A new licensing scheme for residential property developers could have far-reaching implications for housing projects and affordability. Photo: Michelle Kroll.
Legislation designed to protect ACT consumers in the building industry could come at a cost to housing affordability, industry experts warn.
The Territory has introduced a licensing scheme for residential property developers, which means developers must be licensed to operate and can be held personally liable for defects, with rectification orders enforceable even if their company winds up.
As part of the licensing, from October next year, developers will be responsible for rectifying defects in their residential projects for up to 10 years. In the first two years, the onus is on them to prove that a defect is not their responsibility.
The legislation also allows the regulator to hold company directors personally accountable for defects if a developer goes into liquidation, with consideration given to whether the company had latent defects insurance.
Hailed as an Australian-first regulatory regime, the scheme aims to increase accountability for developers — but Property Council of Australia’s ACT & Capital Region Executive Director Ashlee Berry said the move could come with some unintended consequences for the consumers it’s designed to protect.
“Our view is when it comes to the single greatest investment most people make, consumer protection needs to be the number one focus, and there needs to be more safeguards in place. So at face value, this is a good policy,” she said.
“But latent defects insurance is still a relatively new product in the Australian market, and we don’t have all the information. For instance, if a subcontractor causes a defect, will the insurance providers try to recoup any payments from them?
“We need to better understand the impact, because ultimately, consumers will pay the price if we don’t get this right.”
allinsure founder and managing director Peter Chamberlain said the new licensing scheme for residential property developers has merit, but also has issues. Photo: allinsure.
Latent defects insurance is not mandatory, but allinsure founder and managing director Peter Chamberlain said the legislation put pressure on developers to take out a policy.
Overall costs could rise by as much as 5 per cent, he said, with latent defects insurance accounting for at least half of that — and consumers would foot the bill.
“This regime is in respect to ‘serious defects or possible serious defects’ for regulated residential buildings, but that’s anything under the building code or legislation. In other words, something like a paint defect is considered a serious defect,” he said.
“Developer licensing will extend responsibility for this kind of defect beyond the builder to the developer. One of the positives of that is that developers will be incentivised to help weed out irresponsible builders and tradespeople.
“Latent defects insurance will help developers minimise their exposure, but the construction industry is already under pressure, and it stands to reason developers will be looking to offset the cost. One way to do that is to add it to the cost of building.”
Mr Chamberlain said the director’s licensing regime in its current form needed work.
For instance, another key element of a regime that pushes developers to take out latent defect insurance could have wide-ranging impacts on housing projects.
Policies purchased before construction begins include a technical inspection service clause, which requires an insurer-appointed consultant to sign off on technical drawings and conduct site visits throughout construction to ensure standards are met.
“On one hand, this should improve the quality of buildings, because you need to do those works, or you won’t be covered upon the completion of construction,” he said.
“On the other hand, it could also cause significant delays to programming, which significantly increases a developer’s costs.”
Mr Chamberlain said one opportunity for improvement was achieving greater consistency in licensing and competency requirements across all key trades.
“We already have strong frameworks in place for professions like electricians and plumbers, and extending that same clarity and consistency to other trades involved in waterproofing and structural elements would strengthen the whole industry,” he said.
“Doing so supports quality outcomes, protects consumers, and reinforces the professionalism of all the tradespeople who take pride in delivering high-quality work.
“We know a licensing regime can be a great thing, but only if thoughtfully executed.”
For more information, contact allinsure.
