Regulatory Impact Statement
Statement of the nature and magnitude of the problem and the need for government action
The Act introduced a range of measures to:
a) strengthen the regulatory regime for building work;
b) address the systemic issues that led to major building failure from the mid-1990s to 2001; and to
c) significantly reduce the risks of building failure in the future.
The Weathertight Homes Resolution Services Act 2002 has been a related statute contributing to the same goals by addressing the ‘leaky homes’ issue.
As the Department of Building and Housing (‘the Department’) has progressed implementation of the Acts, a range of issues have arisen regarding the practical application of the Acts’ provisions. Matters relating to building consent exemptions (Schedule 1) were not able to be fully considered in the review that led to the 2004 Act, but have now been considered by the Department.
Building consent exemptions
Schedule 1 of the Building Act 2004 sets out the circumstances in which councils may exempt building work from needing a building consent. Its intent is to apply an appropriate balance between minimising compliance costs (by exempting low risk and minor building work from the consent process), and requiring some consistent regulatory overview of building work that could risk health and safety.
Schedule 1’s list of exemptions for work that does not require a building consent (and thus be subject to council inspections) lacks clarity and does not reflect the principles and policy intent behind it, partly because some of the detailed ‘list’ of exempt building work was inadvertently omitted from the Act. The Department has identified the following problems with Schedule 1 of the Act:
- confusion and inconsistency in how 85 councils apply exemptions for building consents to comparable situations around New Zealand, creating –
(i) delays and higher compliance costs, particularly for nation-wide building works such as installation of power pylons or road repairs involving culverts
(ii) large volume case-by-case examinations and determinations of how Schedule 1 should be interpreted
- health and safety risks by allowing a wider scope of repairs or replacement of ‘comparable’ materials than are intended in the exemption for ‘minor’ building works, for example, recladding ‘leaky homes’ without ensuring the underlying weathertightness problem has been addressed, or replacing domestic water heaters that could explode if not installed properly
- exploitation of a drafting loophole to avoid liability for and council inspection of weathertightness remediation repairs, weakening the Government’s objective of fairly resolving ‘leaky homes’ issues for current (and future) property owners.
This issue is small in scope but significant in impact. It is estimated Schedule 1 problems currently constitute less than 5 percent of the current 70,000 to 80,000 building consents issued annually (figures that do not include consent for building work valued under $5,000, and thus subject to possible Schedule 1 exemptions for ‘minor’ building work). For those cases where Schedule 1 problems arise, however, there could be hundreds of thousands of dollars of costs arising from an inadequate ‘leaky home’ repair, or significant health costs to address injuries arising from building work needing particular standards and expertise.
Under the status quo the only action Government can take is to issue guidance or interpretation of the current wording of Schedule 1. The current wording of Schedule 1 is silent on particular issues that need specific clarification, particularly around weathertightness repairs. Guidance material can only replicate this unsatisfactory situation, as it lacks legal authority to ensure compliance. Certainty can only be ensured through statutory text clarifying the scope of building consent exemptions. Accordingly the status quo does not meet the public policy objectives.
Statement of the public policy objectives
The public policy objective is to amend the Act to –
a) promote the health and safety of people regarding buildings, consistent with the section 3 principles in the Act;
b) encourage greater confidence in the regulation of the building and construction industry through improved consistency and quality standards across service delivery;
c) improve the clarity and effectiveness of the regulatory framework to encourage an efficient and fair provision of building and local government services; and
d) balance the needs of local government, property owners, building practitioners and the public in a fair and effective regulatory framework.
The above public policy objectives relate to the Building Act and building issues in general, as well as to the resolution of ‘leaky homes’ problem in particular.
Statement of feasible options (regulatory and/or non-regulatory) that may constitute viable means for achieving the desired objective(s)
Status quo
The key features of the status quo are set out in the problem section above.
Amend the Building Act (preferred option)
The preferred option is to amend the Schedule 1 provision for building consent exemptions to:
- clarify the ‘in or out’ status of some specific types of building work that have created uncertainty
- confirm that, in particular, ‘durability’ matters such as weathertightness repairs are not appropriate to exempt from building consent requirements
- reflect more clearly the principles and policy intent behind the provision for exemptions for some building work from building consent (work that is ‘low risk and minor’)
- require councils to apply their discretionary powers to exempt work from a building consent in a manner consistent with the principles and policy intent behind Schedule 1.
Statement of the net benefit of the proposal, including the total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options
Most of the proposed amendments to Schedule 1 relate to statutory text that was not carried over from the Building Act 1991. There is a 1991 – 2005 precedent of these building consent exemptions being regulated as is proposed. The regulatory impact is therefore considered to be minimal, and more of a corrective step to clarify the long-standing and intended policy behind the provision for building consent exemptions in Schedule 1.
There is insufficient information to be able to quantify fully the extent of the costs and benefits arising from the proposed amendment, separate from the ongoing impact of the costs and benefits arising from the ongoing roll-out of the Act and the existing building consents process.
