In the UK warranties for new build
homes are effectively mandatory.
Lenders and homeowners are
protected against structural failure,
with warranties issued by a range of
insurers. That means – unlike in
New Zealand – that all new home
owners have warranty protection,
and repair bills won’t end up with
ratepayers and taxpayers. Doesn’t
that sound a good idea?
A Better System
Home Building Warranties –
New Zealand and the UK
compared
Gordon Harcourt
With funding from the WINSTON
CHURCHILL MEMORIAL TRUST
2016
Introduction ......................................................................................................................... 3
1. Overview & Recommendations ................................................................................. 3
2. The New Zealand home building guarantee market ........................................ 5
i) The Master Build Guarantee ................................................................................................ 5
ii) Guarantee or “contract of insurance”? ........................................................................... 6
iii) Other providers ..................................................................................................................... 7
Halo Guarantee ........................................................................................................................................ 7
Builtin Homefirst Builders Guarantee ........................................................................................... 8
Stamford Insurance ............................................................................................................................... 8
Signature Homes .................................................................................................................................... 8
iv) Guarantee coverage in New Zealand .............................................................................. 8
3. The UK system ................................................................................................................. 9
i) NHBC ............................................................................................................................................ 9
History ........................................................................................................................................................ 9
ii) Other providers ...................................................................................................................... 9
LABC Warranty & Premier Guarantee ........................................................................................ 10
Checkmate.uk.com .............................................................................................................................. 10
BLP Insurance ....................................................................................................................................... 10
4. The NZ/UK comparison ............................................................................................ 10
i) ‘Like the UK before the Second World War’ .................................................................11
ii) Gobsmacked ...........................................................................................................................11
iii) Independence is key ..........................................................................................................11
iv) Quite shocking ......................................................................................................................12
v) The Gilchrist house ..............................................................................................................13
Dealing with the NHBC ..................................................................................................................... 14
vi) NHBC response .....................................................................................................................14
5. The NZ Government’s position ............................................................................... 15
i) Continuing to consider … ....................................................................................................15
ii) The Law Commission’s view .............................................................................................16
6. Conclusion ..................................................................................................................... 17
The video ............................................................................................................................ 19
Costs ...............................................................................................................................................19
Links to video ..............................................................................................................................19
Transcript .....................................................................................................................................20
Gordon Harcourt
A Better System
3
Introduction
This project was born of years of frustration.
For eight years (2008-2016) I was a reporter and presenter on TVNZ Fair Go. In
that time I did too many stories about the Master Build Guarantee, the best-
known home building guarantee product in New Zealand.
In my view the guarantee has a big problem: you are not buying your Master
Build guarantee from an independent third party, as you do with insurance. In
essence, you buy your protection from the same people you are seeking
protection against: your Master Builder.
The company that runs the Master Build Guarantee is 100% owned by the
Registered Master Builder Association. Your builder, against whose work you
may have to claim, is a fee-paying member Master Builder. The Master Builders
say that gives them clout and leverage over their member. I say it’s a conflict of
interest.
As I said on Fair Go in October 2014, Steve Hansen coaches the All Blacks. You
don’t give him the referee’s whistle too.
So, I wanted to find out if the UK system was a better system than that in New
Zealand. It turns out the UK system is far from perfect, but I think it’s a great
deal better than what we’ve got.
The report first sets out the system as it is in New Zealand and in the UK, and
compares them. It then describes the New Zealand government’s position, and
the current low likelihood of any imminent change to it.
The funds granted to me by the Winston Churchill Memorial Trust were used to
travel to the UK and to produce a video. This report is intended to support and
expand upon that video. A transcript of it is included, below.
NB: The terms “guarantee” and “warranty” are used interchangeably throughout
this report.
1. Overview & Recommendations
I firmly believe that New Zealanders would be better off with a mandatory home
warranty scheme, as exists in most states of Australia and de facto in the UK.
This report describes the existing UK schemes, and contrasts them (mostly)
favourably with those in New Zealand
The key difference is that UK lenders require a warranty before lending.
Therefore such warranties are de facto mandatory. The CEO of a British insurer
told me she was “gobsmacked” to learn that New Zealand lenders do not require
a warranty. There is vanishingly small prospect of such a fundamental change in
the behaviour of lenders here.
However, as noted below the Law Commission recommended a compulsory
scheme in its 2012 report on Joint and Several Liability. Getting on for five years
later, that recommendation has not been acted on.
MBIE’s website states that the Government is considering the recommendation,
and Building and Construction Minister Nick Smith occasionally hints at one,
without any real progress.
