Insurance for new house builds and major renovations should be compulsory, submitters

Thursday, 8 August 2019

The majority of submitters on whether insurance or a guarantee should be compulsory when building a new home or doing a significant renovation want it to be compulsory.

Insurance or a building guarantee should be compulsory for people building a new home and doing a renovation over $30,000, a majority of submissions to the Government says.

And, homeowners should not be able to opt out of this.

It's one of the key proposals in a major overhaul of the Building Act 2004 which has been out for public consultation this year.

Consumer New Zealand favours renovations over $30,000 having insurance cover. If the amount is set higher at $100,000 most bathroom and kitchen renovations will not be covered says its head of research Jessica Wilson.

The majority of submitters on this issue said all residential buildings should be covered including medium-density housing, high-density housing like new apartment complexes and mixed-use buildings.

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Consumer New Zealand favours this type of insurance being mandatory. Head of research Jessica Wilson said there was a big gap in consumer protection in this area when a house purchase and renovation was the biggest purchase most people made.

Consumer was submitting on issues like this because of complaints it received from people who had building work go pear-shapped and found it very hard to get any remedy.

These people were basically on their own. The dispute was too big for the Disputes Tribunal because the cap on disputes was $15,000 and legal action and chasing a builder was very costly.

Building Act reforms are likely to be rolled out over the next two to five years.

'So there's very few cost effective accessible dispute forums for consumers,' Wilson said.

The Australian experience with building warranty schemes showed that Government backing was needed for them, Wilson said.

Consumer favoured the insurance kicking in for renovations over $30,000 rather than $100,000 because at $100,000 most kitchen and bathroom renovations would not be covered but if there were defects in them it was costly to put right.

The views of submitters have been summarised in a paper released recently by the Ministry of Business, Innovation and Employment (MBIE), covering the 470 submissions it received on seven major changes to the act.

More than 50 per cent of submissions on the overhaul of the Building Act came from engineers, builders and consumers.

The majority of submissions on the seven proposals came from engineers, builders and consumers.

Several heavyweight submitters prefer the insurance and guarantee be mandatory. They include The Auckland Mayoral Housing Taskforce, Consumer New Zealand, HOBANZ (Home Owners and Buyers Association Inc), Engineering New Zealand and the Insurance Council of New Zealand as well as councils.

Many councils were concerned they were often the 'last man standing' to meet compensation claims from homeowners, with ratepayers effectively footing the bill. They and Local Government New Zealand which represents them want the insurance to be compulsory.

Freedom of choice was the main reason for those who supported homeowners being allowed to opt out of this type of insurance.

Many builders think it will be difficult for them to gain insurance cover for new builds and renovations.

'The majority of submitters supported the proposal to require a guarantee and insurance product for residential new builds and significant alterations.

'They did not support allowing homeowners to opt out of being covered,' the MBIE summary said.

The aim of the reform is to raise the competence and accountability of the building industry to deliver better quality buildings.

The submissions will be used by MBIE to provide advice to the Minister for Building and Construction, Jenny Salesa. MBIE expects to submit a paper over coming months. Reforms were likely to be rolled out over the next two to five years.

However, the spoke in the wheel is concerns about the impact on the building sector and whether insurers are able to offer an affordable and viable insurance scheme.

Several submitters said many issues had to be thought through and MBIE needed to do more work to ensure the viability of an insurance scheme.

The Insurance Council has submitted its insurer members would prefer to see the reforms implemented for two years first to see if they were effective in lifting the building industry's performance before risking insuring new builds and renovations.

Most submitters favoured insurance for renovation work over $30,000. This is consistent with the Building Act requiring a written contract for work over $30,000.

However many said this relatively low threshold might mean less builders being available to do the work because insurers might not be prepared to insure some of them.

The Insurance Council preferred the lower threshold of $30,000 as it would mean most alterations would require insurance or a guarantee. While protecting a greater number of homeowners it would help establish a big enough pool to pay claims.

A large number of builders were not confident of being able to get insurance cover.

'Many stated that the scheme would fall over without Government intervention, and that the Government should anticipate some builders to exit the industry,' the MBIE summary said.