The building commissioner doesn’t think Sydney has a defects crisis. Tell that to Amanda

Defects cost Sydney’s homeowners and taxpayers $700m annually. How did we get here and what is being done about it?See all 7 stories.

Defects and delays: Amanda Owen has gone through every home builder’s idea of hell.

The first to bell the cat on ANSA Homes, which subsequently entered liquidation with a suspended license and a horde of angry clients, Owen and husband Dave say they have faced the full brunt of the failings of NSW construction regulation.

The Herald’s Shoddy Sydney series has uncovered the problems plaguing new builds that cost home owners and taxpayers north of $700 million annually.

But neither the Building Commissioner James Sherrard nor Minister for Better Regulation and Fair Trading Anoulack Chanthivong describe the situation as a crisis: Chanthivong didn’t directly address a question about whether there was a defects crisis and Sherrard said consumers should move away from thinking that every defect is bad: “No building is built defect-free,” he said.

But those responses don’t stack up for Owen, who still doesn’t have a home after an $800,000 knockdown-rebuild project with ANSA Homes crumbled.

Amanda Owen’s lounge room with holes in the ceiling and wall.Credit: Jessica Hromas

“That is rubbish. You just need to go to any Facebook or Instagram group, and you will see how ridiculous that statement is,” she said about efforts to downplay the issue.

Owen has now turned her eyes to fixing holes in legislation that leave clients disadvantaged when things go wrong.

Her proposals to fix the state’s defects crisis mirror those identified by experts the Herald has spoken to. What exactly needs to change to improve how we build?

Solution 1: Teach builders to build correctly

Builders doing the right thing are competing with others who may have obtained their qualifications illegitimately.

NSW Building Commissioner James Sherrard inspects a building in Willoughby with Hyecorp managing director Troy Abolakian. Sherrard said it was an exemplary site.Credit: James Brickwood

Chanthivong blames issues with vocational qualifications on the privatisation of the sector, saying the rise in training organisations without the “proper vetting or the accreditation registration has certainly led to this particular situation”.

“This is something we relayed to our federal colleagues, that there needs to be significant improvement on this front because we’re at the bottom of the chain,” Chanthivong said. “If you’re going to address the validity of someone’s qualification, you look at the source.”

Sherrard put the responsibility for reform on the Australian Skills Quality Authority (ASQA), the regulator responsible for registering training organisations, saying he was having “detailed conversations” with his colleagues in Canberra.

“We’ve certainly raised our concerns about their enforcement and their compliance regime,” he said.

“So if [a registered training organisation] is not registered, then they won’t get the qualification. So in that sense, if the workaround in terms of its accreditation and registration is better and much more risk-focused, then the flow down effect for us, for the Building Commission, will be less.”

Solution 2: Fix the ‘broken model’ of contracts

The defect problems begin with the broken model of building contracts in Australia, said Jon Davies, chief executive of the Australian Constructors Association.

For years, Davies has been urging reconsideration of how building sites are priced, saying the use of fixed-term contracts over two or three years fails to account for unseen risks, as has been exposed during post-pandemic inflation.

He underscores the wafer-thin margins on which building companies operate to explain the industry’s insolvency rate, which is almost double retail trade in second place. Precarious business conditions result in corners being cut, he said.

Australian Constructors Association boss Jon Davies.Credit: Peter Rae

“What we’re seeing is high rates of insolvencies have an impact on the broader economy,” he said. “When people start going out of business, they will likely start first cutting corners.

“When your business is going under you’re going to look at every way to save money and get money back through claims, either worthy or baseless.”

Solution 3: Change how we pay for builds

Unlike in other jurisdictions, Owen said NSW “lacks legislative certainty” around percentage requirements for progress payments, meaning clients can pay up to 70 per cent of their contracted price but only have 30 per cent of their home completed.

Even if defective work is discovered, it’s often too late for clients to cancel their contract. Instead, they’re forced to try to negotiate on poor footing, with builders also privy to their financial information.

