It’s 2024 and the government is listening to the building industry: it plans to cut red tape. Building and Construction Minister Chris Penk has announced the government’s intention to cut red tape, increase competition and lower building costs. And that’s quite separate from its parliamentary cousin, the Fast-track Approvals Bill, which also intends to cut that confounding red tape, with the aim of enabling faster growth in sectors such as mining and agriculture.
First, however, the Building Act 2004 will be amended to allow the use of building products that have been through a certification process overseas or are from so-called “trusted overseas jurisdictions”. The aim is to reduce time and money otherwise involved in verifying the suitability of the products or having them consented. Some of these changes respond to recommendations made by the Commerce Commission about removing impediments to product substitution and variations.
“Cutting red tape and building infrastructure are part of the government’s wider plan to rebuild the economy,” said Penk in April when he announced the Building Act changes. More changes have since been publicised, focused on making some building possible without a new consent, considering remote building inspections and rolling back insulation standards.
All these measures are aimed at “making it easier and cheaper to build homes in order to rebuild the economy and get Kiwis into their homes quicker”. Similar words were said by similar ministers decades ago – words that resulted in financial disaster for hundreds of thousands of New Zealanders.
Lessons from the past
The building industry first found its voice as a lobby in 1980, resulting in the Robert Muldoon government agreeing to an industry review. There was a groundswell against perceived red tape or over-regulation which, according to a 1990 Building Industry Commission report, Reform of Building Controls, was having serious cost impacts in the construction industry.
A new performance-based building regulation system was recommended to replace the existing fragmented but prescriptive regime, with its design based on supposed learnings from other countries.
The Building Act was enacted in 1991 and implemented through the Building Code 1992. The Building Industry Authority was established at the same time, with the mandate of removing bureaucratic constraints and reducing costs to the building industry. Key to the new regime was the ability to “make greater use of industry expertise and introduce an element of choice and competition into the building approval process”.
The commission’s 1990 report recognised that regulation is all about managing risk but concluded that “removing building controls that are not essential for the protection of users and the community will encourage more use of industry expertise”.
Becoming less risk averse and cutting red tape – taking a light touch to regulation – allowed substantial cost savings to occur for developers and builders. It also ushered in the beginning of the leaky buildings saga.
Not long after the introduction of the Building Code 1992, problems emerged. These were largely due to untreated timber framing and new types of cladding material – accredited in other countries – that did not perform well in our weather. Design aspects also contributed to the lack of weathertightness in pluvial New Zealand, such as a lack of parapets and poor methods of managing water on and in walls.
Builders unused to working with the new materials (many of which required strict adherence to the manufacturer’s instructions), as well as a lack of oversight from local councils and industry supervisors, all became part of a burgeoning problem that seeped across the country, ruining homes and lives for the parties involved.
Peter Dyer, in his 2019 exposé Rottenomics: The Story of New Zealand’s Leaky Buildings Disaster, describes leaky buildings as one of the country’s most costly human-made disasters. Based on two reports commissioned by government, he conservatively estimated the number of residential homes with watertight issues after the 1992 Building Code as at least 174,000, at a cost of at least $47 billion.
“This national tragedy has been nourished in a culture focused on short-term cost-cutting, providing quick benefits for a relative few, while off-loading enormous long-term costs to future NZ homeowners, tenants, ratepayers and taxpayers,” Dyer wrote.
Have things changed for the better? Says Dyer: “Not enough has changed in New Zealand’s building legislation to put paid to weathertightness failure.”
As reported in the Listener (“All fall down”, February 17, 2024), poor housing construction problems have not gone away and have in fact morphed into something far worse. Lawyer Paul Grimshaw, knowledgeable about the leaky homes and other home building sagas, noted, “There are concrete buildings where the girders through the middle of the concrete are rusting. There are many, many buildings that have fire issues.”
This is no surprise to Dyer, who says that when he was researching weathertightness, he heard from developers and homeowners that “housing construction problems are not limited to weathertightness. The problems are due to lack of training, lack of oversight and lack of enforcement.”
It seems that wherever light-touch regulation exists, it is always exploited.
The Building (Product Certification) Amendment Bill, expected to be introduced and even passed before the end of the year, allows overseas cladding options to be more accessible to our building industry. Dyer says, “It’s déjà vu. If the products don’t have a verifiable history of testing, robust oversight and workforces trained in these products, then further disaster is coming.”
Minister responds
Chris Penk believes it’s possible to be more efficient in building processes and at the same time maintain and even improve adherence to standards.
