Monday 12 December 2022

ComCom's punt on building materials

The Commerce Commission's final report on building materials supply recommends some patches that would make a bad situation less bad, but fails to strike on important root of the problem.

Councils under joint-and-several liability stand very high odds of being last-man-standing if anything goes wrong with a building. Work by Sapere, commissioned by MBIE not too long ago, found that councils wind up 100% liable in 48% of cases in which damages are assessed. 

That drives councils to avoid risks. They bear zero upside for allowing anything new and innovative and have about even odds of being 100% responsible if anything goes wrong.

And a pile of pathologies flow on from there.

Because councils are reluctant to sign off on anything new, architects and engineers specify plans with materials and methods that council officers are comfortable with. That's a huge advantage for incumbents, and especially where councils won't easily sign off on equivalent substitutions by the builder because council can wind up liable for that too. 

Getting councils out from under joint and several liability would start fixing the problem. Lots of ways of doing it. They could be carved out and held only proportionately liable, but that requires that you trust that the courts wouldn't decide that the council's proportion is 100% if there's nobody else with pockets deep enough to compensate someone who didn't get insurance. Capping councils' proportion could be less risky. Or taking them out entirely and setting a compulsory builders' warranty or insurance programme that would shift liability over to insurers. 

I covered the mess in this week's column for the Sunday Star Times. 

The Commerce Commission’s own findings suggested that liability is a far bigger issue than MBIE has claimed.

But the commission presumably saw the area as politically futile, saying: “Given the previous consideration of these matters, the position statement, the ongoing work of the reform programme, and the lack of any clearly better alternatives, we have not focused in this study on the nature of liability faced by BCAs or its impact on competition.”

But there is a rather obvious alternative – like the plug for the leaky boat.

Exempting councils from joint and several liability would encourage sharper diligence when purchasing and commissioning homes. If that kind of bare caveat emptor regime were too harsh on its own, the Government could add the kinds of building insurance or warranty requirements that are common internationally.

Liability would shift from councils to insurers or warranty guarantors who would have stronger reasons to weigh both the costs and the benefits of new materials, making them easier to use. A warranty or insurance scheme would add to the cost of a house but could pay for itself through lower building material costs and better buildings.

The commission’s recommendations will help. But the boat will still be leaking. A closer look at the most obvious plug for that hole would have been warranted.

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