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I had an e-mail from a homeowner whose house is just a few years old and she has a musty smell in her basement. She's worried about mould - and that's smart, because in my world, a musty smell always means mildew and mould.

Mould needs a moist environment to survive, and a basement is perfect. It will grow and feed on anything organic in a basement - like wood, carpet, drywall, ceiling tiles, cloth, cardboard - the list goes on and on. Mould will send spores constantly into your indoor air, which will circulate inside your house and possibly affect your family's health.

The homeowner says, "…what I see are wet spots on the floor where the exposed concrete wall and floor meet, and behind the plastic barrier the insulation is wet. We thought it was a foundation problem, but have since been told it's condensation. But I thought insulation was supposed to stop condensation."

Yes, that's true - if the insulation is installed correctly.

Condensation occurs when either warm moist air in the house makes contact with a cooler basement wall or floor, or cool, air-conditioned air makes contact with a warmer wall - like the top part of your basement wall where it's above grade. In a basement, probably both situations are happening, depending on the season.

The lower part of a basement - where the floor and wall are below the level where soil is affected by surface temperature - generally stays about the same temperature year round. But above that, it gets warm in summer and cold in winter.

The concrete in your basement walls and floor will absorb the heat from the exterior temperature in the summer, which makes it warmer that your conditioned air. When the air in your basement meets the concrete wall, the moisture in it will condense and your walls will sweat. And drip. And puddle. And soak carpets and wood and lead to musty smells and possibly mould.

In the winter, the reverse happens. The walls and floor are cooler than the heated air and when they meet, again, condensation forms.

Don't forget that most of the moisture in your home is created by you - through showering, cooking, laundry and just breathing. You need to properly ventilate your home. And make sure that your dryer, if it's in the basement, is properly vented to the exterior; it gives off a huge amount of warm, moist air every time you use it. You can also use a dehumidifier.

You should insulate anything that gets covered in condensation - like cold-water pipes and ductwork. Better yet, and especially if you are planning to finish your basement and make it a living area, make sure you properly insulate the walls and floor.

In my letter writer's basement, the batt insulation and vapour barrier comes only partway down the basement wall. In many areas, new-home builders are required to insulate only the top part of basement walls - the part that's above the frost line and most exposed to exterior temperature changes. That insulated portion is not a complete thermal break. Cold and hot can still meet below the insulation. Moisture forms on the inside surface of the plastic sheet, soaks the insulation, and water drips out the bottom.

You need to insulate the entire wall and floor, providing a thermal break with a vapour barrier to completely separate interior conditioned air from exterior air. (We say "conditioned" because that means it's either warmed in winter or cooled in summer. It's not the same as the exterior air).

You need a thermal envelope to stop the air movement and vapour drive from exterior to interior that leads to condensation. Without it, you'll always have that two-season cycle of constant condensation and the musty smell in your basement.

Mike Holmes is the host of Holmes on Homes on HGTV. For more information, go to