A compulsory scheme would likely require some government guarantee, but
because there are existing private providers it seems reasonable to assume that
those providers could issue the guarantees and bear the bulk of the risk. A
compulsory scheme would surely have basic quality requirements, such as the
independence and financial transparency so woefully lacking in the Master Build
product.
In the absence of such a scheme, I would like to see greater scrutiny of the
Master Build Guarantee document. Potential exists, I believe, for it to fall under
the new Unfair Contract Terms (UCT) provisions of the Fair Trading Act, as
enforced by the Commerce Commission. As I currently work for the Commission
that is not an avenue I can pursue.
A far more expensive (and unlikely) course would be a High Court action to rule
on whether the Master Build Guarantee is in fact a “contract of insurance”. Such
contracts fall under the Insurance (Prudential Supervision) Act 2010 (IPSA), as
enforced by the Reserve Bank of New Zealand, which entails some onerous
requirements. This avenue is simply not open to me to pursue
However, the IPSA is about to be reviewed, and I do intend to make a submission
to the RBNZ about the Master Build Guarantee contract.
In my career with Fair Go I waged what felt like a solitary and fruitless campaign
against the deep unfairness I see in the status quo, especially for customers who
purchase the Master Build Guarantee. I have left Fair Go but I do not intend to
leave this issue behind.
Personal benefit
Travelling to the UK to prepare this report and the accompanying video has been
extremely beneficial to me in reaching greater understanding of how New
Zealand could move forward. I gained much clearer understanding of the UK
system and - perhaps most usefully – I glimpsed the shortcomings of the NHBC,
the dominant UK provider. They are detailed below.
Gordon Harcourt
A Better System
5
I hope that my work can inform change here in some small way, and I am
immensely grateful to the Winston Churchill Memorial Trust for allowing me to
pursue this goal.
2. The New Zealand home building guarantee market
i) The Master Build Guarantee
As noted above, the market is dominated by the Master Build Guarantee. It is
administered by Master Build Services Ltd (MBS), a subsidiary of Registered
Master Builders Association of NZ Inc. (RMB).
The TV campaign used to claim “award winning excellence, guaranteed”. The
updated slogan is now “building excellence, guaranteed.”
No financial information is available for MBS but the website states that the
guarantee has backed up 100,000 homes and renovations since 1991.
MBS is not an insurer licensed with the Reserve Bank, and it has no underwriting
relationship with a licensed insurer. It is not on the register of financial service
providers (FSPR) and is not a member of a dispute resolution scheme.
I note that RMB does now offer independent dispute resolution with a reputable
disputes company called Fairway Resolution Ltd, an independent crown-owned
company.
The July 2015 guarantee document allows for disputes to be referred to
mediation and arbitration.
No sample guarantee documents are available on the MBS site and there is
minimal information about the guarantee terms.
According to the MBS website the company “undertakes an actuarial review by an
independent actuary from Australia every six months and is independently audited
by Deloitte annually.” The audit and actuarial review do not appear to be
publicly available.
MBS has a (mostly) separate board, but MBS and RMB share the same chief
executive and the same central Wellington registered address. In a long running
case I covered, the substantive emails all came from the in-house counsel for
RMB, not from a separate MBS person.
MBS says it is compulsory for Master Builders to “offer” the guarantee to
clients. The MBS website includes this warning:
It is important to note that a Guarantee is not automatic upon hiring a Registered Master
Builder - you must complete the documentation with your builder and ensure that it is
sent through to Master Build Services.
In 2016 rival trade body NZCB made it mandatory for guarantees to be in place
for work over $30,000.
During my time at Fair Go I dealt with at least one situation where a homeowner
attempted to claim on a Master Build guarantee only to discover it did not exist.
If that happens, tough – the customer may have paid their money but they get no
cover.
In 2010 two directors of Christchurch building company Balmoral Homes Ltd
pleaded guilty to multiple charges. They had taken money for guarantees but did
not initially forward the money to MBS.
ii) Guarantee or “contract of insurance”?
This sounds an arcane sort of question, but it really counts when it comes to
purchasing a guarantee. The Master Build Guarantee document explicitly states
that it is “neither a contract of insurance or indemnity”, and MBS relies on a 2001
High Court ruling to back that up.
That very neatly sidesteps some relatively onerous legal requirements.
All licensed insurers are covered by the Insurance (Prudential Supervision) Act
2010 (IPSA), with its solvency requirements and fit and proper person test, as
administered by the Reserve Bank.
Three other providers (detailed below) offer insurance products, and they
therefore fall under the IPSA, which explicitly excludes guarantee products.
