Auckland Mayor Phil Goff calls for the introduction of a building warranty or insurance scheme to avoid ratepayers forking out another $600m in a leaky homes saga; Govt to release paper on this soon

Auckland Mayor Phil Goff is making another call for central government to take the lead on enabling houses to be built more quickly in the super city.  

This time he wants to see a law change to transfer the liability of substandard building from local authorities that issue consents, to builders who do the work.  

The joint and several liability system we currently have means any party responsible for a loss can be required to pay up to the full amount of damages.

In practice councils hold the ultimate responsibly for defective building products they approve, as they are often the last ones standing with the deepest pockets.

In the wake of Auckland ratepayers footing a $600 million bill for the leaky home saga, Goff says councils are taking an overly conservative approach when issuing building consents.

He is therefore throwing his weight behind a Mayoral Housing Taskforce Report recommendation for central government to investigate introducing a building warranty or insurance scheme.

While the government has been considering this for several years, Building and Construction Minister Nick Smith says a policy paper is expected to be released within the next couple of months.

“Policy work is continuing. It is a complex issue that impacts on both the commercial and regulatory sides of the building industry,” he told interest.co.nz.

Goff: “I don’t want to see Council being excessively conservative”

At the release of his Mayoral Housing Taskforce Report Goff said he was “pretty keen” on the introduction of a building warranty of insurance scheme.

He then rather emphatically explained: “We’re all fond of kicking Council, saying, ‘This bloody building consent is taking this long and you’re being far too tight’.

“But when you consider that figure… $600 million that Auckland ratepayers have picked up because of leaky buildings; when you consider the builder may have been responsible for the fundamental defects in a property that may have cost 10s of millions of dollars; you try to find that builder today - they’ve gone, they’ve liquidated, they’re nowhere to be seen, and the liability comes back on to Council, because Council is the last person left standing.

“I don’t want to see Council put in that position. I don’t want to see Council being excessively conservative in terms of innovative building methods…

“I’d like to see a system where the builder then had to, through the insurance scheme, take responsibility for their own work. Where the ratepayer is protected and where the consumer gets more protection.

“Obviously nothing comes for free. And if you have a warranty system, the cost of that warranty comes back to the consumer. But rather that than the sorts of costs that have been imposed on Aucklanders as ratepayers and on individuals, where they haven’t been able to get any redress anywhere.”

Goff noted every state in Australia has a warranty and insurance scheme, which generally covers building work over a certain value for a period of six years.

If something like this was introduced in New Zealand, he said it would have to cover a period of at least six years.

“I know our council planners would feel a lot more comfortable if they had the surety of a warranty scheme where the insurer would only insure if the insurer felt that that particular builder was a good risk…

“If you have a consenting system where for example you have full confidence in the builder, because the builder has worked with you for many years, then the detail to which you have to carry out the inspections, and the time taken over the consent process, could probably both be reduced, without subjecting yourself to greater risk.”

A third of builders may struggle to get insurance

New Zealand Certified Builders (NZCB), which has a membership constituting around a third of builders in the residential sector, already has a 10 year residential building guarantee.

This means homeowners are covered for structural and non-structural defects, loss of deposit, extra costs to complete the dwelling and any alternative accommodation requirements if they hire a NZCB certified builder.

The cover remains on a property, even if it is sold.

The organisation’s chief executive Grant Florence says NZCA has $1.5 billion of cover underwritten by Lloyd’s of London.

He maintains transferring the liability for building from councils to builders will be problematic. He believes around a third of builders will struggle to get insurance, as their work simply isn’t up to scratch.

Florence says roughly a third of builders in New Zealand don’t belong to a professional organisation like NZCB.

Ultimately, he would like the industry to “build in quality” and regulate itself, rather than having an external party, such as a local authority issue consents.

He accepts this is a far cry, but sees merit in NZCB’s certification and guarantee system being rolled out more widely.

Law Commission recommends capping councils’ liability

This issue of liability has been on the government’s radar for some time.

In 2014, Smith said he agreed with Law Commission recommendations made at the time to retain the current rule of joint and several liability.

Yet he acknowledged: “There are, however, some issues around fairness between defendants that warrant further consideration, particularly in the building sector.”

The Law Commission suggested local authorities’ liabilities be capped, initially at $300,000 for each claim relating to a single dwelling; and $150,000 per dwelling for claims from dwellings in a multi-unit complex, with a $3 million cap per multi-unit development.

It also suggested there be “discretion to grant relief to such a minor defendant, to allow courts to do justice in particular cases. The discretion should be exercised rarely and within limits that balance the interests of the person who suffered the loss with the person who caused the loss.”

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43 Comments

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Actually holding those responsible for a problem to account.

This is NZ, that will never fly.

Insurance for shoddy work ........... Just added more costs to housing .............. excellent idea from Goofy Goff

Can someone please explain to Goff how "phoenixing" works

Exactly - time to get rid of "Limited" Liability

Dodgy is dodgy

No it's not.
Limited liability is like insurance.

