Tuesday, 12 August 2025

 Richard RIORDAN (Polwarth) (13:42): I rise this afternoon to represent the Shadow Minister for Consumer Affairs, the member for Ovens Valley, who is an apology today. As the Shadow Minister for Housing, I have been asked to speak to this bill today because it essentially deals with elements of our current housing crisis. In many ways it is yet another bandaid that this government attempts to plaster across the wounds that are rapidly being inflicted upon the deflating housing market here in the state of Victoria.

This bill was generally met by a sort of flat-hearted response by most of the industry. It is another example of closing the gate well after the horses have bolted in terms of trying to patch up some of the errors in the government’s way in allowing the Porter Davis collapse and the other multiple home builder collapses over recent years. This is attempting to put a few more guardrails around the way contracts are undertaken between builders and consumers. To the extent that any legislation helps protect consumers, helps them participate and helps them afford, build and seek to create their biggest investment in life – and that is the family home for so many people – it is actually always a priority of any government of the day to make sure that people can engage in that activity with some certainty and some security. So in progressing this bill to the next stage, the opposition will not be opposing this bill, because despite it falling short in many areas, it essentially is better than the current situation in terms of protecting consumers, particularly those finding themselves in a messy contractual dispute.

The background to this bill is Porter Davis entering into liquidation in 2023 due to increased financial difficulties and debt as a result of the rising building costs experienced since COVID, supply chain issues and the subsequent losses on the fixed-price contracts that had become predominant in the market. Those cost escalations experienced of course meant that many companies just could not afford to continue their contracts. To what extent COVID actually played a role is unclear; however, there was a loss of control and poor oversight by government and government agencies of the insurance and management of those contracts. But we know here in Victoria, with the world’s longest lockdown, builders who signed contracts to build at pre-COVID prices were unable to honour those, and that was the start of the rot that set in for so many people.

Since that time, the state government’s continuous application of red tape and the fact that here in Victoria – and this has been laid bare by consulting agencies, the Real Estate Institute of Victoria, developer groups and others – between 42 and 45 per cent of the cost of a new home is based on local taxes, state taxes, charges and regulations have not helped. Of course this all works together to make a very uncertain environment in the home building industry, particularly as we know as a state we need to be building 80,000 homes and yet are only around the 50,000-home mark, falling well short of the needs of this state.

Only Labor can create the problem today and blame somebody else tomorrow and every day from then on. That has been the case with much of the housing and planning legislation brought to this Parliament over the last six months. In trying to get that figure of home builds up from 50,000 to 80,000, the government have single-handedly blamed everybody from builders to local government, neighbourhoods, heritage groups and others in their quest to find fault with others, rather than looking at that affordability component, which this bill and others have done nothing to address.

The purpose of this bill is to amend the Domestic Building Contracts Act 1995 in relation to the application of the act. It includes things such as requirements for domestic building contracts; implied warranties for domestic building work; limits on amounts of deposits under domestic building contracts; cost escalation clauses in domestic building contracts; variation to major domestic building contracts; progress payments under major domestic building contracts; domestic building work disputes and dispute resolution orders; building owners withdrawing from or ending major domestic building contracts; the transfer of certain functions of the director of Consumer Affairs Victoria to the Victorian Building Authority – and it is in the process of being renamed the Building and Plumbing Commission; inspection, enforcement and remedy powers; confidentiality, and information sharing; and other minor miscellaneous inconsequential matters. The bill also aims to amend the Building Act ‍1993 in relation to the appointment of inspectors and other minor, miscellaneous and consequential matters; amend the Australian Consumer Law and Fair Trading Act 2012 in relation to the Domestic Building Contracts Act 1995 and other miscellaneous matters; and amend the Building Legislation Amendment (Buyer Protections) Act 2025 in relation to minor miscellaneous matters.

