“Holdout families have nowhere to go because the government has taken a cowardly and callous position, waiting for the affected homeowners to die.” JON STANHOPE & KHALID AHMED reveal how Mr Fluffy homeowners were pushed into a corner. 

In part three in this series we highlighted the alleged behaviour of the Asbestos Response Taskforce officials, as documented in a report prepared for the ACT government.

If the behaviour of the officials implementing the scheme could rightly be classified as atrocious, the scheme design was fatuous – seemingly thoughtful but deeply flawed.

This could surely not have been accidental, noting the considerable scrutiny of it by the Standing Committee on Public Accounts and the more than 50 submissions from individuals and professional organisations raising concerns about a range of issues.

It must be said that it is difficult to not conclude that there was a degree of cynicism in the design of the scheme.

Its salient features were:

1. The scheme was voluntary. The transaction being between a willing seller and a willing buyer.
2. An eligible homeowner would receive:
   1. the value of the affected block (house and land) as at October 28, 2014; 
   2. an additional $1000 (inclusive of GST) to cover or contribute to legal fees incurred in attending to the surrender, and a right to a waiver of stamp duty on a residential property purchased in the ACT; and
   3. a first right of refusal to purchase the affected block (at full market value, to be determined at the time of purchase) after it is remediated.
3. In exchange for this package, the homeowner was required to surrender their interest in the affected block.
4. The homeowner was also expected to waive their right to pursue legal action against the territory and the Commonwealth in relation to any financial loss because of purchasing, living in or any other interest in the affected block. 

For space considerations, we have not provided a detailed analysis of the scheme here, but highlight the significant design problems, relating to an information imbalance; hidden and increasing costs for homeowners; planned government gains at a homeowner’s expense; and policy “dead ends”.

The Standing Committee noted that there appeared to be little information about options available to homeowners who did not sign up to the Scheme – in particular, for the longer term.

The following response from the then Chief Minister, Katy Gallagher, is relevant in many respects, and provides an insight into the government’s thinking.

“Yes, it is vague. My hope is that people take up the offer of the buyback and do not take it up under the feeling that they are being threatened with an inferior offer. That was the reason behind having 30 June next year as the cut‐off point. In a way, that will clearly show how many people are in and how many are out. 

“In a sense, we can deal with that issue then. But I accept that people want to know what the options are. We have not taken any decision other than that all of these homes need to be demolished. 

“That is the clear advice. There is no other way. There is no other way to make these homes safe. That even goes for the homes that have very little contamination. Because what they continue to have is contamination. Yes, it might be a little, but they are contaminated. 

“They therefore are worth less than the market value and at some point in time someone else is going to have to deal with it, and they have ‘Mr Fluffy’ well and truly stamped all over their file.

“That is a problem for any member of the ACT community. That is the decision we have taken. Every house has to come down. The buyback scheme provides the voluntary opportunity to come in and realise the financial investment.”

–Standing Committee on Public Accounts Inquiry Report (2014)

The three main takeaways from Ms Gallagher’s summary of the options available to the owners of Mr Fluffy houses were:

Firstly, she acknowledges that the government’s position was vague. That was by design – the government wanted to see how many people would take up its preferred scheme before disclosing any other option(s). However, homeowners, as the Committee rightly noted, could not make an informed decision if they did not know what the alternatives were.

Complicating the decision making was a requirement that homeowners electing to participate in the scheme obtain a certificate of legal advice. The Law Society of the ACT highlighted a fundamental problem arising from the government withholding information, stating that “if legal practitioners are to properly advise their clients, it is important that the ACT government disclose exactly what it intends to do in the future should owners decide not to opt in to the buyback scheme” and that “it is not reasonable to expect affected homeowners to make an informed decision on whether to opt into the scheme in the absence of knowing what the effects will be should they decide not to do so” 

In a truly Kafkaesque move, the government next required affected households to provide a certificate that could not be produced because the government withheld the necessary information to produce the certificate.

Relevantly the government also resolved that the affected houses were uninhabitable and posed a serious public health risk that could only be ameliorated by demolishing the dwellings and thus justifying a regulatory response.

Developing a scheme based on a voluntary opt-in would thus become a false choice and a “game” between the government and homeowners.

The chief minister also acknowledged that the contaminated houses were worth less than the apparent market value. The key question then was who wears that loss, as well as the cost of remediation including the value of the standing dwelling, its demolition, the clean-up of the block, and a replacement dwelling?

As is evident from the comments of affected homeowners, they incurred significant financial losses. We will provide an estimate of the costs transferred to the affected homeowners in a subsequent article. It is notable, however, that this was not a mere unintended consequence but was in fact designed into the scheme.

The price offered to homeowners was based on valuations as at October 2014, while the actual handover was much later. The remediated blocks were offered years later at the market value at that time. Homeowners were advised that their land would be offered at a 25 per cent mark-up, which was consistent with the financial modelling provided by Treasurer Andrew Barr to the Standing Committee.

The government set out to pay less and charge more

Over the eight years of the program, prices in the market increased by more than 80 per cent due in large measure to the government’s deliberate constraints on land supply. 

In reality, the sale back offers were at a much higher price than even the 25 per cent mark-up advised. Only a fraction of affected homeowners were able to move back to their blocks, with the majority having to relocate to other places or interstate.

In short, the government set out to pay less and charge more, in a market that it controlled and manipulated, forcing relocations.

The valuation process was opaque. The homeowners were not provided with the instructions to valuers engaged by the Taskforce, and as such did not have the information required to challenge a valuation.

If a homeowner disagreed with a valuation, a rather authoritatively titled “presidential determination” was introduced to provide a final binding price.

This determination was not provided by the president of a tribunal, but rather – with respect to the profession and the position – by the Australian Property Institute.

We regard this as an extraordinary dereliction of responsibility and an inappropriate transfer of executive responsibility in situations in which an affected homeowner believed that they were not being fairly compensated.

Homeowners faced the threat of compulsory acquisition if they did not join the scheme and were allegedly advised that the compensation would likely be much less. 

In our view, compulsory acquisition would have provided a fairer and more just financial outcome, compared to one determined by valuers instructed in secret, in a manipulated market, and paid by the government.

This brings us to the policy dead end: while the government has repeatedly said that it reserves the right to compulsorily acquire the remaining dwellings, it has not done so knowing that the costs (ie, compensation payable) would be much higher than its “voluntary” scheme. That would open it to claims of unfair treatment and inadequate compensation by those who were forced to join the “voluntary” scheme.

This is a dead end by design – the Carvalhos (who we referenced in our first article) and families like them have nowhere to go, because the government is loath to wield the compulsory acquisition “stick”.

The government has apparently, therefore, taken a cowardly and, we believe, callous position, and is simply waiting for the affected homeowners to die.

Jon Stanhope is a former chief minister of the ACT and Dr Khalid Ahmed a former senior ACT Treasury official.

‘Surrender home or be harassed to your graves’