI is already working to some extent. But I have this vision… You’re driving back to your apartment block, you press the electronic key. The gate opens, the lift gets called at the same time. The aircon in your flat turns on…

Sue Williams  21:29

And their lights.

Jimmy  21:30

The lights come on, the bath starts running, the kettle gets switched on, the coffee machine starts.

Sue Williams  21:36

The dinner cooks.

Jimmy  21:38

The oven switches on. Basically, whatever you want, it will be ready for you.

Sue Williams  21:45

Well, that sounds a lot more attractive than the way I was thinking.

Jimmy  21:48

You come in the front door and the lift is called and takes you to your floor. You don’t have to fiddle around; you use one key once at the front door to get in and it’s already calling the lift, and the lift is already programmed to take you to your floor and no other floor.

Sue Williams  22:08

And maybe, it will just read your irises and so you wouldn’t need to remember your keys at all. Everything will be absolutely automatic.

Jimmy  22:17

But it’s got to be very clever. I mean, we were just talking about this on the forum the other day, about your people trying to deter people… It’s actually about sex workers in apartment blocks. I said, look, it’s not the sex workers that are the problem, it’s the clients and if you deter the clients, then that’s the thing. So you put cameras up, so that people know they’re being photographed or filmed. And then maybe you build that into the entry system, so that the camera on the entry system has to see a face. Now we have that already; we can see when people buzz on the intercom. And somebody wrote in and said “well, people get very good at just covering their faces with a hoodie and a mask and things.” But there are entry systems now that will recognise a face; ie, they will say ‘this is a human face,’ but not necessarily identify the person. They’re set up to recognise ‘okay, this is a genuine human being, who is not trying to disguise their looks,’ but they won’t actually register who that person is. Having said that, there are systems now that are so sophisticated, that you could programme in friends and family, who would just come to the intercom, press the button and it would let them in, because you’ve programmed that to allow certain faces to come into the block. I think it’s generally advantageous.

Sue Williams  23:47

I think probably commercial real estate is using it a lot more than residential real estate so far, but residential will follow the lead of commercial. You know, because commercial, they kind of want to optimise the number of lifts that are being used all the time, that kind of thing. And also, they’re doing lots and lots of remote monitoring of spaces to see which spaces are used the most. So therefore, they can introduce more meeting spaces, or introduce more quiet spaces, depending on people’s use of them. And that’s going to happen much more in residential, I think, from now on. It’s interesting, because residential apartments; we often have little spaces that are never used for much. But when we kind of look at how people are using their homes, we might be able to say “well, that big store room that nobody’s ever used, we should fit that out as a working-from-home office, and people might be able to use that in that way. That part of the garden that nobody really uses… We should put out some chairs and tables and people could go and work out there, as well.” So there’s lots of uses for that information-gathering. Once you’ve worked out what people are doing, then you can work out how the building can operate more effectively and efficiently.

Jimmy  25:00

I think some people (just as you’re freaked-out by the idea of computers writing stories that you would otherwise be doing),would be freaked-out by the idea that every move they make is monitored by a computer.

Sue Williams  25:16

But you could just do that for two weeks; you could tell everybody that it was an experiment for two-weeks. And then that two-weeks could be the blueprint for the rest of the year. And then the next January, you could do it again, to see how uses of space have changed.

Jimmy  25:34

I think people who live in apartments have always been monitored by somebody. Somebody hanging out the window, peeking from behind the lace. Just call the computer Mrs. McCluckey and people will get used to it. All right, I think we’ve given that one a good kick-around and here we are, half-an-hour into a podcast that I thought we wouldn’t have enough to talk about. I’d better get on with editing it. Thanks, Sue for your contribution, as ever. And thank you for listening. Maybe, we hope, next week we’ll be talking to David Chandler about the case study.

Sue Williams  26:16

Great. See you then.

Jimmy  26:20

Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website, flat chat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favourite pod-catcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you’ll get this podcast every week, without even trying. Thanks again. Talk to you again next week.