It is claimed this bill builds on earlier reforms enacted via the Building Legislation Amendment (Buyer Protections) Act, which this house dealt with a month or so ago. Most changes under this bill will come into force on 1 December 2026, unless proclaimed earlier. Earlier effects may occur, but that is the latest mandatory start date. This bill has a high level of consumer protection focus. While this is a good thing, it also creates concerns on the other side of the ledger, and if we do not look after local builders, well, then we know what happens – we are never going to get the amount of homes built that this state so desperately needs. We will not have the tradies, we will not have the apprentices and we will not have the entrepreneurial zeal or desire to invest in such undertakings.

This legislation is aimed at enhancing protection for homebuyers against incomplete, defective or noncompliant work. It responds to industry shocks and repeated cases of builder insolvency and poor workmanship. It builds on earlier reforms that created a first-resort domestic building insurance scheme and established the new Building and Plumbing Commission, which was established earlier this year and is currently being undertaken by the government. I note with interest that as of last week, even with much of the legislation that we passed recently to establish that commission, the actual regulations that will drive the change still have not been formulated by this government.

The bill has been praised by building and legal organisations for modernising domestic building contracts and aligning Victoria with other jurisdictions. However, industry groups have raised real concerns that increased costs driven by developer bonds and compliance burdens may suppress small builders and will elevate housing prices and put upward pressure, rather than the very, very much-desired downward pressure, on the cost of building a home. For commercial projects and developers, this bill introduces a refined definition of ‘developer’. It has consumer-focused protections like cooling-off periods, price change warnings, limits on deposits and progress payments. Where the contract is with a mum-and-dad builder, it bans the cost escalation clauses in minor builds. It defines what minor and major builds are.

The concern from the industry is that builders will build normal variations into the price of the contract up-front to avoid being caught out or under-resourced during the duration of a build, particularly at times of escalating costs, as we are seeing at the moment. The ability to increase prices will be outlawed for builds under $1 million. This reflects the view that developers are sophisticated parties who do not require the same statutory protections. The bill also touches on pre-build works. The preparatory work exclusion clarifies that preparing plans, specifications or bills of quantities is not domestic building work under the act. This update reduces confusion about thresholds and contractual obligations for preliminary agreements.

Cost escalation clauses are one of the more contentious elements of this bill. Cost escalation will now be explicitly permitted in contracts valued at more than $1 million but subject to strict conditions – that being a 5 per cent maximum. These must be clearly disclosed and initialled by the owner if they occur. A builder must exercise due care using all reasonably available information. Progress payments and deposits will be more formalised, with current arbitrary progress stages replaced by prescribed stages and percentages to be set out in regulations, not in the act itself. Again, I refer to this government’s love of regulations, where they continually do not want the Parliament to pursue it, but they want the Parliament and the community more broadly to trust that they will do the right thing. So we do not yet know the details on that. Surely people can see the concerns and the irony in allowing this government to fix a problem that it has been well involved in creating. In every project this Labor government has managed since 2014, cost blowouts have been a hallmark of the way this government does business. Now, through this legislation, it seeks to outlaw the private sector and the private market having cost blowouts. After $50 billion worth of blowouts in this state on a handful of projects, you would hope that the government might seriously consider applying its own regulatory code on sticking to a contract.

There is also a new consumer protection framework. The Building Legislation Amendment (Buyer Protections) Act 2025 consolidates authority by creating the Building and Plumbing Commission (BPC). It transfers various roles from the Victorian Building Authority (VBA), the Victorian Managed Insurance Authority, Consumer Affairs Victoria and Domestic Building Dispute Resolution Victoria into one regulator. For domestic building insurance it shifts to a first-resort insurance model, meaning owners can claim immediately upon identifying defective work, not just in cases of insolvency or when a builder passes away. This covers buildings up to three storeys and contracts that exceed $20,000. Developers of residential buildings over three storeys will be lodging bonds, and we have discussed that in the past and how that could add to the cost of construction. Builders will be required to meet financial capacity thresholds, with failure risking disciplinary action or deregistration.

