These houses in Adelaide’s south may look abandoned, but in fact the group of 20 homes has never been lived in.
Key points:
- South Australia has a mandatory building indemnity insurance scheme
- It is designed to protect home owners when issues arise with building work
- But some South Australian home buyers are falling through the cracks
The unfinished housing estate at O’Halloran Hill was left at a standstill following the collapse of Felmeri Homes in July.
Further west, another homebuyer is in limbo after a separate builder went into liquidation.
South Australia has a building indemnity insurance scheme, which is designed to protect consumers in such situations.
“As the housing crisis continues it is not inconceivable that there won’t be other builders that find themselves in these difficult situations,” Premier Peter Malinauskas said last month.
“That’s their risk as a business that they take on.
“What we don’t want to see is innocent families who have forked out a lot of money who have a mortgage against the property being left behind.
“And that’s the role of insurance.”
But that insurance does not always protect such families — so what happens then?
How are home buyers protected if their builder goes under?
In South Australia, building indemnity insurance is underwritten by the state government and arranged by the builders for any domestic building work that needs to be approved by a council and costs $12,000 or more.
Building work cannot start until the insurance has been taken out by the builder, and both the consumer and the council have received a copy of the certificate of insurance.
The insurance protects consumers if work is not completed or faulty work is not rectified, or if the builder dies, disappears or is declared bankrupt.
At the O’Halloran Hill housing development, an unfinished access road meant homebuyers could not use insurance payouts to finish their builds because tradespeople could not go on site.
The owners — many of whom were first home buyers — were left at a standstill until the state government announced it would step in to build the community-titled road.
The uniqueness of the situation was highlighted by building inspector Mike Pearl, who said roads within a subdivision were usually built before houses.
“I don’t know of a development that’s had this happen previously,” he said.
Why were the houses built before the road?
Premier Peter Malinuaskas told ABC Radio Adelaide that the community-titled road “should have been completed before authority was granted to start building those homes”.
A spokesperson for the local council, the City of Marion, said a stipulated condition of its approval to divide the land into 20 allotments was to complete a private driveway.
The spokesperson said council had “adhered to all the necessary processes” and it was not able to request any type of bond or security under legislation, because the development only consisted of private infrastructure.
The mayor, Kris Hanna, said that could be changed with amendments to the Community Titles Act to give councils the power to request bonds for community-titled infrastructure.
“At the moment, if there’s a new extension to a suburb, and the developer says, ‘We’re going to put in 100 homes and have all these roads go into it’ — and I mean public roads — council is able to, and usually does, require a bond for those roads to be finished because they’re going to be handed over to council to look after ultimately,” he told ABC Radio Adelaide.
“So that’s why that system works.
“But under [the] Community Titles Act, all the developer has to do is say ‘Here’s the plan, we promise to build all of this stuff for the people who are going to own it.'”
Who is responsible for taking out building indemnity insurance?
Building indemnity insurance is mandatory and is taken out by the builder.
First home buyer Geoff Browne said he signed a contract for a townhouse at Plympton in December 2020 and the property was due to be completed a year later.
But more than two years after he signed the contract, only the frames are up and work remains at a standstill after the builder went into liquidation last month.
“This has turned into a nightmare,” Mr Browne said.
Building indemnity insurance would usually provide a payout in such a situation to cover some of the cost of finishing the work.
But Mr Browne said he requested a copy of the building indemnity insurance certificate from the local council, his mortgage broker and the insurance provider, and no-one could find a record of it.
“It does leave us pretty much up shit creek without a boat,” he said.
The City of West Torrens confirmed building indemnity insurance certificates for two out of 10 dwellings at the Plympton site were “still outstanding”.
“And we are continuing to follow this up with the landowners,” a council spokesperson said.
Building inspector Mike Pearl said work should not have begun without the insurance documentation.
“Council shouldn’t let them start without insurance in place,” Mr Pearl said.
The development was approved by the local council, the City of West Torrens, in April 2021.
A spokesperson for the City of West Torrens said council was advised that building works were commencing at the site a month later, but the insurance documents and builder details were not provided.
“Council advised that details of the indemnity insurance documents were to be provided, however no further correspondence was received, including no additional notifications for further stages of work that had been undertaken at the property,” the spokesperson said.
“Council became aware in early March 2023 due to a public enquiry that construction had indeed commenced and that there were issues present on site.”
The council said its process was to “allow builders/developers an opportunity to attend to the requirements of approval prior to any building works commencing onsite”.
“At the point where it is clear that works have progressed, council can then issue enforcement action requiring the cease of any works until conditions of the development approval have been met, including provision of indemnity insurance,” the spokesperson said.
The spokesperson said changes were made in May 2021 to the state government-run PlanSA Portal, so that notification of commencement works could not be uploaded without providing mandatory insurance information.
“This also now enables councils to reject the notification if insufficient information isn’t provided,” the spokesperson said.
Mr Browne said he wanted to see broader changes in the industry so such a situation could not happen again.
He said he had been struggling to pay bills and rent for somewhere to live while work remains at a standstill on his townhouse — and without a clear way forward to pay to finish it.
“We’ve lost all our savings,” he said.
