A building insurance expert says the government's plans to shake up the building and construction sector will remove the already inadequate protections in place for homeowners and lead to more of them footing large bills for shonky building. Gill Higgins reports.
More misery for homeowners? – Watch this story on TVNZ+.
The Government wants to move to proportionate liability where each party only ever pays their share. (Source: 1News)
“More misery for homeowners.” That’s the stark warning from building insurance expert Duncan Colebrook as the government pushes ahead with its shake up of the building industry.
The goals sound positive: speed up building consents, and stop councils – and ratepayers – from footing huge bills, as seen during the leaky homes crisis. But critics say the way ministers plan to get there could backfire badly.
One of those critics is Duncan Colebrook. He’s the Director of Stamford Insurance, New Zealand’s only insurance-backed builder’s guarantee. He’s been involved in discussions with successive governments about these changes and, in his view, the latest proposals spell disaster.
He’s particularly worried about plans for remote inspections and to allow “trusted” builders to sign off their own work. He says it risks undoing hard-won gains. “The victories of the past 20 years have been the improved training of inspectors and the stricter consent process. And I think it would be foolish to throw that away.”
And who exactly counts as a “trusted” builder? Homeowner advocate John Gray points to the case of John MacDonald, a former Master Builders national president, ordered to pay hundreds of thousands in costs this year after using clients’ money to invest elsewhere and delaying court proceedings. “It's a cesspit. I know there are some really good builders out there, but these scumbags drag them down”.
They drag families down too. As reporters on Fair Go, time and again, we saw the impact of builds that went wrong. Families left with huge costs, houses that couldn’t be sold, builders vanishing or simply refusing to pay.
Gray says that even with proof of fault, “the only way to get justice is for homeowners to spend money they don’t have. And these companies know that.”
But the government reforms affect more than just how inspections are carried out.
The Building and Construction Minister Chris Penk wants to change who should pay for faulty work saying, “it’s time to put responsibility where it belongs”.
The proposal is to shift from the current liability model where the financial burden can rest with just one of the parties at fault, if the others have gone into liquidation or disappeared. In practise, this leaves councils at risk as it’s builders and developers who may be insolvent.
To avoid this, the government wants to move to proportionate liability where each party only ever pays their share. The idea is to create more personal responsibility.
Better homeowner protection needed
Research provided to the Ministry of Business, Innovation and Employment (MBIE) showed that between 2008-2018 an estimated $332 million was paid by councils and other consenting authorities for the costs of defects incurred by other insolvent parties.
But for context, these consenting authorities also paid $668 million during this period for defects incurred by their own faulty inspections, while receiving $75 billion for work issuing building consents.
In contrast, spare a thought for the blameless homeowners who were estimated during this period to be out of pocket by $458 million.
Does Australia hold the solution?
Chris Penk acknowledges better homeowner protection is needed. He says the solution is to “copy Australia”, where warranty schemes fill the gap.
But critics say that’s little comfort: in most Australian states, payouts only apply if a builder dies or disappears and, even then, they’re capped, mostly at AU$200,000 to 300,000. Colebrook gives an example from New South Wales, “The cap on policies there is AU$360,000. That goes nowhere if you've built a house for $1.5 million.”
What’s more, the rising number of claims in Australia has driven some insurers out of the market entirely.
After consideration of all these factors, the Law Commission and a previous National government warned against such a move back in 2014. Colebrook too remains unconvinced.
“The proportionate liability system just doesn’t work. It would make it almost impossible for homeowners to bring a successful action.”
However, Penk says he has the backing of many in the industry and that the research provided to MBIE in the past few years supports a shift.
In Gray’s view it could work, but only if insurance or guarantees are compulsory, the insurance kicks in even if the builder is solvent, and payment caps are high enough to cover the costs of rebuilding.
The government has yet to decide on the details but insists its proposed changes are sorely needed to get the construction industry back on its feet.
More misery for homeowners? – Watch this story on TVNZ+.
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