October 27, 2023

Bad developers have left a trail of misery, but our reforms are cleaning them out

Recent media coverage of the worst apartment developers and builders over the past 15 years has wreaked havoc on public confidence.

Recent media coverage of the worst apartment developers and builders over the past 15 years has wreaked havoc on public confidence. Their legacy is a swath of appalling buildings riddled with complex challenges, and innocent homeowners inhabiting a world of pain. These buildings and owners are not being ignored.

Public scepticism about measurable improvements in the system is understandable; I acknowledge that. But we are seeing a steadily growing number of trustworthy developers and builders taking a firm stand to disassociate themselves from those who have left a trail of dodgy buildings behind.

Reforming an industry that had clearly lost its way took national calling out by Professor Peter Shergold and Bronwyn Weir in their 2018 Building Confidence report, which addressed systemic problems in the building industry. Since then, there has been substantial progress in favour of consumers. So much so that the NSW government has confidently called for a substantial lift in the number of new apartment buildings to address the chronic shortage of housing, and confirmed the state is seeking both “quality and quantity”.

There can be no denying that the business models of players such as Merhis, Dyldam, Ralan Group, Toplace, Southern Cross Constructions and Australian Consulting Engineers (ACE) continue to tarnish confidence in our industry. None of us wants to see more creditors’ meetings as witnessed over the past week, with distressed victims suffering yet again to secure any sort of reasonable outcome.

The NSW Design and Building Practitioner Act and the Residential Apartment Buildings Act lead the nation in resetting rules for developers. The cries of “if it wasn’t for Mascot and Opal Towers, NSW would not have needed a Building Commissioner” seem distant. The problem was much deeper.

Crossbench support for new legislation and powers for the NSW building regulator have been unprecedented. Almost four years into the reform program there are new “boots on the ground”, growing developer accountability and broad industry support for change.

As the building regulator, I am assisted by powerful new digital capabilities and across-government data-sharing that enables the riskiest players to be targeted. Those who want to play at the risky margin now know that it is not a case of if, but when, their projects will be visited and disrupted.

It is increasingly difficult for developers to find a certifier prepared to simply flag projects through to occupation. Those who fail in their role to perform their duties are being made more rapidly accountable. Often, the loss of a certifier’s accreditation on projects under construction has serious flow-on effects for affected developers. Getting a replacement is not easy these days.

The industry is stepping up to drive permanently embedded change. Industry-led solutions, such as Equifax’s independent regulated iCIRT rating tool, are making impressive headway in changing the game forever. More than 400 developers and builders have been or are now being rated with three to five stars. This is an indicator to prospective apartment buyers of the trustworthiness of those players.

About 20 per cent of developers and builders who have sought an iCIRT rating have failed to achieve the minimum three stars to qualify as trustworthy. Most of them, however, are addressing the weaknesses identified in their businesses – and they tell me the industry will be better for having these benchmarks.

Insurers such as Resilience Insurance are acknowledging the reform progress in NSW. This is restoring interest in providing 10-year latent defects insurance, providing no-fault cover for the key building elements in new apartment buildings.

Consumers now have far greater transparency when attempting to select a trustworthy developer. This will help ensure that the risky players who got our industry into this pickle do not return. I estimate the departure of risky developers so far will ensure more than 2000 likely defective apartments will no longer enter the market.

Developers and builders who have “phoenixed” – gone bankrupt or fled the industry to avoid debts and responsibilities, but then risen from the ashes to trade under a new name – will never achieve an iCIRT rating. And if they pop up, the regulator awaits. Lenders to risky players are on notice that they will be given no quarter if they support them and end up being stuck with their defective projects.

We are conducting a second strata survey, asking owners corporations about their experiences in apartment buildings completed in the past six years. The results will be published later this year, and this information will be the real measure of how recent reforms in NSW are affecting their buildings. Anecdotal feedback is that there are observable improvements in the quality of recently completed buildings.

There is a more mature conversation occurring across strata communities. They are increasingly accepting that hiding serious defects and backlog maintenance will catch up with them in the end.

Until the Residential Apartment Buildings Act, there were few powers available to the regulator to make developers fix defects. Expensive and often poor outcomes were the norm. Developers made an artform of denial, confrontation and litigation to stare down owners corporations before they wound up their companies.

More than 110 owners’ corporations have now turned to the recent NSW-led initiative Project Intervene, which is holding developers accountable for defects. And success has been observed where those developers have achieved an iCIRT rating.

There is more work to do.

David Chandler is the NSW Building Commissioner.

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