Homebuilders will be asked to fork out over 50 per cent more for building insurance in August after a string of company collapses sees claims skyrocket.
The Victorian Managed Insurance Authority (VMIA) told builders last week that charges for domestic building insurance would increase by an average of 53 per cent from August 6, only 11 months after all premiums were hit with a 43 per cent hike.
The increase includes a 65 per cent increase in premiums for new home builds, single and multi-unit dwellings, and owner-builders, and a 20 per cent jump in renovation insurance.
According to the authority, the price hikes are aimed at protecting owners from the spike in projects left unfinished over the last 12 months thanks to builders going bust.
“We have made record claims payments due to the compounding factors of builder insolvencies, high inflation and skilled worker shortages, all of which impact build costs,” a spokesperson told reporters.
“This means VMIA has to increase DBI [domestic building insurance] premiums to ensure that home owners continue to be protected when builders are unable to complete or rectify homes.”
The organisation claims they’ve received a record 4000 settlements since June last year.
An analysis from the Housing Industry Association (HIA) estimates that the insurance hike would raise premiums for an average single-home build valued at $500,000 from $3872 to $6388.80, with prices varying depending on the risk profile of the builder.
HIA executive director for Victoria, Keith Ryan, said the new premiums were a blow for builders and risked undermining housing affordability.
“It is another hit to an already suffering home building industry in Victoria,” he told the Age.
“It means new home buyers face more fees and charges, with the typical home in Melbourne already paying more than 40 per cent of the cost of a new house and land package in taxes, fees and charges – which is locking thousands of Victorians out of home ownership. “
Despite the financial burden on home builders already struggling to stay afloat, the authority claims the increase is still lower than comparative premiums in NSW, especially for new builds.
Home builders going bust
The hikes come after a dramatic few years for a construction industry plagued with labour shortages, rising material costs and mountains of red tape that have sent thousands of tradie businesses into bankruptcy.
While all business owners, large and small, have felt the effects of the increasingly volatile market, it’s home builders who make up the majority of the 2300 companies that have gone bust in the last 12 months.
The collapse of big names like Porter Davis Homes in early 2023 left around 1700 homes in limbo, with 560 clients not covered by builders’ insurance despite paying down their deposit to the construction giant.
Earlier this year, Montego Homes left owners in a similar state, leaving hundreds of half-finished home builds in the lurch after falling into voluntary administration thanks to “rising building costs”.
The Victorian Building Authority would later reveal that the company failed to take out domestic building insurance across 64 sites despite being handed almost $900,000 in deposits.
In the hopes of protecting homeowners, Victoria has made it mandatory for all builders to take out domestic building insurance. Builders that don’t will be smacked with a hefty fine of $96,000 for individuals and up to $480,000 for companies.