The new Building and Plumbing Commission has a wide range of powers when it comes to deregistering builders in order to enforce compliance. Developers will lose many statutory constraints but will retain core liabilities like implied warranties. Domestic builders must align with revised contract structures. Compliance readiness is essential. New contract formats, progress payment schedules and insurance requirements will be integrated into builders’ business planning. Consumers and homebuyers get enhanced immediate access to insurance, longer rectification liability and the bond scheme to safeguard against defects in buildings of three storeys or more. Regulations, especially thresholds and insurer limits, will be critical. Regulators and legal practitioners can expect substantial activity around drafting and consulting on regulations into the future, and we wait to see how that unfolds.

From this side of the house’s point of view, we have called for an overhaul and review of protections for building owners in the fallout of the Porter Davis collapse, including more protections to prevent owners being exposed by poor practice. The government has since acted on this and conducted various reviews and has settled on this bill before the Legislative Assembly that we are discussing today. As recently as 25 May it was revealed by the Auditor-General that the VBA is still failing to make sure all relevant building permits have domestic building insurance, meaning that home owners have been still at risk despite the obvious political and very public collapses. Whilst financial support has been provided to those impacted by the Porter Davis collapse, more work still needs to be done to tighten up.

I also note that many of the families and the home owners caught up in the various building collapses over recent years are not being assisted or remedied in any of this recent legislation. And in fact, many of those homebuyers are either (a) still waiting to get into their homes, some two and three and four years later, or (b) are still potentially embroiled in costly legal disputes to reclaim moneys that they have been out of pocket. Essentially this government and the VBA, now the BPC, have failed really to have a system in place that supports victims of past government failure in this space. Any of these reforms that we are talking about need to be carefully balanced with the need to cut red tape and reduce the cost of operating in Victoria in order to reach a sustainable and cost-effective medium that suits both the builders and developers, and the home owners and families involved.

To touch on some of the provisions in this current bill, parts 1 and 2, ‘Preliminary’ and ‘Application’, deal with the usual parts of the act, including the purpose, commencement in December 2026 and the application of the Domestic Building Contracts Act. In part 3, ‘Domestic building contracts’, clause 9 introduces new section 7A, requiring domestic building contracts to be written, be in English and be legible, include names and addresses of the parties to the contract, include the scope of work and state the agreed price or that it is a cost-plus contract and state the entry date of the contract – pretty standard components, I would imagine. Clause 10 expands implied warranties to include related agreements.

Clause 11 significantly tightens up the use of cost escalation clauses, prohibiting them in contracts under $1 million, an increase from the $350,000 in the current act, and capping increases at 5 per cent of the total contract cost for those contracts above a million. This clause also outlines various penalties for breaches and requires the builder to show due care when calculating the cost of the contract to avoid over-reliance in the cost escalation clauses. Some in the industry have highlighted that $350,000 to $1 million is a very wide number and could potentially adversely affect builders into the future if not overseen well. The only mitigation that a builder has in minimising any downside to that, of course, will be to charge more at the start, because they will have very little recourse down the track.

Clause 15 updates the content required for major contracts and restricts builder rights regarding unsigned contracts. Despite this, builders are still able to recover the costs and a reasonable profit for work carried out under an unsigned contract, so long as VCAT is happy there are exceptional circumstances and hardship. Clause 16 removes the prohibition on a building owner withdrawing from a contract during the cooling-off period if they have received independent legal advice, thereby ensuring that all building owners can withdraw during the period regardless.

Clause 19 amends section 41 of the principal act to allow owners to terminate contracts if the price increases by 15 per cent or the completion is delayed by 1½ times the original timeframe, allowing for reasonable delays and cost increases. We are still unclear what this looks like. Who owns the half-completed building or nearly completed building under these circumstances? Again, not only the consumers but the Parliament are left waiting for the regulations to be formulated by the department under consultation, and we may still be 12 months away before we know the answers to those questions.

In part 4, ‘Consumer protection’, clause 23 relates to deposit limits in order to reduce the exposure of an owner to potential financial ruin if the builder collapses by limiting this to a percentage that is prescribed by the government. Clause 25 limits the amount a builder can demand as a progress payment to the lower of the prescribed percentage for that stage of work.

Business interrupted under sessional orders.