But just stating something doesn’t make it true: if it quacks and waddles it’s
probably a duck. Three of four insurance lawyers I quizzed in 2015 agreed yes,
it’s a duck – it’s insurance. The fourth said no it’s not insurance, not a duck, but
it is a turkey!
As part of that 2015 story I asked the Reserve Bank if the Master Build Guarantee
should be considered “insurance”. The Bank avoided giving an answer but a
2011 cabinet paper from then Building and Housing Minister Maurice
Williamson notes:
[T]here are legal differences between a contract of guarantee and a contract of
insurance. The key difference is in relation to who owes a primary obligation to the
homeowner. In a building guarantee, the homeowner must look to the builder first. If the
builder cannot or does not remedy the defect, the homeowner can then look to the
guarantor for remedy.
1
1
Building Act Review: Regulation of guarantee products and services
Gordon Harcourt
A Better System
7
And what of that High Court ruling? It clearly states “[i]t was a contract of
guarantee.”
2
But that ruling was ten years before the IPSA, and the law has
changed substantially since then.
MBS seems rather unlikely to put up its hand and volunteer to become an
insurer, so in the absence of the Reserve Bank deciding the MBS guarantee is a
“contract of insurance” it might take another High Court ruling. It is very
difficult to see who would take that case, so the awkward status quo is likely to
continue.
However, the IPSA is to be reviewed during 2017 and I intend to use this report
as the basis for a submission to the Reserve Bank, that the Master Build
Guarantee should be regarded as a “contract of insurance”.
Alternatively, a complaint might be taken to the Commerce Commission, alleging
that it is misleading and deceptive conduct for MBS to hold out that its guarantee
is not a contract of insurance. As I now work for the Commerce Commission that
is not a course of action open to me. The Commission receives thousands of
complaints each year and such a complaint would need to demonstrate a
reasonably high level of detriment to the public.
There is another possibility. In March 2015 new provisions of the Fair Trading
Act came into effect, relating to unfair contract terms (UCT). They allow the
Commerce Commission to seek a court declaration that a term in a standard
form consumer contract is unfair. It is relevant to note that the UCT provisions
do not apply to insurance contracts. The current MBS guarantee document is
dated July 2015, and therefore might be the subject of a complaint under those
new provisions of the FTA.
As Auckland University insurance law expert Rohan Havelock told Fair Go in
June 2016, the guarantee document is “highly complex … it’s not written for the
layman. It’s written for the benefit of Master Build, when a claim is made, and
Master Build can rely on its provisions to either deny the claim or to limit the
claim.”
iii) Other providers
It is my strong view that the three alternative providers to MBS offer
demonstrably better protection for the consumer because of the genuine
independence, the backing by licensed insurers, and the access to independent
financial dispute resolution.
Halo Guarantee
This product is offered by NZ Certified Builders, a rival trade organisation to
RMB.
The guarantee is administered by a fully independent
third party company, BrokerWeb Risk Services Ltd, an
insurance broker. At least one individual within that
2
Quin v Master Build Services Ltd et al, CP359/96 High Court, Auckland, 2000
company is on the FSPR, and customers therefore have access to an independent
dispute resolution service.
It is underwritten by Lloyd’s of London, about which consumers can find copious
financial information.
As noted above the guarantee is mandatory for all work by NZCB members on
work over $30,000.
In 2014 I did this story about a dispute concerning the Certified Builders
Guarantee, where the customer felt CB was working against her, and a CB board
member acted for the builder. The builder involved was later convicted of three
charges under the Fair Trading Act, for making false representations about
providing Homefirst building guarantees to homeowners.
Builtin Homefirst Builders Guarantee
This is administered by Builtin NZ Ltd, a company which formerly administered
the NZCB product.
It is not a licensed insurer but the guarantee
products are backed by licensed insurers such as
CBL Insurance and IAG NZ Ltd.
A director is a Registered Financial Adviser and
customers therefore have access to an independent dispute resolution service.
Stamford Insurance
Stamford Insurance Ltd offers building warranty
insurance. It is a coverholder for Lloyd’s of London,
underwriting on behalf of Lloyd’s syndicates.
It has access to independent dispute resolution with
Financial Services Complaints Ltd.
It works with and is endorsed by HOBANZ, a housing issues lobby group.
HOBANZ offered funding for the post-production of this video project.
Signature Homes
Franchise group Signature also offers what it describes as its “exclusive and
independently-bonded guarantees.” No specific information is available on its
website.
iv) Guarantee coverage in New Zealand
According to a 2011 cabinet paper, the Master Build and Certified Builders
products covered “approximately 50 per cent of new builds and approximately
one third of all residential building work.”
