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No price stigma for ‘tactically’ remediated leaky homes

Leaky family homes that have been fixed, made weathertight and reclad in non-monolithic cladding have the same market value as unaffected dwellings, according to research just published.

The paper, ‘Stigma, risk perception and the remediation of leaky homes in New Zealand,’ by Michael Rehm, William Cheung, Olga Filippova and Dipesh Patel, from the University of Auckland Business School’s Department of Property, found that the value of leaky homes that had been remediated and reclad in non-monolithic cladding systems, was on a par with ordinary dwellings.

A building becomes ‘leaky’ when water breaches its external cladding and is unable to evaporate or drain easily. When left unattended, the trapped moisture can cause the building’s structure to decay and corrode. Aside from the risk of structural failure, mould can grow within building materials and create health and safety hazards for the occupants.

One detriment of New Zealand’s leaky home crisis is the stigma that afflict particular architectural features linked to leaky homes such as monolithic cladding - exterior walls finished with a continuous surface.

The research defined stigma as ‘the blighting effect on property value caused by perceived risk and uncertainty’. The stigma of leaky buildings can be classified into two forms: general market stigma and post-remediation stigma.

General market stigma refers to the market effect due to the perception of weathertightness risks associated with monolithic cladding. Post-remediation stigma is purported to be an additional effect that’s invoked following remediation works. It involves market perception that a home that leaked in the past but has been repaired is more likely to leak in the future, versus 'ordinary' homes that have never leaked. This stigma is irrespective of a home’s cladding type.

Post-remediation stigma damages are often claimed in legal proceedings during leaky building litigation. Despite millions of dollars in post-remediation stigma claims, no empirical analysis has previously been undertaken to determine whether post-remediation stigma is a genuine phenomenon that affects property values.

The main form of remediation in relation to a leaky building is the practice of recladding. This is the process of removing existing cladding from the affected property, assessing the condition of the structure, replacing damaged framing and reinstalling new cladding over a drained and vented cavity.

Using detailed sales data from the Auckland single-family housing market combined with building consent information to identify properties that were recently reclad, the researchers analysed reclad homes against non-leaky home sales.

Houses that had been remediated and reclad using a non-monolithic cladding system showed no ill signs of stigma. However a general market stigma discount of six percent persisted where homeowners opted to install a new monolithic cladding system as part of the remediation. This was a slight improvement on the nine percent general market stigma discount found to affect monolithic-clad houses that had never undergone remediation.

“Our study shows that post-remediation stigma does not exist in the Auckland housing market,” says lead author Dr Michael Rehm. “It also sends a message to leaky home owners that they should tactically consider what cladding system they chose when recladding. Choosing to install a new monolithic cladding system versus an alternative will likely attract general market stigma and devalue their home.”

The study has been published in New Zealand Economic Papers and is available online at https://www.tandfonline.com/doi/full/10.1080/00779954.2019.1631878.


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