Cost-effective quality: next generation building control in New Zealand — Building Act Review discussion document February 2010
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Part 4: The impacts of improving building control
The package of proposals outlined in this discussion document is expected to have wide-ranging impacts. The impacts will be felt in different ways by all parties – consumers, building professionals and tradespeople, building consent authorities and central government.
4.1 Impacts of moving to a more balanced approach to building control
Proposals to move to a more balanced approach to building control are outlined in Part 2 of this document. These proposals would see building consent authority oversight more in proportion to the risks and consequences of failure and the skills and capability of the people involved.
These proposals are conservatively expected to reduce the volume of building consents and inspections required by between 10 and 15 percent a year, generating savings for residential consumers and building professionals and tradespeople, and reducing demands on building consent authorities.
For building work that no longer requires consent, consumers would save the full costs associated with the building consent and inspection process (for example, fees and charges paid to building consent authorities, costs associated with delays in the consenting process).
For building work that requires a consent but is relatively low-risk (for example, simple homes designed and constructed by a licensed building practitioner), there are expected to be significantly reduced consent and inspection costs.
A key result of the proposals would be to ensure that the total cost associated with a consent and related inspections is commensurate with the risk of building work failing to perform (that is, lower risk equals lower cost).
Beyond the direct benefits to the consumer, a more balanced approach to building control would enable building consent authorities to focus their resources on higher-risk work, resulting in improvements in the quality and efficiency of decision-making.
Further consolidation of building regulatory functions also offers scope for investments in productivity-enhancing systems (for example online consenting) and processes, and would facilitate greater consistency of decision-making across the country.
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4.2 Impacts of proposals for building consumer confidence
Proposals to better equip residential consumers to play their part, make informed decisions, be aware of their rights and obligations, and be able to enforce those rights, are outlined in Part 3 of this document. These proposals have impacts for consumers, building professionals and tradespeople, and building consent authorities.
Impacts on consumers
We expect that consumers will be more careful when choosing and contracting with building professionals and tradespeople because they will have a clearer understanding of the implications of their decisions, including the extent of the accountability of the building contractors and authorities when things go wrong. Under proposed warranties, consumers would face stronger incentives to ensure their obligations, such as ongoing maintenance, are fulfilled.
Consumers are also expected to more assertively enforce contractual warranties when building work fails to meet requirements. Where a building contractor fails to meet their obligations, a surety plan would make it easier for consumers to get any defects fixed.
Impacts on building professionals and tradespeople
We expect building contractors (building professionals and tradespeople), as a result of their strengthened responsibilities under proposed warranties, would more proactively manage the risks they face.
For example, they will manage their risks by:
- considering more carefully what work they take on
- focusing more strongly on their contracting arrangements with consumers and their arrangements with others in the building sector (for example, architects, subcontractors, suppliers)
- pricing their work appropriately, taking into account the costs of standing behind their work (for example, surety premiums)
- investing in training and professional development in order to build skills and capabilities
- focusing more strongly on the relationship between design and construction, including the construction risks that flow from poor design.
Delivering this package would have a particular impact on licensed building practitioners because many of the proposals are conditional on their involvement. Indeed, this package is expected to strengthen incentives for building practitioners to become licensed, with benefits in terms of:
- making the quality of building practitioners clearer to the market.
- sharpening incentives to put work right if it is not done correctly
- strengthening incentives to upgrade and maintain knowledge and skills
- preventing insufficiently skilled practitioners from carrying out critical building work without adequate supervision.
Impacts on building consent authorities
We expect the heavy reliance on third-party review by building consent authorities to reduce and to, in effect, be substituted by a stronger role played by competent building professionals and tradespeople.
This would facilitate and reinforce the desired shift to a more targeted approach to building control. Over time, this is expected to lead to a reduction in barriers to innovation, and more efficient and effective decision-making by building consent authorities.
Impact on quality
The proposed changes would result in improvements in the quality of building work, as evidenced by less defective work, less rework and fewer disputes. Where disputes do arise, faster fixes without significant cost to the consumer could be expected, together with improved protection for consumers in the event that a building contractor defaults.
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4.3 Costs and risks
Depending on the detailed design of options, implementation of this package is likely to involve some costs for residential consumers, building professionals and tradespeople, and building consent authorities, as well as ratepayers and taxpayers.
Proposals to move to a more balanced approach to building control are expected to save significant costs in the medium to long term, but in the short term there would be additional costs to implement the changes. Building consent authorities would need to make changes to their consenting and inspection systems and processes, with the extent of these implementation costs depending on the design of the new system. Some or all of these costs would be passed on to consumers and ratepayers.
Proposals to build consumer confidence may generate some additional costs, depending on the overall shape of the package and policy design choices. These costs could include the following.
- The costs associated with warranties backed by surety. If surety backing was mandatory, there may be a need for the industry or the Crown to temporarily underwrite a fidelity fund. Mandatory provision of surety would also require regulation, with associated costs to administer that regulation.
- The costs of requiring written contracts between consumers and principal building contractors for residential building work, and any associated disclosure requirements. These costs are not expected to be high, since standard contracts and disclosures would be expected to become commonplace.
- The costs of providing increased consumer education and information and potentially establishing and operating an alternative dispute resolution service. There would be an additional impact if more accessible dispute resolution services resulted in increased demand.
Key risks associated with the package, which would need to be addressed through detailed design work, include the following.
- Building contractors and their backers (such as surety providers) may adopt a very conservative approach, resulting in additional costs to consumers. Competitive pressures would be expected to mitigate this outcome.
- The introduction of warranty and surety requirements may raise barriers to entry and/or the costs of ongoing participation in the industry, resulting in higher costs for consumers.
- A number of the proposals depend on there being a sufficient supply of skilled and capable building professionals and tradespeople – if this is incorrect, the benefits of the package could be overstated.
- Striking the right balance in the overall package, particularly in terms of the design of warranties and any surety arrangements, is key to ensuring any costs remain reasonable and do not outweigh the benefits.
The following questions may help you formulate your feedback. Use our online submission process to answer these questions and give us your comments:
| Questions about the impacts of improving building controls |
| Q84 Is it realistic to assume residential consumers, building professionals and tradespeople, and building consent authorities would behave differently if this package of proposals was introduced? Please comment. |
| Q85 Have the main benefits of the package of proposals been identified above and, if not, what is missing? |
| Q86 Which benefits do you expect to be most significant and why? |
| Q87 Have the main costs of the package of proposals been identified above? If not, what is missing? |
| Q88 Which costs do you expect to be most significant and why? |
| Q89 What are the main risks associated with the package of proposals? |
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