3
I have not been able to obtain more up to date or precise information.
3
Building Act Review: Review of Joint and Several Liability
Gordon Harcourt
A Better System
9
3. The UK system
When I first read about the UK system I was immediately struck by how superior
it appeared to be, at least from afar.
The key difference is that a home warranty is effectively mandatory for all new
builds: lenders will not lend without one.
i) NHBC
The National House Building Council (NHBC) totally dominates the UK market,
claiming 80% market share. Competitors I spoke to doubted that figure was still
accurate.
It provides warranties and carries out building
inspection work of the type that local authorities do
here in New Zealand.
Its key claim is to be independent of builders and
homeowners, though the homeowners I met in Cambridgeshire were
contemptuous of its claim to be independent of builders. Lee and Jacquie
Gilchrist were still in a long and bitter dispute with NHBC when I met them in
October 2016. Their story is detailed later in this report.
History
NHBC was created in 1936, “to tackle the sub-standard building practices seen in
the inter-war years” and was initially a “voluntary venture into self-regulation
and consumer protection by the industry.”
4
According to Checkmate.uk.com, a
smaller rival, it was motivated by a desire to avoid legislation.
In the 1950s it became independent of the building industry, with income from
builder registrations.
NHBC’s ten-year warranty concept was introduced in 1965.
ii) Other providers
There are three main brands but only two main players in the UK home warranty
market.
4
http://www.nhbc.co.uk/AboutNHBC/OurHistory/
From NHBC website
NHBC is the UK’s leading independent standard-setting body and provider of warranty and
insurance for new homes. Our purpose is to work with the house-building industry to raise
the standards of new homes and to provide protection for homebuyers in the form of
Buildmark warranty and insurance.
Established in 1936, NHBC is the home warranty provider of choice, currently insuring over
1.6m homes, with a market share of approximately 80%. Over the course of our history, we
have provided warranty for around 30% of the total existing housing stock in the UK, which
equates to over 7 million homes.
LABC Warranty & Premier Guarantee
I was initially puzzled to find that the two other main players in
the UK home warranty market are headquartered in the same
building on the Wirral peninsula, across the Mersey from
downtown Liverpool.
LABC Warranty and Premier Guarantee are both owned by the
same company, MD Insurance Services Ltd.
With NHBC these three big players participate in the Consumer Code for Home
Builders, a consumer protection code (dispute resolution process) launched in
2010.
Underneath them are numerous smaller players, often with their own consumer
codes. I made contact with two of them,
Checkmate.uk.com
Checkmate.uk.com was set up in 2010. It’s a small outfit
– 25 individuals are listed on the Checkmate website. It
is part of Lockton, a global insurance brokerage group.
Chief executive Martin Horsler claims Checkmate to be the fourth largest player
in the market, though he did not supply data for that. He’s happy for his
company to be descried as an insurgent.
BLP Insurance
BLP Insurance is managed by large insurance player Thomas Miller Group.
According to information supplied to me by BLP it has UK home warranty
market share of 3-4%.
BLP told me a key difference in their cover is that homeowners need
not try and get the developer to fix a defect in the first two years of
cover, as is typical with other guarantees.
BLP also offers higher total cover. Typically there is a £1 million limit to cover
per single structure, and £25 million for a continuous structure, for example a
block of flats.
BLP applied to join NHBC’s consumer code but was refused, and BLP developed
its own, now approved by CTSI, the Chartered Trading Standards Institute.
4. The NZ/UK comparison
This is the core of this project. While I wanted to understand how the UK model
works, my key intention was to compare it to the NZ model.
Therefore I described the NZ model to the players I was meeting, and asked for
their reactions on camera.
Gordon Harcourt
A Better System
11
i) ‘Like the UK before the Second World War’
Martin Horsler of Checkmate turned out to be a very affable home warranty
insurance veteran. He formerly worked for NHBC, and now competes against
them, on greatly smaller scale.
He says NHBC is “an arrogant competitor”, and as the box below describes I
found that easy to understand.
I had emailed him my assessment of the New Zealand situation, and his view was
surprisingly trenchant: “It looked like the UK market pre-Second [World] War”
which, in his view, was not a good place to be.
Did it surprise him that New Zealand mortgage lenders do not require some sort
of warranty protection?
“Yes it does. You need some protection because …. the lender has an investment
in property. They need to know that in the event there’s a problem with their
investment in the house, it will be right and will be protected.”
