Why the HomeBuilder scheme could lead to unscrupulous behaviour by some builders

July 23, 2020

On the promise of quick cash through the new HomeBuilder scheme, unscrupulous activity by builders may soon be on the rise. It’s more important than ever before for consumers to do their due diligence when selecting a builder for their projects.

What is the HomeBuilder scheme?

The HomeBuilder scheme, estimated to cost the Federal Government $688 million, is a stimulus initiative designed to support Australia’s struggling construction sector. The initiative will provide $25,000 for Australians to spend on building or upgrading their home. The grants will be means-tested and will be restricted to larger renovations and the construction of new homes at a project cost of at least $150,000.

With tight restrictions around which consumers can access the grants (for example, permanent residents are excluded), and tight conditions around which projects and homes are eligible, the scheme has attracted some criticism for not being accessible to most Australians. However, as of 9 June, more than 200,000 people had visited the HomeBuilder website and more than 15,000 Australians had registered an interest.

Why is the scheme vulnerable to exploitation?

Unfortunately, like any stimulus policy that needs to be created and executed quickly, there can be unintended consequences, as we saw with the pink batts disaster following the GFC. In that case we saw several irresponsible operators delivering substandard work, scamming unwitting customers or placing untrained young workers at risk.

The government has taken some measures to prevent a repeat of the pink batts disaster by requiring that builders be licensed or registered before the Government’s announcement, unlike the pink batts scheme where new providers flooded the market on the promise of quick cash.

While this will certainly help mitigate some risk, it doesn’t solve the problem of those licensed and registered builders already in the market who may already have a history of doing the wrong thing or who are incentivised to cut corners. The prevalence of dodgy projects and dodgy behaviour by builders is obvious when you examine the statistics. Over the past decade, new homeowners in Australia have faced a $10.5 billion bill to repair defects such as leaks, cracks, problems with plumbing, guttering issues and more.

One major issue is the length of the scheme. The scheme covers building contracts entered into between 4 June and 31 December 2020 with construction required to commence within three months of the contract date. The danger is that builders will be incentivised to enter into as many contracts as possible, potentially taking on an unachievable workload and cutting corners to complete projects. There are many builders with a great reputation and who consistently deliver high quality builds who will end up being crowded out by those unscrupulous builders unfortunately.

Another issue is gaps in regulation, particularly around “phoenixing” where a new company is created to continue the operations of a former company which was liquidated to avoid paying debts. In 2017-2018 in NSW, 561 construction businesses were found to have been involved in phoenixing behaviour. Unfortunately not all phoenixing activity is illegal and until this is stamped out it continues to leave consumers vulnerable. The danger is that schemes like HomeBuilder may incentivise those builders with a history of wrongdoing to continue to perpetuate the same behaviour.

Should the HomeBuilder scheme be scrapped?

Unfortunately, the issues with dodgy builders pre-dates the HomeBuilder scheme and the opportunity to make quick cash through the scheme simply exacerbates an existing problem. HomeBuilder has the foundations of a good policy as it will give the construction industry a much needed boost and give Australians the chance to build or renovate. Instead of scrapping the scheme, we need to focus on how it may be refined and how we can educate the consumer to avoid exploitation.

How can consumers select a good builder?

It is more important than ever for consumers to do their due diligence when selecting a builder for their project. Consumers should vet builders by seeking out testimonials, reviewing past projects and checking credit reports and ASIC listings. Make sure there aren’t any hidden fees, even in a supposedly “fixed-price” contract. They can also work with a builder broker who will undertake a more comprehensive due diligence process to help them select a reputable and trustworthy builder.

Lynette Manciameli
Lynette is the Co-Founder and Director of Builder Finders. Builder Finders sources Australia’s most reputable, trustworthy and vetted builders for customers’ building projects. The company is driven by a passionate desire to match the right builder with the customer’s unique building needs, while saving the customer an enormous amount of time and money.
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