Builders’ faulty work is putting New South Wales (NSW) taxpayers on the hook for more than $700 million through icare’s Home Building Compensation (HBC) scheme, while also increasing the prices of new homes.
In the past three years, the number of claims made under the HBC scheme for defective work has tripled, according to The Sydney Morning Herald.
icare pays out claims up to $340,000 when homeowners can prove the builder went bust, lost their building licence, “disappeared,” or died. They cannot claim HBC to fix defects if the builder is still in business.
At present, the home warranty insurance scheme has a funding deficit of $714 million to cover expected claims and costs as of last December. However, that is $31 million better than it was six months earlier.
Builders pay for HBC insurance but pass on the cost to homebuyers, adding an average of $16,000 to the price of a Sydney apartment and $4,000 to the cost of building an average $350,000 home.
In the last two years, the cost of icare’s HBC policy has risen four times to cover its massive losses, impacting taxpayers and housing prices, according to The Sydney Morning Herald. In January, premiums for new low-rise apartments jumped by 30%. Meanwhile, any residential work quoted over $20,000 – including landscaping and painting – requires the tradesperson to get HBC cover.
“It’s like a leaky boat, home warranty. All they keep doing is putting the prices up to cover claims,” said ABS Insurance Brokers managing director Phil Sim, as reported by The Sydney Morning Herald. “They’ve done nothing to look after the claims which come back to the workmanship.”
An icare spokeswoman explained that the government had to enter the home warranty market in 2010 after private insurers refused to provide coverage due to massive losses.
“Reforms to make the scheme financially sustainable long-term began in 2017, and icare’s premiums are expected to be at break-even as of July 2021,” the spokeswoman said.
Master Builders NSW executive director Brian Seidler stated that apartment defects drain the HBC scheme significantly. The Sydney Morning Herald reported Seidler saying: “We have massive defective work in certain sectors of the industry, predominantly waterproofing, particularly the walk-up apartments. The NSW Building Commissioner has reports of thousands of bathrooms that are defective. Some of them are going to be covered by HBC.”
Independent Pricing and Regulatory Tribunal (IPART) recommended HBC prices and services be regulated more tightly, and for disputes between homeowners and builders to be resolved faster.
Andrew Manson, the managing director of Barrington Housing Group, called for reforming the HBC scheme. “It has become massively expensive because they’re trying to micromanage the financial metrics of every building company in NSW,” he said, as reported by The Sydney Morning Herald.
“They’ve made me do things in terms of the financial structure of my business that my accountant said is not necessary, but because they have a monopoly, you either comply or wither on the vine.”