It is typically the developer or builder which purchases the warranty, because
they must do so to get finance. And in his view, New Zealand lenders should also
be insisting on warranty protection. Why would a New Zealand builder or
developer pay extra, if there is no effective compulsion?
“The driver in our market is the lenders,” he told me.
ii) Gobsmacked
I met with BLP Insurance CEO Kim Vernau and marketing manager Adrian Stahl.
They were shy of a video interview but were extremely generous with their time
and information.
As with my other interviewees, I had emailed my assessment of the New Zealand
situation. Kim’s response was striking: “I’m gobsmacked [NZ lenders] are happy
to run with that risk”, she told me. It means funders and developers have a
vested interest in the life of a structure.
“Why would you not have this requirement?” she wondered.
iii) Independence is key
The UK’s Home Builders Federation (HBF) is very similar organisation to the
Master Builders and Certified Builders in New Zealand. It calls itself “the voice
of the home building industry” in England and Wales, and says that its members
deliver around 80% of the new homes built each year.
So, it is a membership body acting for the interests of its
members, and it does not pretend to be anything else.
It works closely with NHBC, for example in managing the
consumer code. Communications Director Steve Turner
reckons the UK home warranty situation works pretty well: “Clearly we in this
country are very focused on ensuring that we’ve got that protection for the
buyer.”
“We’ve not had any systemic failures since probably the 1960s, the concrete
cancer issues, so I think that says we’re doing something right,” he told me.
Where New Zealand has the leaky building catastrophe, the UK had “concrete
cancer”, particularly in pre-1980s buildings, where a reaction within the
concrete causes it to expand and crack, allowing water ingress and further
damaging reactions and expansion.
So how did he react to my description of the New Zealand situation? Remember,
the best-known product here is that offered by Master Builders, an organisation
directly equivalent to HBF.
“Well I think we at HBF would find it difficult to be a warranty provider. One,
you’ve got to have the financial backup to enable you to service the insurance
claims but two you need a level of independence, I think, so we wouldn’t want
that role.”
I think that is the crucial comment that was made to me during this project: “you
need a level of independence”. HBF does not feel it has that independence, yet
somehow its direct New Zealand equivalent has no similar concern.
“I think the model that we’ve got [with] an independent body providing the
warranties and an independent insurance company, or a number of independent
insurance companies, provides that balance for protection between the various
parties needed.”
He said different systems develop in different countries “but getting the
independence and consumer protection is key if you’re going to have an effective
warranty system.”
So, would HBF consider offering its own warranty?
“I don’t think we would like to do that,” said Steve Turner, laughing.
iv) Quite shocking
The Homeowners Alliance, a consumer protection group, is run from Paula
Higgins’ north London kitchen. Paula is NOT a fan of the UK home warranty
system.
“Well the thing is it’s not really
worth the paper it’s written on,”
she told me.
She says that, on the face of it, UK warranties look quite good because they are
for ten years and are effectively mandatory. The reality is different, she says.
Gordon Harcourt
A Better System
13
“It’s very difficult to get them to pay out, it’s very difficult to navigate the system
and it’s the bigger developers against the small homeowners.”
She would like to see considerably more competition in the market, with
independently-verified data about what is paid out. She is especially critical of
NHBC, who she says “seem to be very much on the side of the builder” and
“always seem to be looking at ways to not pay out.”
But what does she feel about the New Zealand situation?
“Well to be honest I think that’s quite shocking,” she says.
“It’s a trade association backing their own members so clearly there needs to be
more protection for the consumer in New Zealand but I’m not sure whether the
UK system is the right way to go.”
The Gilchrists of Cambridgeshire are just one story to illustrate her contention.
v) The Gilchrist house
On the face of it, Tom and Jacquie Gilchrist have a lovely new build home in the
village of Papworth Everard, just west of Cambridge.
Their home is in a new estate, overlooking a playground with a wind turbine just
beyond it. It’s when the chill wind blows across the flat lands of eastern
England that the problem with the home becomes acute: it is drafty and cold.
On top of various minor problems such as breaking fixtures, the Gilchrists say
their energy bills are much higher than they should be. Since they purchased it
in late 2014 there has been a constant stream of workmen through, and they’ve
had to move out of then back into the house, all of which has been extremely
stressful for their autistic son.
“It’s a massive amount of stress, anxiety, sleepless nights and it’s effectively a
second job dealing with the builder and the NHBC in the evenings after already
doing a full day’s work,” Lee told me.