“The government does not intend to reduce standards. In fact, we think we can improve the ability for standards to be maintained by remote visual inspections.”
The proposal, which is still under consultation, could mean remote inspections would be the default for simpler building jobs, such as single-storey stand-alone dwellings by a builder with a good reputation, but physical inspections would still be the norm for higher-risk jobs.
He says remote inspections are already under way in areas such as the Mackenzie region in the South Island, where inspectors might otherwise have to drive for hours to view new builds.
He admits the quality of some buildings has been lacking in the past and no inspection system is without risk, but he says something needs to be done about the high cost of building homes in New Zealand.
Remote inspections could speed up building projects, reducing costly delays. He also believes the new insulation standards, introduced at the end of last year, go too far to be mandatory and add $35,000 to $50,000 extra to the total cost.
He says the introduction of new building products from overseas could save 5% on the average build. These new products, he says, must meet overseas standards that are equal to or higher than those in NZ.
The subprime market
Some observers, however, remain certain that Penk’s promises about the robustness of soft regulation are hollow. We don’t have to exploit soft regulation but some of us cannot help ourselves.
Take the 2008 Global Financial Crisis which kicked off in the United States. It was enabled by the 1999 repeal of important financial regulations separating commercial and investment banking, with the aim of encouraging more homeownership.
US financial institutions went for it, co-mingling their commercial (risk-averse) and proprietary trading (risk-taking) operations. It wasn’t long before predatory financial products spread across America, targeting low-income homebuyers – the subprime market – who were often uninformed about the risks involved. Regulators didn’t notice what was going on until it was too late, because they weren’t required by law to monitor the situation.
The US financial system was “in meltdown and taking the American economy with it”, wrote former president Barack Obama in his autobiography A Promised Land. The key banks were “knee-deep in the subprime market, with their shareholders making money hand over fist as the housing market swelled”.
More than three million homes went into foreclosure in 2008 and the unemployment rate soared. An initial US$700 billion bank bailout by the Obama administration prevented the entire collapse of the financial system and avoided a repeat of the Great Depression. On the other side of the world, the New Zealand economy was severely affected by the GFC for some years. Unemployment rates doubled between the end of 2007 and the end of 2010, and the economic impacts were felt until at least 2013.
As of late last month, lending regulations have been loosened in New Zealand, with the idea of encouraging more home ownership.
Again, the intention is to “cut red tape and provide regulatory clarity to make it easier to invest and grow New Zealand’s capital markets” and also “protect vulnerable consumers without unnecessarily limiting access to credit”. This is according to a March cabinet paper from the office of Andrew Bayly, Minister of Commerce and Consumer Affairs. It’s part of the government’s coalition agreement – Act has demanded a rewrite of the Credit Contracts and Consumer Finance Act 2003.
First up is repeal of the “overly prescriptive affordability requirements” in the Credit Contracts and Consumer Finance Act Regulations 2004. This has removed “undue compliance costs” to financial services but it’s claimed borrowers will still be protected from the risk of irresponsible lending causing hardship via a Responsible Lending Code.
The sentiments sound laudable but are scarily familiar; financial mentoring services in New Zealand are worried.
Andrew Mitchell is a financial mentor for the Salvation Army’s community ministries in Auckland. His team works with around 500 indebted people a year. These clients are struggling – they were originally assessed as able to afford a personal loan, a credit card or, most often, a loan for a car, but then things changed.
“A loan for a car, which loses value the minute it is bought, can be a substantial amount of debt,” Mitchell says. “And the term of the loan can be over several years. A lot can happen in that time. Jobs can disappear. A second income in a household might disappear. People can get sick or have accidents. Interest rates and rents can suddenly rise. And then a previously (just) affordable debt is no longer affordable.”
Credit reporting firm Centrix says 474,000 consumers were in arrears on their debt in May this year – that’s 12.64% of the credit active population and 8.2% higher year on year – and that’s before the imminent changes to credit availability.
Mitchell is concerned that those at the margins of affordable lending are now able to borrow money more easily, potentially increasing future numbers of clients seeking help, and he knows other advisers in his sector are worried, too.
Caught out
Annette is now in her 60s. She and her husband James were in their 20s when they bought a home in Paraparaumu in 1987. The rules at the time allowed them to enter homeownership with a 5% deposit and a 21% mortgage interest rate. Later that year, the global share market crash left the value of their house at less than the mortgage.
“We might have come back from that if we were able to simply stay in place for another 10 years,” Annette says, “but our marriage also fell apart. Bad timing.”
