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Rectifying an information and evidence shortfall in the now widely cited building and construction crisis needs to be an important part of improving policy making and regulation. 

The construction and mainstream media are currently replete with claims of a latent defects crisis in the residential apartment sector, which is said to be symptomatic of a wider crisis-of-confidence in the general construction industry. The media are having a field day unearthing ever more outrageous examples of latent defects that are undoubtedly having a major impact on peoples’ lives and consumer perceptions of the multi-unit apartment market. 

The various chickens in this complex story are seen to be coming home to roost. There is a growing fear in the development industry and government that residential apartment building and in particular the build-for-sale-off-the-plan business model that has powered housing supply to new heights in the last decade, while driving the wider economy and underpinning urban planning strategies to densify cities, has come to a shuddering stop.  

As a result, and after years of inaction, there is now a flurry of legislative changes being proposed that aim to curtail the likelihood of latent defects occurring in future developments.  

But without wishing to query the need for reforms (and the almost universal support for them), there is also a need to step back a little and ask a number of simple questions: does this constitute a “crisis” in multi-unit housing?; what does the evidence put forward so far tell us about the scale of this crisis or the risk that various defects will arise?; and what does a”defect” actually amounts to in this context?   

First, the evidence. We need to be clear about what the evidence  actually tells us. For example, the widely cited 2018 Building Confidence report by Professor Peter Shergold AC and Ms Bronwyn Weir was originally commissioned to examine compliance and enforcement problems within building and construction systems across Australia that were affecting the implementation of the National Construction Code. 

A wide range of problems were set out in the terms of reference, but none specifically referred to the extent of latent defects in buildings. As a result, and contrary to what is being portrayed by some commentators, the review did not produce any statistical evidence to this effect. 

Despite wide ranging consultation meetings and submissions as well as reviews of previous reports and other material such as recent building regulatory reviews and reforms undertaken and implemented by state and territory governments, at no point were actual latent building defects looked at, either in their incidence or nature. 

While it is clear they identified a wide range of issues felt to be of serious concern and warrant action, at no point were the authors able to marshal clear evidence as to the scale of the problem.  

Another recent report, also used by the media as justification for claims that there is a defects crisis, was written by Nicole Johnston and Sacha Reid (2019). Entitled An examination of building defects in residential multi- owned properties, it was based on 11 interviews with various industry stakeholders and building professionals and 212 defects audit reports of buildings in New South Wales, Queensland and Victoria provided by three consulting and auditing companies. 

That the reports they examined recorded a high incidence of defects is not surprising – after all, they were defects reports!  But while the researchers developed a very useful classification system for building defects and indicated in which parts of buildings problems tend to occur, they were not able to indicate the extent of the actual scale of the problem across the stock. 

A third report, Governing the Compact City, produced by the City Futures Research Centre at UNSW in 2012 and also often cited in the media, offers the nearest we have to robust figures on the scale and nature of defects in multi-unit residential property. The report drew on data from a statistically representative survey of over 1000 residential strata owners across NSW and addressed a wide range of strata management issues, but also included several questions about to the incidence of defects in their buildings. 

The research found that building defects constituted a major concern in strata schemes in NSW, with 72 per cent of all respondents, and 85per cent of respondents in buildings built since 2000, indicating that one or more defects had been present in their scheme at some stage.  

But again, while statistically significant, the survey was based on self-reported questionnaires from individual strata owners rather than a sample of buildings themselves.  

So, while these reports are all valuable contributions towards developing an evidence base, we still need a lot more rigorous and defendable data to properly understand the nature and extent of any defects ”crisis” affecting residential apartments in Australia. 

Clearly, with an unprecedented three royal commissions into the functioning of the industry over a number of years, there is a serious and intransigent problem which needs to be addressed. But we also need to recognise that a big part of the problem is that we don’t have a good enough information base to fully understand the problem. 

Rectifying this information shortfall needs to be an important part of improving policy making and regulation going forward. 

As well as a lack of robust evidence of the scale of the problem, most importantly there is no commonly accepted definition of what a building defect actually is.  