Initially NHBC appeared to be on their side, Lee says, but by the time I met him
he firmly felt the NBHC is “out to protect the interests of the NHBC” and “seem to
be very much interested in the builder’s interests.” “It feels like the warranty’s
The smoker test
Smoke coming out of the
Gilchrist house equals drafts
coming in
not worth the paper it’s written on. The builder has a hold over the NHBC and
it’s a toothless organization.”
vi) NHBC response
As a courtesy I put all the key points that would appear in the video to the NHBC,
though with little expectation of a response. I was wrong. I suspect that my
inclusion of the Gilchrists touched a raw nerve at NHBC.
Their story had featured on BBC local radio in Cambridgeshire, and then also in a
consumer programme on BBC Radio 4, a station equivalent to RNZ’s National
Radio.
So, it came as a pleasant surprise when I received a statement from NHBC soon
after I left the UK. Here it is in full:
“As the UK’s leading independent standard-setting body and provider of
warranty and insurance for new homes, NHBC works with the house-
building industry to raise the standards of new homes and provide
protection for homebuyers.
“We set and maintain construction standards for new homes, inspecting at
key stages of construction - carrying out over 790,000 inspections in
2015/16 alone.
“Our records show that less than 1% of new homeowners experience serious
problems with their homes and of the 1.6 million homeowners covered by
NHBC’s warranty and insurance, nearly 95% never need to contact NHBC to
make a claim.
“We appreciate that it is very distressing for homeowners when they
experience problems. Thankfully this is rare, and when things do go wrong,
we are committed to ensuring that problems are put right as quickly and
Dealing with the NHBC
I first contacted the NHBC in late 2015, or rather I first attempted to contact them.
After seven unanswered emails and two late night telephone calls to Milton Keynes, I was
becoming extremely frustrated with the lack of response. Using an old journalist’s trick I asked to
speak to the CEO’s executive assistant and it worked. I got through to the office, explained the
situation, sent an email and it was rapidly answered – my first reply email from the NHBC. Finally
I was in.
In early March I was I could meet the CEO, Mike Quinton. By that time – three months after my
first contact – it was no longer possible for me to travel to the UK because of my commitments with
TVNZ, for whom I still worked.
Then in September and early October 2016 I again tried to make contact. By that time I no longer
worked for TVNZ. Eventually I got the answer that there would be no interview, no meeting.
Gordon Harcourt
A Better System
15
with as little disruption as possible.”
It was a bland and generic statement, but at least it was something.
Then events took a very strange turn. Days after I filmed with Lee Gilchrist, a top
executive in the parent company of the Gilchrists’ builders was arrested on
suspicion of bribery. Soon after that, Lee told me via email that his builders
David Wilson Homes “made a complete u-turn and said they will do everything
and appointed an independent contractor to do the work.”
As this report is being completed, he and his family had moved out of their home
for five months to allow – they hope – remediation of all the faults.
So, good news for the Gilchrists, but is such change likely to the guarantee
system in New Zealand? No, at least none led by government.
5. The NZ Government’s position
i) Continuing to consider …
A note on the MBIE website states the “Government is also considering the Law
Commission’s recommendations
5
to cap building consent authority liability and
to develop a residential building warranty scheme.”
In reality, I feel there is clear reluctance at ministerial and official level to
develop anything, especially a compulsory scheme. This was the fairly damning
verdict in a 2010 cabinet paper:
6
Mandatory surety was considered in some detail and significant costs and risks
were identified including:
• likely increases in the upfront direct costs of building in the order of 1% of the
total cost of building
• risks of provider failure, as evidenced by recent experience of insurer failure as
well as providers exiting the market for home warranty insurance in Australia
• the potential to erect barriers to entry, which would potentially come at a high
economic cost because of the need for industry capacity to respond to changes in
demand
• risks of curbing innovation in the sector, as surety providers may take very
cautious approach when writing and pricing surety products
• risks that surety providers may act as de facto regulators of builder
competence and building quality, overlapping with the role of building consent
authorities and licensing boards.
In late May 2016 (then) Building and Housing Minister Nick Smith briefly offered
some hope to those, such as myself, who strongly believe some stronger
warranty regime is required.
5
See below
6
Regulatory Impact Assessment – Building Act Review: Proposals and options for reform, July
2010
According to RNZ and Fairfax media reports, Dr Smith told the Certified Builders
conference that the Government was looking at a building warranty scheme.
The Fairfax (Stuff.co.nz) report quoted him as saying:
"The warranties provided by Master Builders and Certified Builders are
certainly a whole lot better than having none, but there is a question that if
we are going to limit the liabilities of councils that the warranty system is
robust."
