Builders fear new home warranty rules will price them out of market

Builders are worried a new requirement to cover defects in some residential new builds and renovations for a year after completion will unintentionally shut many out of the market.

The government is making changes to the Building Act, including bringing in a proportionate liability scheme, meaning councils will no longer be the last-man-standing dealing with building defects. Instead, each party will be responsible for their share of the work.

The law will also introduce a one-year warranty on new residential buildings of up to three storeys and for renovations costing more than $100,000, and a 10-year structural warranty period.

The government says councils have been reluctant to sign off building consents because by doing so, the council becomes liable for defects, and this is causing unnecessary delays in the construction process.

Combined Building Suppliers Co-operative (CBS) surveyed hundreds of builders and construction businesses on the planned changes - most of which were sole traders or small firms with five or fewer staff.

Two-thirds were worried they would not be able to afford insurance to cover such a warranty, with a third saying without cover they would stop residential building altogether.

CBS chief executive Carl Taylor, a builder himself, told Nine to Noon on Tuesday while CBS supported "stronger consumer protection", many builders might up sticks and move to Australia in response to the changes - or just pack it in altogether and retire.

He said most building companies in New Zealand were not members of organisations which could offer warranties of the scale the government was proposing.

"If you look at the current membership organizations, which account for about 6000 building companies, there's actually about 28,000 building companies in New Zealand. So there's a big gap of these guys that won't be able to qualify for it."

The Registered Master Builders Association and New Zealand Certified Builders required members to have healthy finances and quality assurance processes, employ qualified and experienced staff and so on. Once a member, their association offered the 10-year warranty that will be required by the bill's changes.

Building materials provider Placemakers said on its site that if builders could not meet the criteria "they won't be able to perform this work".

"That leaves the option of doing other work, like smaller renovations, or potentially contracting via another builder who can secure warranty cover."

Taylor said it was unlikely a third insurer would come into the market.

"We're just too far away, we're just too small of a market. So what you're left with at the moment is just either the Master Build warranty, the Stamford warranty or the Certified Builder's warranty, which are all quite good products in their own right.

"But there's still a gap of builders that won't qualify because they may not want to or may not be able to join these other organisations."

He said cost, rather than ability, was the bottleneck.

"A lot of these small builders run lean businesses. So, what I mean by that is that it might be an operator with one builder, an apprentice, and a labourer.

"And because they run those lean businesses, they might strip their profits out, so they may not meet the criteria to join those organisations or even be able to purchase a warranty if and when a provider comes to New Zealand. And that's where we are concerned."

There were "tens of thousands" of builders in New Zealand who could potentially qualify if they just ran better businesses, Taylor said.

In Queensland, Taylor said the government for 35 years has backed the insurance and it has worked "brilliantly" - and our proposed system will drive up prices.

"If you're a builder over there, you've got to come qualified, you've got to have your license and it's a compulsory warranty backed by the government. For whatever reason, our current government don't want to back this, and they want to privatise it. So of course, when that happens, prices will just naturally go [up]....

"It's worked for 35 years in Australia. I don't see why we just can't do the same thing here. It'll be so much easier. It'll cut the red tape, it'll kill the compliance, and it'll make housing a lot more affordable."

Taylor also feared apprentices would struggle under the new rules.

"If they don't meet the threshold to meet the financial requirements to be able to offer this warranty, there's no pathway for them to enter the market. So there will be a huge shortage of builders."

Building and Construction Minister Chris Penk said the proposed changes were informed by the industry and struck a balance.

He said they would not apply to many of the survey respondents whose renovations were under $100,000 or who did not do new builds. He said there were also options for people to continue building when they were not affiliated with a warranty provider.