Owen points to the limited protection offered under the Home Building Compensation Scheme (HBCF), the safety net designed to protect consumers in the case of their builders’ disappearance, death, or company’s liquidation.

The maximum coverage from the fund of $340,000 hasn’t increased since 2012, when the average cost of building a home was $314,000. Construction costs have increased by 30.2 per cent between 2019-20 and 2023-24 alone.

Solution 4: Regulate, regulate, regulate

Former building commissioner David Chandler said the regulator should undertake more random inspections of sites to keep builders on their toes, and inspection data should be made publicly available each month.

Former building commissioner David Chandler after an inspection in Meadowbank.Credit: Kate Geraghty

This is happening at a far greater rate: data provided by the NSW government shows proactive inspections more than doubled to 158 last year, after conducting around 70 in each of the preceding two years.

But the establishment of Building Commission NSW as a standalone regulator in December 2023 came with the agency’s full-time staff increasing more than tenfold to more than 400.

Davies, the association chief, believes the Building Commission is fixated on the big end of town. He said the regulator’s focus should be on the smaller, riskier players who can establish a company and then disappear if their dodgy work catches up with them, leaving creditors to pick up the scraps. They later pop up under a different company name with almost no consequence.

“The government should be targeting smaller, less-reputable companies who phoenix, then pop up elsewhere,” he said. “They should be encouraging more established players; the tier one, two or even three companies.”

“It’s too easy for people to set up a business as a builder-developer.”

Chandler reported similarities between the regulatory problems at ASQA and the Australian Securities and Investments Commission (ASIC), which are charged with preventing companies folding and then appearing under a different guise: “ASIC is asleep at the wheel,” he said.

“I took the view that I wouldn’t rely on any intervention from ASIC that would change the game.”

Chandler said ASIC hadn’t connected director identification to the body’s general database, a major problem for receiver managers and administrators trying to trace funds after a company entered liquidation.

An ASIC spokesman pointed to recent funding in the federal budget to “deliver increased functionality including the linking of Director IDs to specific companies in the Company Register and improving the authentication of registry users”.

Solution 5: Overhaul private certification

There’s one thing almost everyone mentions when discussing the plague of defective buildings: private certification.

For most of last century, local councils approved new construction. But in the housing boom before the 2000 Olympics, this role was mostly privatised by the previous Labor government.

Cathy Sherry, a Macquarie University law professor specialising in development law, said: “If the buildings had to be signed off by the local council, they would be fixed.”

But when builders were the ones who employed certifiers to sign off on construction work, a perverse incentive arose.

“It’s an immediate conflict of interest that private certifiers relied … on developers for their next job. And so many of them were likely to sign off on the current job to ensure that they got future work,” she said. “Not all of them. I need to stress that there are a lot of private certifiers who are very, very good. But clearly there have been big problems with private certifiers.”

Owen agreed, saying clients were often presented with two or three certifiers to choose from, unaware that they obtained most of their work from the same company.

“As a result, a property may be completed without any certificates being uploaded, as was the case with our property,” she said. “A straightforward report highlighting builds lacking certificates after a designated period would effectively address this issue,” she said.

Solution 6: Fix how we do strata

Dealing with complex construction issues is hard enough alone, but it’s even more challenging when a group of home owners are brought together to try to fix defects across different apartments.

The strata system is like democracy, Sherry said. “It’s not perfect, but it’s the best system we’ve got. The problem is not the legal form, it’s the way it’s been manipulated.”

There are still glaring issues: how developers retain ownership of enough lots to hold a majority on owners’ corporations and vote against reform, and how strata bodies keep discussions about defects off official meeting minutes.

The government has issued a tranche of reforms to the industry to address some of these issues, including providing mandatory training for strata members to understand their legal obligations.

Solution 7: Be careful

Buyers and renovators need to remain on the lookout.

Buyers seeking to purchase property should focus on developers with iCIRT ratings, Chandler said. Such ratings are only given to developers who have been independently verified to have good practices and strong finances, meaning they are less likely to collapse.

Tomorrow: Why the government wants you to think there is no defects crisis

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