In comments quoted by RNZ he said a discussion paper would be put out in late
2016 but none has so far appeared.
In late April 2017 Dr Smith’s office replied to my query about that discussion
paper, saying MBIE is “continuing work on a builder warranty-type scheme but
the work programme has been expanded to include the related issues of liability,
building material controls and occupational regulations. The more
comprehensive paper is now due mid-year.”
In September 2016 I met then-Consumer Affairs and Commerce Minister Paul
Goldsmith, and during that meeting I raised with him my concerns about
building warranties.
Mr Goldsmith expressed interest but took no action and in December 2016 he
relinquished the Commerce and Consumer Affairs portfolios as part of new
Prime Minister Bill English’s cabinet reshuffle.
ii) The Law Commission’s view
The most definitive and positive public statement comes not from a minister but
from the Law Commission, which considered building warranties as part of its
2012 review of joint and several liability.
It set out the Australian approach of compulsory builder’s warranty insurance.
However, opponents of this approach make much of the collapse of a major
Australian insurer and warranty provider in 2001.
The Commission notes that private companies have largely exited the market in
Australia and schemes are now underwritten or run by state government
agencies.
There has been some recognition in discussions about the operation of joint
and several liability of the importance of consumer protection. Local
Government New Zealand has proposed that there should be a compulsory
Gordon Harcourt
A Better System
17
building warranty scheme. This is seen as one of the necessary elements,
along with the new regulatory regime that is being introduced to improve
building quality. However, the experience of the Australian states shows
that an effective warranty scheme will either have to be provided by
government, or have a government guarantee.
… The Law Commission’s present view in respect of at least the residential
sector of the building industry is therefore that a shift from joint and
several liability to proportionate liability would have to be
accompanied by the establishment of a compulsory building warranty
scheme that would provide cover in the event that the builder failed to
rectify defects. There would need to be a clear indication from Government
that a compulsory warranty scheme would be established as an element of
any changes to the liability regime that weaken the ability of homeowners
to recover fully from defendants. It is likely that the two propositions of a
change in liability regime and the introduction of a builders warranty
scheme would need to be introduced as a package to ensure continuity of
consumer protection. The package should also detail how the interests of
commercial building owners would be addressed.
Law Commission
Issues Paper 32 – Review of Joint and Several Liability
November 2012 [Emphasis added]
The MBIE website dutifully carries that note about “considering the Law
Commission’s recommendations … to develop a residential building warranty
scheme” but nothing happens.
6. Conclusion
Despite flaws in the UK system, to me it appears manifestly superior to the
situation in New Zealand. There is effective compulsion, as lenders require a
warranty.
The current government has little appetite for compulsion of any sort, so it
seems unlikely that the Law Commission’s recommendation for a compulsory
building warranty scheme will be implemented any time soon.
Perhaps the discussion paper now due in mid-2017 will spur Building and
Construction Minister Nick Smith into action, but that too seems unlikely with an
election looming.
In the absence of compulsion I believe a minimal intervention would improve
prospects for New Zealand home owners: home warranties should only be
issued by licensed insurers, or on behalf of licensed insurers (as is the case with
the three alternatives to the Master Build Guarantee).
If Master Build Services Ltd wishes to continue offering the Master Build
Guarantee, it should have to become an insurer and fulfil the requirements of the
Act.
In my view this would broaden and deepen the market for existing warranty
products, and potentially encourage new entrants. At the very least it would
compel Master Builders to overhaul their product and its provision.
It would be a poor substitute for a UK-style scheme, but it would be a start.
Gordon Harcourt
A Better System
19
The video
Costs
The funding covered travel costs to the UK, hiring a cameraman in London for a
day, some minor equipment purchases (eg a lapel microphone and lightweight
tripod to allow better quality video recording with my iphone) and incidental
costs.
A full budget is available on request.
Links to video
The video can be found here (on the Youtube channel of video editor Ben
Selkirk) and here on Stuff.co.nz, where it appeared in December 2016 under the
headline Gordon Harcourt: NZ needs to boost protection for owners of newly
built houses.
The story included this disclosure: Harcourt's trip was funded by the Winston
Churchill Memorial Trust, with assistance from HOBANZ.
Transcript
The information in caps indicates the images which accompany the voiceover.