So we have no common standard to make a judgement against and we have no common vocabulary to effectively communicate about this critical issue to those impacted. We are clearly talking about different things to different people and yet somehow, a common perception has developed that we are in the midst of a defects crisis in our residential building sector. If there is a crisis, then it’s supported by, at best, partial data and uncertain definitions.

Based on the evidence that has been presented, we can reliably conclude that we have the basis for a hypothesis that there is a significant problem with defects in the residential building sector, but like all hypotheses, this needs testing so that policy-makers can make sound evidence-based decisions that do not divert limited resources to the wrong areas.

What all this suggests is that we need a recalibration of the building defects problem from a position of greater objectivity. We need to think more deeply about what a defect is and we need a risk-based approach where we can better understand the significance of the problem in terms of both its impact (economic, social and environmental) and likelihood (the frequency by which various types of defects are occurring). 

There is a vast amount of research in the psychology of risk that shows that lay-people tend to overly focus on impact in emotive ways, without considering the likelihood of the risk occurring. 

We are all susceptible to these psychological distortions of risk, even so-called experts, especially when the subject becomes as emotive as the current defects crisis. We all care about the people affected by these debacles, but we need to respond in a way that recognises the basic science of risk and rational decision-making, and puts good data and monitoring at the centre of how we improve building outcomes in future.

Four big areas that we need to deal with in defects

First, the debate needs to be based on a clear definition of what a defect is, which is harder than it sounds. Defects are a socially constructed phenomenon: they mean different things to different people. 

Defects are a socially constructed phenomenon that mean different things to different people

So what we define as a defect, must ultimately be driven by a societal standard, not just the opinions of experts. Ultimately, what is judged as a risk also cannot be divorced from the social context in which it sits.. This is a real issue for policy-makers in dealing with this critical issue. 

Secondly, we need to know the causes of the defects and the likelihood that they will occur, if they are to be dealt with effectively. Again, this is more complex than it may seem at first sight. We know that most building defects are complex and caused by many different actors and factors. 

In reality there is almost certainly never one single root cause. Furthermore, many defects take time to eventuate and develop from the interaction of different building systems and materials over long periods of time. Therefore, buildings that on day one fully comply with Australian Standards can be full of defects down the track. 

It’s important to note that Australian standards are a minimum standard and can be judged in highly subjective ways. 

Thirdly, defects also need to be placed in the wider context in which they occur. For example, if the maintenance regime of a building is haphazard or underfunded then defects are more likely. Is this the fault of the practitioners who designed it and built it or the fault of the subsequent building occupier or owner?  There are many grey areas here.

And finally, while the various components of the problem may be easy enough to identify, there is a need to re-evaluate the whole speculative build-for-sale-off the-plan model, with its inherent tendency towards a short-term perspective among producers, little ongoing responsibility for defects once the project is sold and perverse incentives for cost-cutting and non-compliance. 

It may well be that the built-for-sale model is past its shelf-life if future problems are to be avoided come the next building boom.

In this context, individual professionals involved in the construction supply chain may have little option but to succumb to the pressure to cut corners. It may well be that the built-for-sale model is past its shelf-life if future problems are to be avoided come the next building boom.  

Are there lower risk alternatives to this model of building apartments, based on principles of integrated procurement, that would assist in reducing the likelihood of latent defects for apartment residents? 

These are complex but critical questions to understand in order to make sound policy decisions. Good quality research and reliable evidence must represent the foundation of good policy in this area, and the reforms need to make sure we collect proper data to understand and monitor these issues better in future. 

We may well have a major problem, but we may not have a crisis. 

This is not to deny there is a problem or to give vested interests an opportunity to prevaricate against concerted action. 

Nor is it to underplay the significant emotional and financial impact of the defects of those who have been let down by the construction industry. 

Developing a more robust understanding of the problem, based on sound evidence, is a fundamental element of sensible long-term policymaking in a resource constrained and highly emotive environment, where the public and politicians want answers and solutions quickly.

Professor Martin Loosemore and Professor Bill Randolph University of New South Wales.

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