What Can Be Done About Faulty Building

Many of the deaths in the recent Turkish earthquakes could have been prevented had there been better laws and better enforcement of the existing lax laws on construction in that country. The Irish government is to spend up to €2.5bn of taxpayers' money in remedying faulty buildings, on top of the €1.5bn of taxpayers' money to be spent remedying the mica building block scandal. The deaths in the Grenfell fire tower in the UK revealed that many high-rise buildings there are dangerous. While we know it is because of poor and unenforced building regulations that these disasters occur, it is worth examining the best remedies to mitigate them in the future.

Conservatives argue that less regulation reduces the cost of providing goods and services. This is correct. But the benefit of reduced costs goes to the provider, and the cost of cleaning up problems falls on consumers and, too often, the state. The cost of the banking and financial fiasco in Ireland -€64bn - was picked up by the taxpayer. The banking collapse of all six Irish banks was largely because of the lack of regulation of an exuberant and greedy banking sector. In the case of poor building regulations, whatever gains were made by the builders are greatly exceeded by the €4 billion costs of remediating these buildings. With this €4 billion, we could build 12,862 new homes today (the average house price in Ireland is €311,000). The loss of life in Grenfell and Turkey is impossible to remedy with money. Ireland has a prolonged housing crisis, and the massive remediation of buildings will take tens of thousands of workers away from building new houses to this remediation.

Good regulation

Good regulation does not mean heavy regulation, which could be burdensome in some areas, such as child care. In low regulation UK, its government has still not got an agreement with suppliers on its voluntary scheme to cover the cost of remediating the many buildings there, revealed following the Grenfell Tower fire.

Construction Remedies Explored

i) A levy on All Builders/Buildings

Today, Irish people still have to pay a levy on all their own insurance policies on cars and homes. But we also have to pay the insurance levy on all commercial buildings - the supermarkets, doctors' surgeries, pubs etc. This is because of the collapse of the Quinn pyramid. That company was not properly regulated by the Central Bank.

Is such a levy on all buildings in Ireland the answer to bad building practices? There would be great difficulty in designing such a levy; it would penalise the compliant builders, of which there are many, and its operation would be very difficult. A levy is best avoided.

ii) Better Regulation.

A key part of the solution to defective construction is through a deep reform of building regulation. Part of the solution would be to have a national building standards agency, supported by reformed local authorities and whatever other national agencies which could be helpful such as An Bord Pleanna, HSA, the EPA etc.

iii) Enforcing Regulation.

It's well recognised that Ireland suffers from "an implementation deficit." This is where we may have good laws, but we actually do not enforce them. The building control regulations 1997 to 2021, were largely unenforced. The planning enforcement sections of local authorities need to be beefed up; to be proactive; and to oversee building safety. In addition to good regulation, we need a reform of company law, particularly around the operation of building companies.

v) Reforming Company Law

Many developers and builders collapsed after the 2008 crash and were rescued by the state through NAMA (the state's National Assets Management Agency). Many builders and a surprising number of speculators are back in operation. This is strange as their collapses were often spectacular. It appears as if either there are no laws on phoenix builders/speculators, or they are easily avoided or unenforced.

Phoenix companies operate where a builder sets up a company to build a project and shuts it down immediately on completion to avoid paying creditors such as smaller contractors, workers, the home purchasers or remediations. The builders then rise up again with another company or two. In addition, finding out who are the real beneficial owners of companies has been difficult, with some hiding behind groups of companies in Ireland and abroad and through unlimited liability holding companies to avoid liability and to hide financial information from trade unions, citizens and small businesses.

There have been some improvements in the disclosure of the beneficial ownership of companies in the EU. However, recently, there was a deep blow against the disclosure and transparency of finances and ownership by the European Court of Justice. It decided in a recent ruling that access to the real ownership of companies is to be curtailed. It found that the general public's access to information on the beneficial ownership of companies constitutes “a serious interference with the fundamental rights to respect for private life, and to the protection of personal data”. Unbelievable! The Financial Times, in an editorial (1 Dec 2022), said, "Thanks to a judgment from the European Court of Justice, trying to pin down the real owners of such assets has become harder, much to the relief of oligarchs — and kleptocrats — under sanctions everywhere. The judgment is a blow to EU efforts to slam shut Vladimir Putin’s war chest through sanctions. This controversial and anti-public interest decision has to be reversed fast.

v) Go After the Directors

In addition to strengthening the laws on phoenix building companies, it is essential that the state, companies and individuals can go after individual directors who are not compliant. One reform should include director's identification numbers to allow tracking of all directors across companies and countries. Australia has already adopted this, and New Zealand is considering it to prevent the illegal phoenixing of companies and to allow citizens to follow the activities of dodgy directors through the Companies' Offices there and elsewhere.

Conclusion - Good Enforced Regulation and Reformed Company Law are the Answers.

It is important that there is good regulation in the 21st-century economy where the state and market interact all the time. Just as cumbersome, bureaucratic heavy regulation is no solution, we now know that when there is little or no regulation, it fails and that this is immensely costly. There has been progress in the reform of banking in Ireland since the crash. Reform of building regulations needed and its enforcement by a national body, assisted by beefed-up local authorities and other state agencies as necessary.

Further, this must be done in conjunction with a major reform of company law, especially around the operation of building and development companies together with a register of all directors' interests, and with far greater disclosure of the beneficial owners of all companies in Europe.

Posted in: Housing • Inequality

Tagged with: corporatesocialresponsibility • equality • housing • infrastructure • policing

Paul Sweeney     @paulsweeneyman

Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.