If latent defects insurance is made mandatory in the ACT, it will increase the cost of building new homes by 3%-5%, the Property Council of Australia warns.

The change would add $15,000-$35,000 to the price of a typical Canberra home, according to the council’s ACT executive director Ashlee Berry, who gave evidence to the territory’s inquiry into insurance costs.

She says the ACT must “modernise its insurance and liability settings”.

The Property Developers Act 2024 refers to latent defects insurance as a product available to developers for the protection of owners against future issues. It describes it as a “first resort, strict liability policy that covers physical loss or damage to a completed building caused by defects in design, materials or workmanship in the building’s structural elements and envelope after completion”.  

Ms Berry says the market for the cover in Australia “remains somewhat unsophisticated” and it would on average make up 3%-5% of the entire construction cost.  

“The adoption of this insurance may result in increases to the price of newly constructed homes, which is something the government should be aware of,” she said.

“That’s not to say it shouldn’t be adopted, but rather we must be cognisant of any requirements that add additional cost to new homes when we are facing a housing affordability and supply crisis.”

Strong consumer protections “must be balanced with affordability”, Ms Berry says.  

“We’re concerned the government is adopting policies that sound good but risk becoming a hidden housing tax at the worst possible time. The ACT is in danger of navigating a housing crisis with one hand tied behind its back. Regulatory changes like this, introduced without a ready market or complementary reforms to liability, could make things worse.”

The Property Council wants the ACT government to introduce proportionate liability laws like in other jurisdictions, which it says fairly apportion legal and insurance responsibility across the construction supply chain.

“The current ‘last person standing’ model puts all the burden on the final party – typically the developer – regardless of where responsibility lies. It’s outdated, it’s unfair, and it drives up costs for everyone involved, especially homebuyers,” Ms Berry said. 

“We need a regulatory system that supports investment and shared responsibility – not one that adds cost and uncertainty.”

Proportionate liability would allow developers to insure themselves according to their level of responsibility, the council says.

See the council’s submission to the inquiry here.