Councils, builders pleased with liability changes, but insurers warn of challenges

Councils, builders, and the opposition are largely in favour of Building Act changes that would signal a move towards proportionate liability.

But insurers say there could be "challenges" in the approach, and want further discussions with the government as the policy is developed.

Under the status-quo, the building framework operates under a 'joint and several' liability, meaning liability is shared between all parties, regardless of the cost or responsibility.

It has meant councils, and therefore ratepayers, have been left with an often disproportionate level of risk for any defects or repairs, as they are seen as the party with the deepest pockets.

The government plans to replace the model with a proportionate system, with each party only liable for the share of work they carry out.

It is something Local Government New Zealand (LGNZ) has long called for.

"Councils have ultimately been holding the bag at the end of the process when things go wrong. If you were to have work done on your home or a house built, that hasn't really come top of mind for people because they know they can go to council," said LGNZ's vice president Campbell Barry.

He said with lower risk exposure, councils could be more confident in their consenting processes.

"It'll encourage not as much of the overly-cautious behaviour that maybe has developed over time, due to that liability falling on councils."

Announcing the changes, building and construction minister Chris Penk said the "risk-averse" behaviour from councils had led to "frustrating" delays, and extra costs for builders and homeowners.

"Once you reduce that delay, then you get better productivity, and costs will reduce."

Penk said councils had paid out $330 million over 10 years for defects for which they were not responsible.

Registered Master Builders said the "unfair" liability system was one of the biggest challenges the industry faced, and was pleased it was being addressed.

"I think you always want a fair system," said chief executive Ankit Sharma.

"You don't want a system where one party ends up taking an unfair burden of risk. If they do, then they put protections in place which then creates red tape, and slows everything down. It takes longer, and costs us more, to build houses."

Extra protection measures on the cards

Legislation to change the liability settings will not be introduced to Parliament until early 2026, with a view of passing it by the middle of that year.

Between now and then, the government would explore "supporting mechanisms" for proportionate liability, to protect homeowners under the new system.

Professional indemnity insurance and home warranties were both mooted, but Penk wanted more time to work it through.

He indicated the government would talk to councils, insurers, and consumers about what consumer protection measures would work best, and whether they would be compulsory or voluntary.

"We don't want the problem of the empty chair, where there is a gap in terms of what the homeowner might be left with," he said.

"But we also know that if we have a proportionate liability system, where all the key players in the system are either required to have the protections in place themselves, and are also motivated not to make the errors in the first place, then we'll have a more productive and efficient and better system overall."

Labour was "broadly supportive" of the changes but wanted to see more detail around the consumer protections to ensure there was no repeat of the 'leaky homes' saga.

"We want to see the detail around the extra support, or the extra, I guess, reassurance that's going to be available to first-home buyers, that they're not going to be left with a liability with no-one else willing to pay if something goes wrong," said Labour leader Chris Hipkins.

"But we broadly think that the changes are heading in the right direction."

Hipkins said there had been several reviews of the Building Act, and all had found that consumer protection was the key issue.

Master Builders, which was singled out by Penk as already offering a 10-year guarantee cover policy, was in favour of mandating warranties and insurance.

Sharma also called for other consumer protection measures, such as tougher entry requirements for builders, a stronger licensing system with real enforcement, and a register of liquidations and penalties so homeowners could make informed decisions when choosing a builder.

"The combination of all of that with the right insurance scheme, I think lifts the standard enough for consumer protection so that we can move to a proportional system."

The Insurance Council of New Zealand said it had held discussions with the government about the "preliminary thinking" on the move to proportionate liability.

"These included some of the challenges for insurers around this approach," a spokesperson said, adding ICNZ looked forward to further discussions with the government as the policy developed.

Penk said there had been some appetite from the insurance sector, but acknowledged it was a "chicken and egg" situation, as everyone needed the comfort and certainty before they were willing to step up.

Pooling the Building Consent Authorities

Streamlining the Building Consent Authority (BCA) model has been long-signalled by the government, with Penk first announcing he was taking a look nearly a year ago.

He said 66 different interpretations of the same Building Code had led to frustration in the sector, and added cost and delays.

Sharma was in favour of the consolidation, saying over half of Registered Master Builder members had experienced delays and "consenting inefficiencies" due to working with multiple BCAs.

"It's common, when you have different BCAs, they have different systems. So that creates, from a business owner perspective, inconsistency in the way different systems are operating. And also, in some cases, how different inspectors can interpret rules differently."

The government had looked at other options like a single point of contact or establishing large regional BCAs to replace the existing ones.

Ultimately, it has landed on a voluntary model, allowing councils to pool resources like their accreditation processes or staff if they chose to.

Barry, who is also Lower Hutt mayor, said councils in the Wellington region had already discussed creating consenting efficiencies across the region.

He said the voluntary approach was preferable, as councils were already grappling with reforms like Local Water Done Well and other pressures.

"I would say the proof will be in the pudding over the next 12 to 18 months, and how many councils actually take that up, and what it looks like," he said.

"I suspect it's something that will be revisited later in the future, but at the same time I think a voluntary approach and encouraging councils and providing the right settings for them to work together is a good thing."

Penk would not put a number on how many BCAs he would like to see.

"Any number smaller than 66 would be a win. But I suspect at a regional level, we'll see perhaps as many as half a dozen moves made quite promptly," Penk said.

Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.