Why should a poorly run company able to rack up thousands/hundreds of thousands/millions in debt that is never repaid, be "insured" at no charge?

So, why exactly do we have building standards and materials regulations? Because it doesn't seem to be achieving much in the arena of building quality.

Precisely, builder who do not build to code should be fined and if needs be bankrupted and banned from further building work

Yes builders should be held accountable at the same time authorities who passes the final product.

It is builder who at times to save money and make more profit use sub standard material.

When my house was being built, the specification said: corrugated iron cladding. Part way through, the builder asked me in such a nice way: "Can I please substitute that with insulclad at no extra cost?" I replied in an ever so nice way: "No thankyou".

i have seen with my own eyes insulation piled up some put in, building inspection passed, and then all taken down the road to the next building.
builder was following orders of developer so who should be held responsible the person making he money or the guy doing as he is told to get work?
in the end the inspection was not worth anything, and the poor sod that brought the building and kept calling in the air con guys for eight months because it didn't seem to be working foots the bill

That is fraud and corruption in the land of the un-corrupt

In that case the "developer" as you call it would have to be an LBP and the guy following the instructions would either be an employee or a sub-contractor and has no responsibility. The LBP is the principal name on the inspections

The building specifications are registered with the council and a specialist building inspector could soon assess if the building is as per specifications - including insulation or absence thereof

Corruption in Ranui West Auckland - wonder how this passed inspection
http://www.radionz.co.nz/news/national/333233/shower-over-toilet-in-370-...

Heard of the same happening in Taranaki.

Retrofit insulation only being installed around the visible access. (this happened to a friend)

New build being removed, or down-specced when owner/inspector isn't around.
- insulation (Work colleague saw this happening at his new place so appointed his Father in Law to be on site at all times going forward)
- GIB
- underlay
- rebar (removed from a driveway of a neighbour - collapsed after 6 months, and unsurprisingly the ltd company had been deregistered.)
- Chipboard/mdf being substituted for solid wood in kitchen/bathroom joinery.
basically anything that won't be visible on completion can be ripped off in some way.

All known ones have had formal complaints, but there appears to be little recourse.

got a friend down christchurch whose built a new home, his brother (builder in Auckland) got him to visit site daily and send him photos so he could warn him if they were cutting corners are being dodgy
seems that trust in professional standards and inspections has disappeared,

In many countries corruption is their birth right so...................

Yeah if I was building I would be camping on site 24/7.

You can do all your homework on a builder, etc... but it seems if the opportunity presents itself, they take it (literally)

That's where there's a gap in the "free market" ...Crooks can hide from consequences behind limited liability companies, while purchasers are left to bear the consequences. Seems like every month there's another story of shoddy building, leaking apartments etc. - yet companies are wound up and no one seems to face any consequences, except the poor buyers.

What alternative? Form a posse and hunt the crooks down?

And wouldn't it be great if their insurance company took them to court while paying out the poor person who bought the house instead of the current situation where the homeowners have to take both the builder and council to court and hope for the best

Trade me sends me a list of North Shore homes that have appeared for sale over the last 24 hrs every day.
Is it just me or has any one else noted that most of them recently are plaster homes?

Getting out while the getting out is (still ??) easy??

99 % of builders build to a high standard ,they only build to architects design , so maybe architects should take some responsibility for their design faults , rather than letting everybody else take the fall .

Architects use the latest in building methods and products as provided by companies and approved by BRANZ.
These companies then blame the builders/installers for a substandard job. And the circle is complete and never ending.
I certainly don't see the council inspections as being any sort of backstop for the industry, they simply cannot cover all the bases and there needs to be a bit more integrady throughout the industry.

From looking at my place both the architects and builders made some pretty fundamental mistakes that anyone with common sense that has had a bit of experience in one or two houses could point out straight away. Whats really a worry as we are continuing to build sub standard housing as we speak. If I had a house built these days there would be a great deal of input into the design and then you would need to practically camp on site to make sure the work was done properly.

In NZ, it's 'Buyer, Beware' at all stages of property transactions. Reverse that, and much of The Problem disappears. Make it 'Seller, Beware" and if any subsequent default of any kind arises ( non-consented building renovations, for instance) and the liability is on the LAST VENDOR. We make anyone selling a car have a WOF, why don't we do it for houses? (NB: Yes, you could still 'Contract Out' if you know about faults but still want to take them on yourself, and a LIM only shows up what has been 'inspected' and declared)

Yes totally or do we have to wait for something horrendous to happen like the recent London fire where a total of 58 people are dead or missing, presumed dead following the devastating fire at Grenfell Tower in west London, police have said.

Building owner whether they're Council owned buildings or Investor Owned, a Landlord and construction companies should be held accountable and to cost.

BBC article; London fire: A visual guide to what happened at Grenfell Tower
http://www.bbc.com/news/uk-40301289

I have heard that there is a builders guarantee in Australia.