The house had to be sold at a shortfall and their circumstances meant it was Annette who paid off the remaining debt over the next five years. “It took me many, many years to get back on my feet,” she says.
Andrew Mitchell is worried about the potential for irresponsible lending under the coming changes. And there is no single body under which the many consumer advocate entities could lobby as one voice. It’s hard for the sector to protect consumers.
Previous NZ incidents show monitoring – even of robust regulation, let alone relaxed regulation – is critical to avoid consumer exploitation.
The Pike River Mine Disaster in 2010 killed 29 men. A royal commission of inquiry reported in 2012 on inadequate methane drainage, non-functioning gas sensors, flawed electrical and ventilation design, and inaction on hazard warnings. These issues were compounded by the failure of the mining inspectorate, then a unit within the Department of Labour, to effectively inspect the mine and enforce remedies. There were only two warranted mining inspectors to cover the entire country.
Soon after the inquiry, an Independent Taskforce on Workplace Health and Safety was published. The combined recommendations set up in the 2013 legislation authorising a new workforce safety entity in 2016 – WorkSafe.
Its functions were defined in statute, the regulatory regime was strengthened overall, prescriptive regulations were introduced and guidance material provided. The number of mining inspectors rose fourfold. All these changes were too late for the 29 victims but were promising for the future.
However, the Business Leaders’ Health & Safety Forum reports that while there were 8.4 health and safety inspectors per 100,000 workers in NZ in 2013, this had dropped to 6.3 in 2023 – we’re going backwards.
The forum’s analysis shows that Australia has roughly half our workplace fatality rate and around 20% fewer serious workplace injuries. If Australia’s statistics were replicated in New Zealand, the cost of our harm would fall by about $1 billion a year.
Close on the heels of its
report, highlighting New Zealand’s slow, costly and poor safety progress, the forum published a further report in June this year that investigates our repeated health and safety failures. It concludes there is a lack of regulatory clarity for too many businesses about what is expected of them.
Trusting the experts
In 2018, William Ball died in a vehicle accident. The car was found to have a frayed seatbelt which snapped. The car had not been inspected properly but had been given a warrant of fitness by Dargaville Diesel Specialists (DDS). New Zealand Transport Agency (NZTA) certification officers had not detected anything amiss with DDS’s warranting processes.
After that accident, and amid concern about many other non-compliant cases, the Ministry of Transport commissioned a review of NZTA. Ongoing instances of regulatory failure were discovered, particularly in relation to NZTA’s monitoring and oversight of the many third-party organisations such as DDS it had accredited to carry out services like vehicle inspections.
The “caveat emptor”, or buyer beware, principle says that individuals and consumers should simply be more informed and make better choices, and then they won’t get fleeced by those exploiting relaxed regulatory regimes. But is that fair?
How can consumers get all the information they need about a given situation? It’s inevitable that they rely on the experts to assess safety, whether their new house is sound and watertight, or that the mine they work in has adequate ventilation.
Public backlash
New on the table is the Fast-track Approvals Bill, introduced into the House in March, that aims to reduce consenting processes and timeframes and cut through “this mess of red tape”, as described by RMA Reform Minister Chris Bishop when he announced the bill. The aim is to unlock “opportunities in industries such as aquaculture and mining in our regions”, added Regional Development Minister Shane Jones.
Public backlash to the bill has been considerable, with nearly 27,000 written submissions lodged with the environment select committee. Government proposals may change as a result. We will know more later in the year when the committee reports back to the House.
But the current intention – that three ministers will hold all the power and make all the decisions – has been met with outrage, including in the submissions from Parliamentary Commissioner for the Environment Simon Upton and Auditor-General John Ryan.
Upton writes in his submission that the bill would “achieve sub-optimal outcomes through poor decision-making, poor allocation of resources, a lack of legislative durability, and increased litigation risk”.
He also writes about the concern that private endeavours progressed via a fast-track approach could damage the environment, in part because the Minister for the Environment is excluded from having a role.
And then there are Te Tiriti o Waitangi issues. For example, Rawiri Smith, environment manager at Kahungunu ki Wairarapa, says fast-tracked water storage infrastructure, which is already being talked about, will contravene the Deed of Settlement between the Crown and Ngāti Kahungunu ki Wairarapa Tāmaki nui-ā-Rua.
“New water storage options would take a huge amount of water out of the system feeding into Lake Wairarapa,” Smith says. “And the administrative oversight of that water system sits with the Wairarapa Moana Statutory Board. Is anyone consulting the statutory board?”
