Striking a balance in protecting homeowners and promoting productivity

Home is where the heart is, as they say, so it’s entirely understandable that people should have protection to ensure builders do a proper job building or renovating their home. This is also in the interests of the builders because consumer confidence and trust underpins the sustainability of the industry.

However, it’s well-known that an excessive compliance burden reduces productivity, which is not good for consumers – who ultimately wear the costs – or the economy, particularly given New Zealand’s housing shortage issues. Therefore, a balance needs to be struck between consumer protection and productivity. This is not to say that consumer protections should be reduced, but rather that the design and introduction of new regulation that affects building sector productivity must be well-managed.

The already relatively low productivity that is an established feature of the building industry – given the predominance of SMEs in the sector and complex subcontractor and input provider networks – has been exacerbated by the increasing compliance burden from new regulation over the past three years.

This came at a challenging time for New Zealand – think the Canterbury earthquakes and the housing shortage in Auckland. Increased regulation has impacted on builders’ ability to help address these two major issues because of the resources, both time and money, that need to be spent on compliance.

The Building Amendment Act 2013, which took effect on 1 January this year, creates further new compliance obligations. The changes are designed to improve consumer protection including provisions relating to contracts, disclosures and warranties.

For our part, Certified Builders welcomes the latest changes because more robust contracting will protect both consumers and tradespeople. However, the changes to the Building Act will put increased strain on productivity in the building sector in a number of ways.

Firstly, many in the industry are unprepared. While Certified Builders ran seminars around the country on the changes and provides significant support for our members (such as template contracts), our members count for one third of all builders and about another third are not affiliated with any trade association. This leaves a large number of builders exposed to major new compliance requirements and liabilities, which they may not understand, with no support network.

Secondly, for those who aren’t prepared, there are non-compliance fines and if the contract is not robust, or non-existent, a default contract comes into place. This can mean contractors are responsible for applying for consents and other approvals, are not entitled to any payment until the building work is finished, are not allowed to sub-contract out all of the ‘building work’ and, significantly, are liable for any sub-contracted work.

Thirdly, the changes are so far reaching that there are many businesses, which are unlikely to even know the law applies to them. As well as builders, the law changes defines ‘building work ‘ in such a way that it also affects concrete layers, pool installers, landscapers, conservatory installers, roofers, cladding installers and other trades when they contract directly with the homeowner.

These issues may lead to an increase in disputes between consumers and contractors, which will ultimately impact productivity.

The next wave of new regulation will come when the changes to the Health and Safety Act come into effect later this year. Again, while these are well intentioned and worthy, the increased compliance burden is likely to cause further strain on productivity, which will ultimately affect consumers given that compliance costs influence prices.

One way builders can address the challenges of a new and changing regulatory environment, is to join a trade association. One way consumers can do their bit for productivity is to choose builders that are affiliated with a trade association, because the support provided by organisations such as ours equips builders to cope better with the increasing compliance burden.

One measure the industry would like the Government to take is to explore new ways of ensuring the compliance burden on builders is addressed alongside finding new ways to improve consumer protections and improve health and safety in the workplace.  A simple start would be to ensure that when developing new legislation and regulation, an audit is undertaken to identify ways of reducing compliance costs without detracting from achieving the objectives of the regulation.

Another way Government could help address the issues would be to work with trade organisations to strengthen the builder licensing framework. This may include increased penalties for non-compliance and raising the minimum skill levels as well as, critically, devolving the management of the licensing framework to trade organisations, rather than a centralised licensing system that is inherently more bureaucratic than pragmatic.

Consumer protection is critical. Productivity in the industry is critical too because builders have an important role to play in the New Zealand economy. These two themes needn’t be mutually exclusive. The fewer resources builders have to devote to excessive compliance, the better they will be able to serve consumers and the lower the costs.

By Grant Florence, Chief Executive Certified Builders

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