Housing minister warned of risks months before Porter Davis collapse

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Victoria’s housing minister received advice about reducing the risks for home building customers months before one of the nation’s largest home builders collapsed, but he failed to boost consumer protections.

Documents released under Freedom of Information laws show former housing minister Danny Pearson received a briefing from state bureaucrats on July 11, 2022, advising him on potential insolvencies in the residential construction sector and “options to de-risk consumers”.

The briefing was received eight months before residential construction company Porter Davis went into liquidation, leaving 1700 unfinished homes across Victoria and Queensland.

Another 779 customers who had signed a contract and paid a deposit were also affected, while 410 employees were made redundant.

On Monday, however, Porter Davis liquidators announced that up to 375 Melbourne homes will be built after selling the company’s multiple-dwelling business to Nostra Property Group (NPG). NPG will support another 80 Porter Davis customers whose homes are yet to be started.

Former housing minister Danny Pearson received two briefings on state-backed insurance and consumer risks for home builders.Credit: Luis Enrique Ascui

Liquidators said the agreement would also offer ongoing employment to some Porter Davis workers, with “a number of jobs preserved”, and the company would also immediately recruit for new roles.

More than 550 construction businesses in Victoria have collapsed since July 2022, the month Pearson received a ministerial briefing on consumer protections for home builders.

No legislative changes were introduced during his time as housing minister to reduce the risks faced by home builders.

Australian Restructuring Insolvency and Turnaround Association boss John Winter says construction businesses are over-represented in insolvencies.

Australian Restructuring Insolvency and Turnaround Association chief executive John Winter said governments banked on construction-generating economic activity during the pandemic.

"It seemed like a logical solution but supply chain issues, infrastructure projects and now interest rate rises has meant the construction industry has been hard hit."

In February, the collapse of building companies prompted the Victorian Building Authority to issue a warning about the risks of “phoenix” activity in the industry, which occurs when companies deliberately and repeatedly go bust to avoid paying debts.

Winter said phoenixing was often part of the business model for some builders and has led to the construction sector being over-represented in insolvencies. But he said the latest jump in companies collapsing was more likely caused by “real stresses” on an industry that already had thin margins.

The list of briefings, obtained by The Age, also reveal Pearson received departmental advice about domestic building insurance abandonment cover – also called builders warranty insurance – which is taken out by builders before taking a deposit or any money.

Pearson’s office was contacted for comment but did not respond by deadline.

Shadow minister for housing affordability Jess Wilson has accused Pearson of failing to act.Credit: Eddie Jim

The state-backed Victorian Managed Insurance Authority (VMIA) is the primary provider of cover if a builder dies or becomes insolvent.

Pearson received advice on the insurance 10 days before the VMIA reported a deficit of $249.2 million in the 2021-22 financial year. It said it had higher-than-expected claims last year.

Opposition housing spokeswoman Jess Wilson said the documents show the minister was warned months ago about failings within the domestic construction sector and presented options to de-risk consumers.

“Home buyers who have lost deposits deserve to know why the Andrews government ignored options to better protect consumers,” she said

Keith Ryan, executive director for Victoria at the Housing Industry Association, said the industry had spent months lobbying the government for planning reforms. The lack of movement on reforms contributed to the current crisis in the sector, he said.

“A lot of the problems we are seeing with builders now are due to the laws being out of date,” Ryan said.

“When we have had the chance to meet with government, we have had a sympathetic hearing, but it was obvious that it hasn’t been a priority, which is disappointing.”

Earlier this month, Opposition Leader John Pesutto met with more than a dozen representatives from the residential building industry and offered bipartisan support for reforms that would support the building industry and offer greater consumer protections for home builders.

“We want families to be able to see their homes finished … and we want to make sure we keep industry afloat.”

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