Accumulating problems in the apartment and multi-unit accommodation sector represent a "ticking time bomb" that the taxpayer will have to pay for in five to ten years time, an Oireachtas Committee has heard.
Representatives of the Apartment Owners' Network were before the Housing Committee today to outline the main challenges facing the multi-unit development sector.
David Rouse, of the Apartment Owners' Network, outlined that the threat of owners' management companies facing insolvency, the absence of sinking funds or 'building investment funds, and building defects are all contributing to a financial time bomb that the taxpayer could have to pick up in the years ahead.
Census 2016 recorded that about a half a million of the population live in apartments and flats, and there are about 205,000 apartments in the country.
Mr Rouse said one of the biggest problems affecting the multi-unit sector, and volunteer directors, is potential insolvency of the 'owners' management company (OMC).
He said an OMC is made up of all the owners in a development.
He added: "This risk arises from uncollected or underestimated service charges. Studies have shown that many OMCs collect less than 70% of the service costs budgeted and agreed by the community at the annual meeting.
"Research indicates that some management companies have debtor balances outstanding for five years or more. Cumulatively, service charge debt can exceed 100% of the annual budget required to run the estate."
The second issue affecting the apartments sector is the absence of sinking funds, also known as 'building investment funds.
Mr Rouse said: "Sinking fund provision is in many cases tied up in uncollected annual service charges. This means that the OMC is forced to use all of its available cash to meet the day-to-day costs of maintaining the bare minimum estate services such as insurance, waste collection, and lighting.
"The company has no cash to set aside for long-term, big ticket spending like lift replacement, or emergency fire safety repairs."
He added: "We all know the names of the apartment blocks where fire has damaged homes, damaged lives, and even, sadly, led to loss of life."
The third major challenge affecting the apartment sector is that the service charges set by developers in the early years of a development are not enough to cover day-to-day costs, and future maintenance.
The fourth big issue is the problem of building defects, which left unresolved, can lead to breaches of fire safety regulations.
Other issues include failures by OMC directors to comply with the basics of Company Law, for example inadequate accounts filings with the Companies Office, and poor management practices carried out by OMC directors.
He said: "This encompasses abuses of positions, conflicts of interest, non-compliance with the Multi-Unit Development Act, and mishandling of relationships with management agents."
He warned that where action on regulation is not taken soon it could ultimately fall on the State's resources to resolve these problems, when they crystallise in a crisis.
He cited examples already seen in high profile cases such as Priory Hall and Long Boat Quay.
He said: "It seems to us that in the absence of urgent reform, considerable funding may be required from either Local Authorities or national Government to bail out crisis owners' management companies.
Fianna Fáil's housing spokesman Darragh O’Brien said: "On the building defect side of things there has been Priory Hall and Long Boat Quay. But there are others that we don't know about. I am aware of a number of estates where there are serious building defects and the owners simply cannot afford to carry out the remediation work."
He said that the Pyrite Remediation Scheme is in place but the problem with it is that the "taxpayer takes the full hit and the industry is not levied at all." He suggested the industry needs to be brought in and levied.
Solidarity TD Ruth Coppinger said that one of the reasons for arrears with management companies is that there are a lot of absentee apartment owners who have rented out apartments.
"They are now nowhere to be found and they do not care about the maintenance of the estate," she said.