Black mould is being uncovered in the walls of defective apartment blocks, in what experts describe as an "absolute catastrophe".
Workers have laid bare wall cavities riddled with black mould and rotten timber in poorly constructed apartment buildings that have been assessed under Victoria's cladding rectification regime.
One of the buildings identified — an 81-dwelling apartment complex in Clayton in Melbourne's south-east — has internal framework which has been substantially rotted out by water damage and mould.
Images supplied to the ABC show extensive black mould spreading from wall cavities into insulation, timber and plaster.
The building is one of hundreds of Melbourne blocks covered in expanded polystyrene (EPS) cladding, an exterior material that can pose a significant fire hazard due to its combustibility.
In the wake of the 2017 fatal Grenfell Tower fire in London, authorities in Victoria have been working to audit and rectify buildings using dangerous combustible cladding.
The state has since put a ban on the use of the EPS material.
But experts say in some cases the material has led to building damage so severe that apartment complexes could be deemed worthless.
"What's happened in Victoria with these cladding projects where EPS has been removed is they have found a prevalence of mould inside the wall system," said building regulation consultant Bronwyn Weir.
Ms Weir was charged with reporting on apartment standards to every state and territory government in 2018.
While she could not comment on individual buildings, she said the problem was widespread.
"And so the mould in some cases has begun to rot those timber frames and make them structurally compromised, as well as of course getting to the plaster and other components or elements of wall systems."
The Victorian government scheme, set up to remove the cladding, is helping some owners pay for its removal but the funding does not cover mould damage.
"Mould is a result of poor building construction or maintenance or both rather than the product of a specific type of cladding," a Cladding Safety Victoria (CSV) spokesperson said.
"CSV was not created to provide taxpayer funds to private owners to fix defects in their buildings but to help owners to reduce the risk of fire where combustible cladding is present," they said.
Ms Weir said the damage bill was often significant.
"It is an absolute catastrophe because if there's significant mould issues, the cost to rectify might well exceed the value," she said.
"Some of these buildings could potentially be a write-off."
The ABC understands the Clayton site was given $3.5 million by the government remediation fund to fix the cladding, but builders could not rectify the issues because the damage underneath was so substantial. They requested millions more to finish the job and left the site without completing the works.
CSV said in a statement it was "working with the owners on a solution for a highly complex building. Works will resume shortly".
Victorian builders put under microscope
The company who constructed the Clayton apartment block, which practitioners described as posing an "extreme" fire risk to occupants, continues to operate in the Victorian construction industry.
Shangri-La Construction successfully appealed a suspension from the Victorian Building Authority (VBA) in the Victorian Civil and Administrative Tribunal (VCAT) earlier this year.
VCAT documents reveal the VBA found the company had contravened the Building Act by carrying out work in breach of building regulations and the building permit and had "engaged in conduct ... that was negligent".
The authority found the building company did not have a permit for the EPS cladding and failed to install it "in accordance with the Act, building regulations and permit," thereby breaching their duty by carrying out work that would "significantly compromise the safety of the building occupants".
Neither the VBA nor VCAT ruling makes specific reference to mould damage in the property, but the ABC has spoken to building experts with knowledge of the project who claim that the black mould growth is related to defects stemming from the poor construction and installation of EPS cladding on the building's exterior.
The building company did not contest liability for the project in VCAT but sought to reduce the penalty imposed.
Shangri-La argued the suspension was "harsh and excessive" and "not consistent with disciplinary action taken against other building practitioners".
An initial fine of $57,000 was more than halved on appeal, despite the building company being found to be "negligent" and to have conducted works in breach of permits and regulations.
The surveyor on the project was also fined $14,000 and suspended for nine months, but is appealing the decision at VCAT.
Shangri-La Construction did not respond to questions from the ABC about whether they were responsible for the extensive mould damage in the Clayton building.
The ABC can reveal the Victorian Building Authority is looking into Shangri-La Construction over other properties.
Shangri-La Construction said it was "currently assisting the VBA with responses to notices issued by the BA. In Shangri-La Construction's view, it would be inappropriate to discuss those matters before the VBA process is complete".
In a statement, the company said the fine had been paid and further training required by VCAT orders would be undertaken in early 2023.
When asked about compensation to residents of the Clayton apartments, in a statement a company spokesman said the situation was "very complicated and currently before the tribunal".
"There are numerous parties involved in the current litigation, including insurers. Because the matter is before the tribunal, no further comment will be made.
"The cladding issues were widespread in the industry and have affected many builders and other professionals involved in building. These issues will not be repeated as combustible cladding is now banned," the spokesman said.
Driven to cut costs
Ms Weir said a lack of proper regulation and oversight had created a "perfect storm", that is not confined to cladding.
"We have what is now you know, a systemic failure that is quite difficult to unravel," she said.
