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Building insurance to increase by 65 per cent for new homes
New-home builders will be asked to pay an extra 65 per cent for domestic building insurance from August after a string of companies collapsed over the past year, leaving thousands of homes unfinished and Victoria’s state-backed insurance agency making record payments.
The Victorian Managed Insurance Authority told builders on Thursday morning that charges for domestic building insurance would increase by an average 53 per cent from August 6, 11 months after all premiums were increased by 43 per cent.
The surge in claims began with the collapse of builder Porter Davis on March 31 last year.Credit: Eamon Gallagher
The increase includes a 65 per cent lift in premiums for new homes, single and multi-unit dwellings and owner builders. Insurance for renovations will increase by 20 per cent.
An analysis from the Housing Industry Association estimates the premium paid on single home build with a contract value of $500,000 would rise from $3872 to $6388.80.
Premiums can vary depending on the type of construction and the risk profile of the builder.
A spokesperson for the authority said it had resolved more than 4000 domestic building insurance claims since July 1, 2023.
The authority has been under financial strain since the collapse of builder Porter Davis in March 2023, leaving hundreds of homes unfinished. Since then, more builder insolvencies have hit the industry amid concerns about rising costs for materials and labour.
The spokesperson said the authority had made record payments because of the compounding issues of “builder insolvencies, high inflation, and skilled worker shortages, all of which impact build costs”.
“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,” they said.
“DBI premiums in Victoria remain lower than comparative premiums in NSW – and they are significantly lower for new builds.”
HIA executive director for Victoria, Keith Ryan said the move was a blow for home builders and would undermine housing affordability.
“It is another hit to an already suffering home building industry in Victoria,” he said.“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.“
Ryan said it was disappointing the price hike did not provide any further increase to insurance benefits. “At a time when the Victorian government is looking to significantly boost housing supply and deliver 800,000 desperately needed new homes over the coming 10 years, the industry and consumers need all parts of government working together to lower home building costs,” he said.
“While it is acknowledged that pressure on the VMIA continues to rise due to its exposure to builder insolvencies and increased costs in recent years, such large premium increases unfairly impose the burden of responding to these claims on home builders and their clients.“
Opposition finance spokeswoman Jess Wilson said the public insurer had been mismanaged by the government and was now increasing premiums to save itself from the “financial brink”.
“Home buyers and renovators have nothing to show from these premium increases, which will only worsen Victoria’s housing affordability crisis,” she said.
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