Defective builds raise borrower risk, brokers urged caution
A growing number of building failures is raising fresh concerns for mortgage brokers, as industry leaders and inspectors warn of a new wave of defective homes across New Zealand – prompting fears of another leaky building crisis.
As regulatory reform ramps up, concerns are growing over quality control, accountability gaps, and rising emotional and financial costs for homeowners.
At the same time, modest construction cost increases are beginning to re-emerge, adding fresh pressure to project feasibility in a still-fragile market.
Builders cutting corners in today’s market
Auckland Council chief building inspector Jeff Fahrensohn has posted videos showing structural failures in new builds – issues like sagging floors, poor welding, cladding failures and concealed framing errors, OneRoof reported.
“Yeah… it’s been put there to hide things that are not right with the framing. That’s just blatant concealment,” Fahrensohn said of one taped-over defect. “So, we issued a notice to fix on this and it’s going to take them quite some time and a lot of deconstruction to remediate a lot of these issues.”
Fahrensohn said complaints against licensed building practitioners (LBPs) have surged. “We’ve had to employ someone full-time to do these.”
Calls for reform as inspections reveal failure rates
More than one-third of residential new builds in greater Auckland failed their final inspection in the year to May 1. Key issues included:
- Cavity wrap (25.6%)
- Cladding (22.1%)
- Framing (27%)
- Foundations (15.2%)
- Drainage (14.5%)
While Fahrensohn stressed these examples don’t reflect the majority of builders, the scale of rechecks is growing.
“We’re doing about 200,000 building inspections a year... a large percentage of them are actually recheck inspections as a result of an earlier failed inspection,” he said.
Penalties weak, liability system flawed
John Gray, founder of homeowner advocacy group Hobanz, says the current system leaves property buyers exposed.
“The focus has to be on the consumer because defective buildings ruin lives,” Gray told OneRoof.
He said LBPs often face minimal consequences: “The penalties equate to being slapped with a wet bus ticket.”
Gray wants reforms to the Building Act and Companies Act to close liability loopholes that allow builders to walk away.
“They start a company... sell it off, take the money out, wind the company up, and there’s no way that owners can have recourse,” he said.
Commerce Minister Scott Simpson confirmed legislation is coming to tackle phoenixing. “This is clearly wrong,” Simpson said. New rules will include director ID numbers and agency coordination to flag poor actors.
Self-certification and granny flat exemptions questioned
New reforms include consent exemptions for granny flats (up to 70sqm) and a proposed self-certification model for “trusted” professionals. But critics say these moves risk repeating past mistakes.
“You’re going to end up with people building hovels in their backyards and no one’s going to be responsible for it,” said building surveyor Phil O’Sullivan.
O’Sullivan, who helped expose leaky building issues in the early 2000s, believes politicians should step back: “They don’t actually know what they are doing… The key is understanding defects and rectifying them – and that’s what we’re not doing.”
Builders urge checks and insurance caution
Auckland Master Builders president Nigel Benton said most builders are doing good work, but agreed that boom periods attract “cowboys.” Benton supports quality assurance but warns mandatory insurance may inflate costs.
“The cost of houses is going to go through the roof… they’re just going to make sure they charge more for everything,” he said.
Still, Benton urges buyers to do due diligence: “You get what you pay for in a lot of these cases.”
Recent data supports this caution. Cotality’s Cordell Construction Cost Index rose 0.6% in Q2 2025, lifting annual cost growth to 2.7%. While well below the long-run average of 4.2%, costs remain elevated enough to deter new builds.
Government promises tougher rules—but will it be enough?
Building and Construction Minister Chris Penk said a suite of reforms is coming, including:
- Enhanced complaints processes for LBPs
- A public register showing suspensions
- Codes of ethics across building trades
- Review of liability rules to reduce council risk exposure
“These reforms will help us crack down on cowboy builders and poor practice,” Penk said. “I expect to have more to say on this later in the year.”
But Gray remains unconvinced: “Because these builders continue to get away with it. There has been a ridiculous acceptance of failure.”
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