BUILDING SITE
Yet another huge residential development in London
GORDON HARCOURT TO CAMERA
This is a wee bit special for me, this is my old workplace, the BBC TV Centre in West
London, now luxury flats. They’ll sell for millions of pounds
BUILDING SITE
Unlike NZ, all of them will have a home warranty of some sort – insurance
against defects and structural problems for ten years
AUCKLAND SKYLINE
Why does this matter to Kiwis? Because we’ve already had the leaky homes
disaster, I think NZ homeowners need more and better options to protect
themselves
GORDON HARCOURT TO CAMERA
For years, I did stories on TVNZ Fair Go about home warranty nightmares
I think the NZ system is rubbish.
So, I’ve come to the UK to find out how they do it better here
STEVE TURNER – Home Builders Federation
Clearly we in this country are very focused on ensuring that we’ve got that
protection for the buyer
PAULA HIGGINS – Homeowners Alliance
On the face of it it looks quite good because you’ve got a ten-year warranty
MARTIN HORSLER – Checkmate.uk.com
It works for the consumer, ah, not as well as it might do
LONDON STREETS
I’ll explore that but how does it work in the UK
It’s effectively mandatory for all new builds – lenders require them, so
nothing gets built without one
STEVE TURNER – Home Builders Federation
We’ve not had any systemic failures now since probably the 60s so I think that says
that we’re doing something right
NHBC VIDEO
One company dominates – NHBC, the National House Building Council
It claims 80 per cent of the market, it’s a regulated insurer, its own
inspectors check the build as it goes along, but they’re a weird mob to deal
with and they wouldn’t talk to me
MARTIN HORSLER – Checkmate.uk.com
They’re an arrogant competitor
Martin Horsler worked for them. He now runs a much smaller competitor
Gordon Harcourt
A Better System
21
MARTIN HORSLER – Checkmate.uk.com
The driver in our market is the lenders
Because no warranty, no mortgage for a new build. Effectively, lenders
make it mandatory
MARTIN HORSLER – Checkmate.uk.com
They need to know that in the event that there’s a problem, that their investment in
the house will be right, will be protected
GH - Does it surprise you that in NZ the lenders don’t require any sort of warranty?
Yes it does
And listen to his assessment of the NZ situation
MARTIN HORSLER – Checkmate.uk.com
I thought it looked like the UK market pre-second war.
Pre-Second World War?
Yeah, because that’s basically where we were at then
And was that a good place to be at?
No!
And at least one competitor agrees
GORDON HARCOURT TO CAMERA
I’ve just had about an hour and a half with another of the home warranty issuers
here, and they were, quote, gobsmacked that mortgage lenders in NZ don’t require
home warranties because that is the crucial difference between the market here
and in NZ
There are a few products in NZ – the best known is the Master Build
guarantee
MASTER BUILD GUARANTEE TV COMMERCIAL
But there is a guarantee when you use a Registered Master Builder
GRAPHICS
It’s not backed by an insurer, unlike those other products.
There’s no financial information.
There’s no independent dispute resolution.
And the company that runs it is owned by Master Builders.
STEVE TURNER – Home Builders Federation
I don’t think we would like to do that
HBF BUILDING
The Home Builders Federation is a UK equivalent of Master Builders
STEVE TURNER – Home Builders Federation
Well I think we at HBF would find it difficult to be a warranty provider. I mean one
you’ve got to have the financial backup to enable you to service the insurance
claims, but two you need a level of independence I think, so we wouldn’t want that
role
PAULA HIGGINS – Homeowners Alliance
Well to be honest I think it’s quite shocking if you think how much we’re
complaining about
Paula Higgins runs a consumer protection body
PAULA HIGGINS – Homeowners Alliance
Clearly there needs to be more protection for the consumer in NZ but I’m not sure
whether the UK system as it is, is the right way to go
GILCHRIST HOUSE
This house is an example of why she says that. The smoke test shouldn’t be
so spectacular.
The house is covered by the NHBC, the major UK home warranty insurer,
but the owner is furious
LEE GILCHRIST – Cambridgeshire homeowner
We’ve got the impression that the NHBC have no teeth. They can’t force the builder
to do anything as we’ve been told many many times
Lee Gilchrist’s been fighting the NHBC over his Cambridgeshire house.
LEE GILCHRIST – Cambridgeshire homeowner
They are an insurance company with the builder’s interest at heart
GRAPHICS
NHBC told me less than one per cent of new homeowners experience
serious problems.
Of their 1.6 million customers nearly 95% never make a claim, and if
things do go wrong they’re committed to putting things right quickly
GORDON HARCOURT TO CAMERA
Well clearly the UK home warranty system isn’t perfect, none is, but I think it is
way better than what we’ve got in NZ.
An avalanche of home building is coming.
A decent home warranty system would help prevent an avalanche of life-
destroying home building nightmares
Let’s get a better system
