"The unfairness of the current system is compounded by the ability of the other participants to limit their liability.
"Private sector parties have the ability to wind up contracting entities on a regular basis and/or let companies go into liquidation rather than recapitalise them to meet claims.
"This creates a significant moral hazard, where the building sector can, and does, shift its financial risk on to the public."
He said this needed to be fixed by amending the Building Act.
"The Government is currently undertaking a building system legislative reform.
"Without a change to the liability settings, the reform will fall short of what is required, whether or not a mandated guarantee and insurance product is put in place as proposed."
The proposal is for Local Government New Zealand to lobby central government to act of a 2014 Law Commission report, which recommended a cap on the liability of New Zealand councils.
Napier City Council recently was caught up in such a case, regarding apartments on Humber St in Ahuriri, which were found to have structural issues, including a leaky roof.
While the ratepayers will not know how much the case cost them - due to a confidentiality agreement - the remedial work is expected to cost over $9 million.
In total, Local Government New Zealand passed a record 21 remits, of the 24 which were presented to the conference.
This included proposals such as phasing out polystyrene use, banning the sale of fireworks and updating liquor laws.