"Certainly thousands and thousands of apartments that have serious defects in their buildings.
"So [the problem] is enormous," she said.
The Victorian Building Authority said as of November 2022, they have identified 1,934 buildings with combustible cladding and referred 631 buildings to Cladding Safety Victoria.
"The VBA has and continues to investigate and take action against practitioners who have endangered the safety of Victorians by installing non-compliant combustible cladding," it said.
Jonathan Barnett, a technical expert in fire safety engineering with more than 42 years' experience, said there was nowhere near enough funding needed to fix the problems.
"The interesting thing is before the statewide cladding audit, I would learn about unsafe, or non-compliant cladding, because of mould. It seems that mould and cladding go together, especially when we have expanded polystyrene walls," he said.
"The difficulty is their (CSV's) total budget is $600 million, and they need something in the order of two and a half to three billion dollars."
Call-out shows extent of problem
The ABC received hundreds of responses from across Australia as part of a crowdsource investigation into black mould, earlier this year.
Dozens of residents from Melbourne, Sydney, Brisbane, and Canberra claimed structural defects in their apartments had led to water damage and mould growth.
Common factors included poor ventilation, rain ingress, water-damaged ceilings and incorrectly installed exterior walls, all of which appear to have contributed to the proliferation of mould.
Residents have reported mould build-up in bedrooms and wardrobes due to the water damage, and many claimed the conditions had led to a negative impact on their health, including respiratory conditions.
A National Health and Medical Research Council-funded research project commenced this year at Macquarie University, researching chronic respiratory symptoms in relation to biotoxin mould illness.
Many of the reader submissions the ABC received referred to unit complexes built within the past two decades.
A number of residents who spoke to the ABC were unable to comment publicly because of legal proceedings against body corporates and building managers.
Ongoing legal battles
Tracey, whose name has been changed to protect her identity for legal reasons, has been fighting legal and health battles for years that she says stem from flooding and mould in her Queensland apartment.
"It's breaking [us] ... and there's nothing we can do about it," she said.
Tracey bought her 2004 apartment in 2014 and said the home had multiple issues with leaking, which stemmed from failed waterproofing from her balcony doorway and an external wall.
It took years for her to learn the extent of the issues.
She claims delays from the body corporate and poor communication only worsened the problem.
"I got a thermal test done out of my own pocket ... And they confirmed that my whole dining room area had moisture in the field," she said.
Tracey and her partner commissioned a mould report in early 2022 which confirmed there was a high level of black mould growing in the walls, and throughout the apartment.
Tracey has paid an estimated $120,000 in legal costs after filing four insurance claims in the past two years.
She has also filed for damages up to $750,000.
Tracey said since living in the waterlogged and mouldy apartment she has been diagnosed with a skin fungus that is "all over" her body.
She said her immune system had become weak and that she had experienced brain fog, anxiety, and depression.
She has relied on her father to help with the thousands of dollars of costs.
"My poor dad who is retired has been paying for all of this out of his own pocket with a loan against his property and paying off that loan from superannuation ...which breaks my heart."
Mushrooms found in buildings
In Australia, builders are required to comply with the National Construction Code, and each state has variations within it.
Oversight by licensing bodies can be weak, and experts claim the oversight from regulators of the commercial building industry is inadequate and ineffective.
Dr Tim Law, an architectural scientist and design specialist, said the problems facing apartment owners with faulty cladding across the country were serious and ongoing.
"If you're a homeowner, and you've got an issue like that, you're pretty much on your own," he said.
"You're having to navigate to the entire construction and legal minefield.
"In Frankston, probably one of the most infamous buildings ... because the cladding was done so poorly, it's breaking up, there are cracks.
"It's no longer weatherproof you're finding that you've got water running through the buildings and mushrooms growing there."
Dr Law is calling for an alteration to Australia's building standards to ensure they are consistent across the nation.
"There are massive deficiencies in the way our system works, it does not really protect the homeowners," he said.
Bronwyn Weir said no government had implemented all recommendations from her report into systemic failures in the building industry, despite being five years on from its delivery.
She said key to the reforms was funding regulators, so they could actively police the industry.
"The funding models have to be changed so that they can build these technical capabilities to go out and do the sort of enforcement and proactive work that we're seeing done in New South Wales.
"And we just haven't seen that level of investment in terms of oversight."
'We need a champion'
Mr Barnett said New South Wales has made strides in regulation with the introduction of a building commissioner.
"He has all the questionable practitioners shaking in their boots. He goes to building sites, he looks at drawings, he talks to people – and he is actually making a difference."
He said other states should follow suit.
"We have no [commissioner] in Victoria. We need a champion for the public. We need a champion for the consumer. We don't have that person," he said.
"Everybody wants to make money. There's nothing wrong with making money. There is something wrong with making money when you're cutting corners. And that is where we need a regulator."
