Significant reforms to Victoria’s building regulator and builders’ warranty insurance scheme have been broadly welcomed, as the state moves towards a “first resort” model.

As insuranceNEWS.com.au has reported, the new Building & Plumbing Commission will incorporate the Victorian Building Authority (VBA), Domestic Building Dispute Resolution Victoria, and the domestic building insurance (DBI) function of the Victorian Managed Insurance Authority.

This follows a difficult few years during which the VBA was heavily criticised, the DBI scheme became overloaded as many builders went bust, and premiums soared as a result.

The DBI “last resort” set-up – whereby homeowners can claim only if their builder dies, disappears or goes bust – has been derided for decades. Critics say it forces people into ineffective legal action that wastes time and money.

But the state government last week announced the introduction of the new and more powerful regulator, and significant moves towards a first resort model similar to that in Queensland.

The regulator will have new powers to issue rectification orders, to allow action against a builder after the occupancy permit is issued, and the DBI scheme will be expanded to respond when a builder has failed to comply with such an order.

The current DBI scheme does not apply to buildings with more than three storeys of accommodation. But under the changes, multistorey developers will be required to provide a bond to cover the cost of fixing poor work.

Builders Collective of Australia national president Phil Dwyer, who has been fighting for improvements for many years, told insuranceNEWS.com.au the changes are “a huge step forwards”.

“They need to go further, but they will. This is a big benefit for consumers, and getting much closer to a first resort scheme,” he said.

Consumer Action Law Centre CEO Stephanie Tonkin also welcomed the announcement.

“Shifting domestic building insurance to first resort insurance and developer bonds are game-changing reforms,” she said.

The Australian Institute of Building Surveyors, which issued a public statement of no confidence in the VBA in 2022, says the announcement “offers great promise”.

“A single regulator has a chance of making every industry practitioner accountable, [and] developer bonds and insurance changes provide opportunities for defects to be addressed,” institute vice president and Victoria board director Wayne Liddy said.

“The measures ... together with other reforms recently implemented, have the potential to be a win-win for consumers and industry.

“We will continue to work with the government to fine-tune the detail.”

The Housing Industry Association has welcomed the new regulator, but questions some aspects of the insurance reform.

Executive director for Victoria Keith Ryan says the DBI scheme is “long overdue for review and reform, and needs to be more contemporary and fit for purpose in today’s environment”.

“At the same time, HIA remains concerned with some aspects of the changes announced,” he added. “This includes the move towards a ‘first resort’ DBI system.

“This approach needs further detailed consideration to ensure this does not just add more cost and complexity to the home building process. It also needs to be supported by a fair and fast dispute resolution system.

“The suitability of the introduction of a developer bond scheme for homes not covered by DBI is also questionable, as a similar scheme introduced in NSW has struggled in its operation and effectiveness.”

He also says the cost of premiums, “which [has] increased substantially in the past two years and is undermining housing affordability”, needs attention.

“Home builders are also finding access to DBI policies increasingly difficult to obtain, which is limiting their capacity to take on more work.”

The VBA also released a report last week – co-authored by building expert Bronwyn Weir – investigating its responses to complaints.

The report highlights the “dreadful experience” and “suffering” of complainants, and recommends changes to the DBI scheme and plumbing insurance.

“It appears that some plumbing insurers may be behaving poorly, undermining the consumer protection intended by the requirement to hold plumbing insurance that meets the ministerial order,” it says.

The Insurance Council of Australia declined to comment on the reforms or report.

The new regulator and powers require legislative changes, and are expected to take effect in the first half of next year.

Ms Weir is also reviewing the NSW builders’ warranty scheme. Whether her report or recommended reforms in Victoria shed any light on NSW’s likely direction of travel remains to be seen.

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