Overall, the proposed amendment will result in few net changes to the number of building consents currently issued across New Zealand. There may be an increase in the number of ‘leaky home’ repairs requiring building consent (a small percentage of the estimated 15,000 homes affected), offset somewhat by a small increase in some minor building work being exempt from needing a building consent under an amended Schedule 1. The cost of most building consent applications ranges from $150 – $1,500, depending on the size/complexity of the proposed building work and number of council inspections required.
The proposed amendment is consistent with:
- issues raised in the current Quality Regulation Review being overseen by the Ministry of Economic Development
- the Ministry of Commerce’s analysis of the impact of costs to business of the Building Act 1991 (1999)
- the aims of the Act’s new accreditation scheme for councils as ‘building consent authorities’, which will raise quality and consistency standards for building consent processes.
Government
The proposed amendment will result in no new costs. Building consents are an existing process for the 85 territorial and regional authorities around New Zealand. The associated administration and inspection costs are passed on through building consent application fees.
The net increase in the number of building consents will be minimal, so there will be a negligible impact to the workload or net costs to local government; and it should have little or no impact on premiums for liability insurance.
The benefits will include increased certainty and consistency across the regulatory framework, and less enquiries or complaints for the Department to address issues on a case-by-case basis, through call centre enquiries (nearly 100 enquiries, or about 10 percent of all Building Act enquiries, in 2005/06) or time-consuming reviews such as Determinations.
In particular, all recladding work on ‘leaky homes’ will be subject to a building consent, so full confidence will be restored in the building and housing sector. The effectiveness of the Government’s $30.5 million commitment to resolving weathertight homes and enhancing the effectiveness and efficiency of the Weathertight Homes Resolution Services will be maximised not undermined.
One-off familiarisation costs for local government will be ameliorated by the Minister for Building Issues’ announcement on 13 October 2006 of a $3 million package to assist councils in improving standards for processing building consents, which includes better and more consistent decision-making around Schedule 1 exemptions.
Industry
The amendment will affect owners and operators proposing to do building work or repairs within the scope of Schedule 1, and the associated 28,000 building practitioners who carry out the work. There will be reduced compliance costs for network utility operators and others who work across council boundaries.
The proposed amendment will result in improved clarity, confidence and shared expertise across councils, ie, reduced case-by-case justifications for decisions about building consent exemptions. This will improve customer relationships, and industry confidence in the sector.
Society
There will be reduced compliance costs for do-it-yourself property owners doing minor and low risk building work that does not require a building consent. For owners of ‘leaky homes’, there will be the compliance cost of needing a building consent where previously one may not have been required or sought. Any costs for a building consent (most ranging between $150 and $1,500) will be more than offset by the avoided consequences of, for example, having to reclad an entire house because of ongoing leaks from an underlying design fault not identified through the building consent and inspection process.
Society will enjoy the net benefits of meeting the public policy objectives of safer, better quality homes and buildings, a better balance between risks versus compliance costs for the regulation of building work, and greater confidence in the industry and local government through improved consistency and quality standards.
Statement of consultation undertaken
Stakeholders consulted
The proposed amendment was shared on a confidential basis with 12 local government bodies, 11 building designer or practitioner groups, and nine accreditation bodies or other interested groups during a targeted consultation in September-October 2006. The vast majority of submitted comments were supportive of or had no concerns about the proposed amendment. No submitters raised significant concerns.
Government departments/agencies consultation
The following departments have been consulted: Department of Prime Minister and Cabinet, Te Puni Kokiri, Ministries of Justice, Economic Development, Environment, Health, Agriculture and Forestry, and Consumer Affairs, Transit New Zealand, Department of Internal Affairs, Treasury, Office for Disability Issues, the Parliamentary Counsel Office, and the Energy Efficiency and Conservation Authority.
No significant issues were raised about the proposed amendment.
BUSINESS COMPLIANCE COST STATEMENT
The main compliance cost will be one-off familiarisation with the proposed amendment. This will be minimal because the proposed amendment will revert to the situation that existed 1991 – 2005 under the 1991 Act. Most affected parties already know about this. It will be offset by the Department’s communications strategy to inform affected parties about changes to the Act. This will include information on the Department’s website, and access to advice and information through the Department’s free 0800 number and Contact Centre.
The paperwork around building consents will need to be completed by up to an estimated additional 5 percent of (total) building consents. This type of paperwork will be the same as that for current building consent applications because the existing building consent process will continue to apply to Schedule 1 building work.
There will be reduced compliance costs for network utility operators, roadworks managers and other businesses who work across council boundaries because council decisions about consent will be more consistent.
Other regulatory impact issues
Another two regulatory impact statements were prepared in relation to this Bill that raise no business compliance costs and address the following topics:
- Dam safety - impact for owners of dams that may become earthquake-prone or flood-prone and are required to carry out a review of their dam safety assurance programme
- Small dams - reduced impact for owners of small dams (not requiring building consent)
- Licensing levy - impact on timing of this payment (in advance rather than arrears) for licensed building practitioners
- Accessibility requirements on project information memoranda (PIMs) - administrative impact for local authorities to add the accessibility flag to PIMs.