Victorian new home builders to incur 65 per cent insurance spike, more than doubling in one year

Victorians building a new home will fork out thousands more on construction after another government move that’s expected to hurt tradies and buyers alike. Find out what you’re in for.

Domestic building insurance is surging by an extra 65 per cent, on top of last years increase of 43 per cent.

Victorians will have to fork out thousands of dollars more to build a home after a 65 per cent hike to domestic building insurance premiums were announced yesterday.

The move by the Victorian Managed Insurance Authority has outraged the construction sector who have warned it will hurt homebuyers still struggling to accommodate a $25,000 increase in costs caused by higher energy efficiency requirements put into force last month.

There are also fears it could drive some builders out of the industry at a time when they are needed to help the state reach lofty housing construction targets to break the state’s affordability crisis.

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Set to commence from August it will be the second increase in 11 months for the insurance that protects home owners if their builder becomes insolvent.

The cost had already been boosted by 43 per cent in September last year.

Insurance premiums for a new home valued at $300,000 will increase from $2635 to $4348, a rise of $1701. This is in addition to a nearly $800 increase in September.

More expensive builds will face an even larger increase.

Housing Industry Association (HIA) Victoria executive director Keith Ryan said builders already had pretty thin margins, so consumers would have to assume the increased costs would be passed on to them.

Mr Ryan said the homebuilding industry was being asked to pay for the sins of those who didn’t have to pay themselves whichwas a “bitter pill” for many to swallow.

“The problem is though that the builders who caused all those problems are the ones who are no longer with us,” he said.

“The ones who are paying for it are the builders who are still left building homes and more importantly, their customers.”

Mr Ryan said the homebuilding industry was already paying for the sins of those that had exited the sector.

He added this could result in some builders deciding to wind down their businesses and leave the industry.

“It’s adding to an already existing number of reasons why builders are thinking enough is enough,” he said.

“It will probably lead to some jobs being at least slowed down, if not stopped.”

A VMIA spokesman said a record number of Victorians had received domestic building insurance (DBI) settlements over the past12 months to finish their new homes and since July 1, 2023, the VMIA had resolved more than 4000 claims.

They added that insolvencies, inflation and skilled worker shortages were the reason premiums had increased, to ensure homebuyers remained protected.

“DBI premiums in Victoria remain lower than comparative premiums in NSW – and they are significantly lower for new builds,” he said.

Ms Lihou said they were “very concerned” about how this cost increase could put builders under even more pressure.

But Master Builders Victoria chief executive Michaela Lihou said this surge in premiums could put a “handbrake” on the state government’s target of building 80,000 new homes a year for the next decade.

“It’s obvious that major escalations in costs like this for both the building industry and consumers will not help build confidence in the industry,” Ms Lihou said.

“We acknowledge how important it is for the industry to have a sustainably funded underwriter.

“But we are very concerned that this significant cost increase this will create yet another significant barrier to securing projects and put builders under even more financial pressure than ever.”

She added that this came at a time when small and medium business enterprises were still struggling to deal with construction costs that had increased by 40 per cent since 2019.

“Many of our members feel like all too often it’s one step forward and then literally two financial steps backwards for them and their clients,” she said.

The Herald Sun understands some building businesses were contacted about the increase on Wednesday night despite broader industry becoming aware on Thursday.

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Originally published as Victorian new home builders to incur 65 per cent insurance spike, more than doubling in one year