Consumers warned to be vigilant as builders continue to go bust

Those thinking of building a house or undertaking an extension or major renovation are urged to make sure their builder or tradespeople have appropriate insurance, as the number of insolvencies among licensed building companies for 2024 is expected to exceed historical highs.

Insurance is a safety net for homeowners so they do not suffer financial loss as a result of incomplete and defective work carried out by a builder or tradesperson who disappears, dies, becomes insolvent or has their licence suspended.

Engaging with builders and tradespeople should be approached carefully.Credit: Getty

Figures from Alares, which assesses financial and reputation risks of companies, shows licensed building companies continue to face significant challenges, with the number of insolvencies tracking 50 per cent higher than normal levels.

Patrick Schweizer, a director of Alares, says the figures do not include tradies who work for themselves, but that it is likely the trend among tradies would be similar to what is happening with builders.

“Victoria and NSW are impacted the most [with insolvencies], with Queensland doing a bit better,” Schweizer says. “Last year in NSW, builders were affected by bad weather, with delays on jobs affecting their progress payments.”

Schweizer says the Australian Taxation Office’s resumption of tax collection following its moratorium on collection during the pandemic has also driven the increase in insolvencies among licensed builders.

Tim Reardon, chief economist at the Housing Industry Association, says it is likely the worst of the increase in insolvencies is behind us.

“What we are seeing now is a shadow of what occurred in 2022 and 2023, after builders that had held on during the pandemic were wound up,” he says.

Insolvencies are still occurring, but mostly among the tradies hired by builders, who have experienced a reduction in work as home building slows as a result of rising interest rates, Reardon says.

It is important to have a contract with a schedule of progress payments, as that can help ensure the contractor completes the job in good time, Reardon says. And even where it is a small job, a written quote should be provided, he says.

Builders and tradespeople are legally required to obtain home warranty insurance for jobs valued at more than $20,000, including GST, in NSW, where it is called Home Building Compensation Cover and is overseen by icare and regulated by the State Insurance Regulatory Authority (SIRA).

A SIRA audit of insurance coverage among builders found many operating without the required insurance.

In Victoria, it is called Domestic Building Insurance and is required for jobs worth more than $16,000, including GST. As in New South Wales, builders and contractors have to show proof of cover to the homeowner before asking for a deposit or starting work.

Consumer group Choice says after checking if the tradespeople or builder is licensed in your state or territory the best way to find a builder or tradesperson is through reviews or personal references from people you trust.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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