10 Years on from the Hunn Report

December 11, 2013

In 2005 a government official went to an international conference in Japan on home warranty schemes. He delivered a paper featuring the All Blacks, our beautiful landscape and confidently stated we will solve our building problems by regulatory reform – he could not have chosen a more knowledgeable and disbelieving audience.

In a recent Herald article (Friday 5 October 2012) David Kernohan, one of the authors of the Hunn Report, raised concerns that fundamental changes needed to avoid issues like leaky buildings, were never completed. In reality the government has never come to grips with the underlying drivers of behaviour that cause such problems.

The Department of Building and Housing, now part of the Ministry of Business, Innovation and Employment, has not been a success. It has suffered from political interference and inept policy formulated by people with no understanding of building. They often resemble WW1 generals headquartered in their chateaux asking why the soldiers can’t break through enemy lines, and then ordering more of the same.

David Kernohan also lamented the expensive and lengthy litigation that dominates the resolution process but with a legally-based system what else would you expect? The misplaced expectation with the WHRS Act was that owners, builders, councils and designers would happily mediate their way to settlement. But who wants to pay hundreds of thousands of dollars to repair a failed building due to inadequate systems and non-durable materials foisted upon them by others.

Liability is like pain. No-one wants it but without it, poor behaviour flourishes.

Unfortunately, in this litigious environment that government has created and keeps on reinforcing, ratepayers have become the unwitting insurer of an industry that has no adequate means of governing and regulating its behaviour. Following the recent Supreme Court ‘Spencer on Byron’ decision, ratepayer liability for all types of buildings – not just people’s homes – looks set to expand.

Yes, the Law Commission is investigating the idea of replacing Joint & Several Liability (or ‘last man standing’) with Proportionate Liability. This would seem fairer to defendants but would leave most claimants, especially homeowners, considerably poorer. After all, a 20% victory against the last man standing – usually the council – may not even cover the claimant’s legal costs.

During the late 1980s and 1990s self interest within the various sectors of the industry created what in the end became a perfect storm of risky designs built with unreliable systems and non-durable materials. Our understanding of how buildings perform was lacking; the science was primitive. Without proper understanding, education when it did occur was inadequate. And when it came to accountability, everyone ducked for cover, or ran to their lawyer.

We now have better cladding systems and materials. Councils have improved, but they are now pushing liability back to the industry. Who can blame them? The problem is the industry at present can’t deliver. So what will?

I believe a national home warranty scheme, owned and run by the industry on a non-profit basis, for the benefit of owners of new homes, would tick all David’s boxes.

Such an organisation must be technically competent and risk focussed. It would need to be a voluntary scheme for homeowners, so it can avoid future political interference. High end risky designs and commercial buildings would not be included. It would then be possible to differentiate most of our homes from such buildings and allow government to disentangle the ratepayer from this unwanted and unnecessary burden.

This organisation would approve and monitor the systems and materials that make up residential buildings, as well as the designers and the builders; not just the people, but the companies and the people behind these companies. It would approve the designs, monitor the construction (similar to building inspection, but smarter) and if things go wrong, investigate the cause. It would make sure whoever is at fault puts it right, and it would underwrite this process. It would work for the benefit of the homeowner and the industry. Any surplus income would be retained and alleviate government of the costs to some degree.

Most importantly, such a body would provide timely advice, educate the industry and seek to avoid repeat failures. This feedback system is the best way to deliver quality outcomes. The current system generally lacks this – feedback can be inhibited and even prevented by commercial and legal pressures.

Internationally such national warranty schemes do exist. They have quietly and successfully performed for many years. They are not insurance companies. Insurance relies on the ‘system’ to get things right and if this fails, insurers seek to avoid or reduce payouts and then hike their premiums. Warranty companies, to be successful, achieve this by identifying and managing risk at all levels of the industry and at all stages of the building process.

To get such a scheme established would initially need government leadership and support. Once established such schemes become self funding. Coincidentally a scheme like this would achieve the current government objective of an effective national consenting and compliance scheme.

There’s no need for another Royal Commission. A properly established and managed home warranty scheme is the best solution. The disbelieving 2005 audience in Japan knew this. Now is the time for our leaders, both within government and industry, to grasp the initiative, provide the resources and work together to make this a reality.

Philip O’Sullivan

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