Had thought councils, through the procedures & legislation in place, were the authority we relied on to prevent shoddy work in the first place. Why else the painstaking and torturous consent process andthe high cost site inspections? That is I thought was the protection we are all entitled to receive from the people we pay rates to, employ if you like. So Mr Goff, will the councils in absolving themselves from responsibility, then exit from the building process itself and stop charging those outlandish consent fees, usually concocted by consuming unnnecessary time, and speed it all up as well or is this just not another typical case of wanting to own all the authority but bear none of the responsibility! If you are saying that this would mean the councils would surrender, in any small way, this lucrative revenue stream, then frankly, that is just pie in the sky.

The council is probably more worried about vitally important things such as its diversity of employment policy.

Don't forget about their [no such thing as a] free lunch.

Well its as interesting, sort of, as it is predictable. A Labour stalwart arrives as the mayor of our by far away largest city and immediately, on one hand seeks to initiate a new tax grab, hotel beds etc, and on the other relieve the council of responsibility such as is described in this article even though if the councils had properly done the job they were paid to, and legally bound by, there would have been no leaky house outbreak, nor a CTV EQ collapse. And as for free lunches, what else could be more important, take a look, for example, at Jim Anderton's successor, wink wink,nudge nudge, say no more!.

Govt doesn't help much, tells Auckland it is pretty much on its own while it holds the immigration doors barely short of wide open. The problem is of their making, the solution, or at least a good deal of it should be theirs as well.

Why is it that people always have to blame someone else suck it up its yr job. Goff blames builders what's wrong with his inspectors and their system of procedure ? Everyone pays the council heaps to do their job to keep trades in line ... so if builders, any other lbp trade or other is going to be fried over the lack of responsibility whay do you pay a resource / building consent fee for ? Just another Goff toilet chat. Next all the builders will leave to build in Tauranga or somewhere else. Perfect ... nice work Phil you need more houses and someone to build them crapping on them before they start will work wonders! What's laughable is that the council collects all the way rma, building consent, ccc and then life long on rates increases ..... don't stifle the new revenue get more housing projects ... just Lemon Brown all over again.

But aren't we often paying the council so much precisely because it gives the rest of the industry a get out of jail free card? That's the problem.

Why is it that people always have to blame someone else suck it up its yr job. Goff blames builders what's wrong with his inspectors and their system of procedure ? Everyone pays the council heaps to do their job to keep trades in line ... so if builders, any other lbp trade or other is going to be fried over the lack of responsibility whay do you pay a resource / building consent fee for ? Just another Goff toilet chat. Next all the builders will leave to build in Tauranga or somewhere else. Perfect ... nice work Phil you need more houses and someone to build them crapping on them before they start will work wonders! What's laughable is that the council collects all the way rma, building consent, ccc and then life long on rates increases ..... don't stifle the new revenue get more housing projects ... just Lemon Brown all over again.

I heard through a friend of a friend that certain construction companies in Auckland were removing the rebar (before concrete pouring & straight after inspection) so they could reuse it somewhere else. Just a rumor I suppose. Perhaps there’s nothing in it…

I've heard the same along with the insulation one.

I wouldn't buy a new house in any Auckland subdivision unless a metal detector has been used during pre-inspection to prove there is steel in the slab and power outlets have been opened to check there is insulation in the walls.

I've heard the same rumours from many different sources.

Damn that's horrifying. And even if they left the rebar in there's a non-zero chance it wasn't up to spec as well.

Remember when that story hit in Auckland last year about lots of new houses, many built by foreign crews, failing even the eyeball test for being roughly horizontal, bolts that didn't go into the things they were supposed to be bolting, crooked things propped up with pebbles and string ... and then the story disappeared, never to be heard of again?

How does builders Insurance Work ?

Who takes out the policy ?

Who pays the premium and how do claims get verified and paid ?

Is it different to other types of insurance ?

You want to know how builders insurance works?

Pick up your telephone and ring https://www.nzcb.nz/

New Zealand’s most comprehensive 10 year residential building guarantee

May be they should check out similar insurance scheme in Queensland.
When I did my extension I had to pay my portion and builder paid his, something like $800 from me for $100-120K worth of work. It's workmanship liability insurance managed by the State Government's organisation - all builders have to be registered here for any works more than $3000.

Surely this will require an update to the companies act?

Developers and builders seem to use a new company for development projects and then simply wind them up when the last customer payment has cleared. Any tagged liability would have to have to be reach the builder/developer personally, and have the ability to reach their assets located in family/wife's trusts, or will be utterly meaningless. Pick any builder/developer and see how many companies they have registered. This is default practice as recommended by all the finest accounting and legal firms in town (for their fee of course).

Council would be better off getting legislation in place that makes sure it avoids carrying the can on any liability. The painful Council practice of making everyone involved have a producer certificate prior to issuing COC is their current workaround to achieve this.