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Alex is committed to government transparency and accountability; protecting the natural and urban environments, open space and Sydney’s unique heritage; retaining inner city social and affordable housing; the humane treatment of animals; improving transport options; and fairness and equality for the LGBTI communities.
 

Home Building Amendment (Compensation Reform) Bill 2017

(Second Reading Debate, 30 May 2017, Legislative Assembly, NSW Parliament)

Home building insurance has long been criticised by consumer groups for helping too few home owners get relief from faulty building work. A home is often someone’s biggest investment and defects can cause the owner considerable economic loss and disruption to life.

Following the collapse of HIH, to make home warranty insurance more sustainable for insurers, it became a last resort scheme with claims limited to situations where the builder has died, disappeared or become insolvent. Later, claims were further limited to defects detected during the period of insurance, and then the scheme was scrapped for buildings of four or more stories.

In response to significant concern that home owners were getting nothing out of the system, claims were expanded to situations where a builder failed to comply with court or tribunal orders to rectify faulty works.

The scheme has been underwritten by the government since 2010 and despite continuing problems for home owners, the government says the scheme also fails to deliver for the insurer with the fund now being hundreds of millions of dollars in deficit.

I have been told that the reason for the deficit is that a large number of claims are being made because building companies have become insolvent and that in many of these cases, the builders behind the companies continue to operate under new companies.

This is a significant loophole that needs to be addressed if we are going to make home building compensation sustainable while protecting home owners from faulty work and high costs. We need to find a way to encourage good building practices that don’t require any action after building works occur and I hope the government gives this priority.

The Home Building Amendment (Compensation Reform) Bill will open up the government run scheme to private operators, allowing them to offer insurance or other indemnity products to builders.

Insurers will be required to pay a fee to cover the costs of the State Insurance Regulatory Authority, which will licence insurers, approve premiums and establish minimum insurer requirements. Insurers will also have to pay for a fund to be held in case an insurer becomes insolvent.

I understand the bill would allow insurers to provide cover beyond the current last resort system and I hope this happens as it could improve home owners’ access to relief for faulty work given so many are excluded from the strict criteria and are also not able to access their statutory warranty rights, which have become more restrictive in recent years.

Concern has been raised with me about a new provision in the bill that excludes home building compensation for a loss from statutory warranty breach if a claim has already been made to and paid by an insurer. The wording of this provision seems to enable a court or tribunal to see a defect and a breach of statutory warranty as the same thing even though there can be many different and completely unrelated defects from the one breach of warranty.

Payment for one defect could exclude any coverage for other defects because they come from the same breach of warranty, leaving home owners significantly disadvantaged. Furthermore, the exclusion of compensation if a claim has already been paid out seems to also prevent compensation even if payment only partly covered the loss suffered. This provision is not needed and should be removed because insurance can only cover a loss and a loss only occurs if there hasn’t been any compensation. I ask that the government urgently address this serious concern.

Defects continue to be a serious problem in my electorate and I have heard from many constituents who have had problems pursuing action. Most of these come from apartment owners who are not covered by the home building compensation scheme.

Indeed a City Futures Research Centre survey of 1,550 individuals, 106 strata managing agents and 11 peak body representatives found that 85 per cent of respondents in strata buildings built since 2000 had one or more defects present with 75 per cent reporting defects not yet fixed.

We are awaiting the much needed defects bond and inspection regime, which will require the developer to lodge a bond of two per cent of the contract price that is either returned or used to fix any defects identified in an independent defects report.

Unfortunately this scheme will not commence on the 1st of July as promised and I am concerned that apartment buildings are vulnerable because they do not come under the home building compensation scheme and their statutory warranty rights have been reduced. Apartment owners continue to have few options to pursue defects at a time when the government is pushing significant high rise development. We need to ensure that buying a newly built apartment is not a financial risk and the government should reconsider restoring home building compensation access for buildings of four or more storeys.