But wait a moment, haven’t we had legislation before that looked a bit like the proposed Fast-track Approvals Bill, and didn’t we learn from it?
John Boshier was the assistant secretary of energy in the 1980s. In his book Power Surge, published in 2022, he recalls lobbying from the energy industry and a crisis mentality. There was the desire to facilitate Robert Muldoon’s and then-minister of energy Bill Birch’s Think Big construction projects, especially in the energy sector, without due process. The National Development Act 1979 made this possible.
The act aroused opposition, however, because of the “widespread additional powers it gave the government to override established planning procedures to facilitate national development, its lack of environmental safeguards for protecting natural resources and the speed and lack of consultation that surrounded its introduction”, Boshier wrote. He revealed that many uncommercial projects were subsidised as part of Think Big and, in the end, that was a cost to the entire economy.
Fast-track approvals may be implemented differently to Think Big. In May this year, Associate Agriculture Minister Andrew Hoggard told a group of farmers, officials and noteworthies gathered at a farm in Wairarapa to talk about water storage infrastructure that the fast-track bill was “just an interim measure until the RMA [Resource Management Act] is rewritten”.
Another difference is likely to be the extent of government financing involved. Hoggard added that the government “can’t promise any money whatsoever”.
Think Big was one of the short-sighted measures of the Muldoon years that ultimately led to the fourth Labour government’s overhaul of just about everything in its attempt to restore the viability of the country. Cabinet papers of 1986 revealed the core issue of Think Big as “risks not being properly borne by the parties deriving the most benefit. … [Instead], taxpayers would later bear the costs”.
Fast forward 40 years, and industry observers are now simply hoping that lessons have been learned from the disasters of recent times and that government ministers are listening.
Angela Yeoman is a Wairarapa-based researcher and writer with regulatory expertise.
Make it stick
New Zealand needs to import new building products but local suppliers should be accountable, writes Russell Brown.
John Gray could be forgiven for having a sense of déjà vu. The new Building (Product Certification) Amendment Bill aims to make it easier to use novel construction materials that have been approved in other jurisdictions. It was this very intent in the Building Act 1991 that contributed to the leaky homes crisis that made Gray first a victim, then a tireless voice on New Zealand’s bad building problem.
But he has no objection to the principle, only the practice.
“We do need to have a regime in place that allows products certified in competent jurisdictions overseas to be imported into New Zealand and be approved as such. But a local supplier of such products has to stand by them.
“There must also be consequences for the failure of those products, including that these suppliers face potential criminal consequences for their failure. That should go across the board to even products manufactured in New Zealand.”
The need for accountability from builders and developers has long been the key message for the Home Owners and Buyers Association (Hobanz), founded by Gray and his friend Roger Levie. Gray says he’s not seeing it in the first tranche of the government’s plans to make building faster and cheaper.
“Ministers up to and including the current Minister of Building and Construction [Chris Penk] seem to be more interested in serving the needs of industry rather than providing greater consumer protection. We’ve offered an opportunity to Minister Penk to come and see some of these disasters and talk with us and he’s failed to follow through on promises to do so.”
Gray says he’s more concerned about other reforms promised in the Better Building and Construction plan released last year by Housing Minister Chris Bishop, especially those aimed at streamlining the consenting process.
“The New Zealand Institute of Building Surveyors have experts who have been looking at these failures for years and they’re aghast at the proposed changes to the act ‒ the whole concept of remote inspections and private certifiers and the like. Minister Penk suggested they would consider allowing builders to build homes without a building consent. This is in line with their urgent need to look like they’re doing such a great job in reducing the cost of construction. But do we reduce the cost of construction and increase the risk of consumer harm?”
Gray thinks remote inspections could could be viable in the case of local councils dealing with “builders and building companies who have got it right over a long period of time”, but the “breathtaking” number of failed on-site inspections each year suggests they are few in number.
There is, he says, a faster and cheaper way of building here now: off-site manufacturing, with its “CAD-designed, computer-controlled construction, cutting and assembly”.
He says the building industry has lobbied to create barriers to overseas companies entering our market, “but when you talk to those companies, they say building houses out of sticks like we do in New Zealand is time-consuming and expensive.”
He points to his own experience of renovating his California bungalow, one of Auckland’s original kitset houses. A job priced at $1.4 million before the pandemic ballooned to $2 million and an 18-month build. He has now opted for a flat-pack solution from Hector Egger, a joint venture between a Swiss company and a local investor.
“And guess how long the scaffolding is gonna be up for? Three months.”