However, the Government’s solution is a bit of a gamble.
It wants to amend the Building Act so that liability for a defective build is split between those responsible.
Sure, this is only fair.
But let’s say you have a problem with your home. How do you know how much blame to apportion to your architect, versus the engineer, builder and local council?
You may need to go through a costly legal process just to decide who’s responsible for what.
Problem No 2 is the kicker. Your architect and engineer will have professional indemnity insurance to cover at least part of your claim that falls on them.
But your builder won’t necessarily.
So, the Government wants to require either your builder to take out insurance for defects, or you to buy a warranty on the building work.
This way, you can be sure you will get something back for the part of the problem your builder is responsible for.
The trouble is, the Government can’t force insurers and warranty providers to provide this cover.
Critics say it is wishful thinking for the Government to assume these players will rush into the market and provide cover, when historically they have been hesitant to do so because of the New Zealand market being small and risky.
Builders that are part of big building companies and industry associations will be fine. But this only makes up a part of the market, with about 46% of new builds understood to have warranties attached.
You could argue that pushing builders to get accreditation from the likes of Master Builders and Certified Builders, so they can offer their customers warranties provided by these groups, is a good thing.
This would require builders to lift their games. Equally, they will need to be rock solid to get insurance from the only specialist insurer currently in the market, Stamford Insurance.
But is this realistic?
Stamford Insurance and the industry group that represents smaller builders, Combined Building Supplies (CBS) Co-operative, don’t believe it is.
If builders can’t get their work to come under warranty or insurance – as will be required – they will up sticks and leave.
A shortage of builders will only increase the cost of housing.
There are other issues.
Lawyers are worried about the robustness of warranties. If new warranty providers and insurers don’t enter New Zealand, the market would be concentrated, putting upward pressure on price. Warranty providers are also self-funded, so aren’t backed by reinsurers.
You may be thinking this is a bit of a negative, worst-case-scenario view.
But the Government also recognises the risk of insufficient insurance/warranties is real. So, it wants to legislate to give itself the power to pause making insurance/warranties mandatory for up to four years.
This would leave owners of homes built in this period completely exposed.
And we haven’t even started talking about the risky end of the market: apartments and homes four storeys or higher.
Insurance or warranties won’t be mandatory on these builds.
So, if you buy a new apartment, find a leak a few years later and fail to pursue the builder because they’ve gone bust, you sit with the problem.
Under the existing law, you would be able to pursue other parties involved.
The Government has proposed updating the Companies Act to crack down on “phoenixing” – directors closing companies that go bust, only to continue operating via new companies they start.
This would surely help.
But Stamford Insurance and CBS believe the only way for the Government to safely change the liability regime is for it to provide the backstop itself, as is done in parts of Australia.
Labour and the Green Party are broadly supportive of the state running an insurance scheme to guarantee widespread cover.
While Labour noted this during the first reading of the Building Amendment Bill on Thursday, it still supported it. The Green Party didn’t.
There is pretty much no chance the coalition Government would create an insurance scheme.
This idea is fraught too. It would be a big palaver, expose the Crown’s balance sheet to risk and create a moral hazard.
For example, it could reduce the incentive for builders to improve their standards and home owners to do their due diligence.
At least at the moment, councils are incentivised to be risk-averse when issuing building consents.
The Government believes this creates inefficiency. No doubt it does, but home owners might appreciate tough inspectors, flagging problems before they’re plastered and painted over.
Which takes us back to the start. The Government is right to try to save ratepayers money and push builders to professionalise to reduce the incidence of defects to begin with.
Improving building standards really is at the heart of the issue.
But before changing something as fundamental as the apportionment of liability, and pricing of risk, in relation to New Zealanders’ most valuable assets, the case needs to be robust.
As they say, better the devil you know than the one you don’t.
It might all end up being fine. But as it stands, the proposed change isn’t watertight.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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