Building levy surplus sparks changes

The Building Levy surplus will be used to increase investment in services and adjust the Building Levy threshold to be more in line with current construction costs 

Following a review of a consultation that ran between April and May 2023, the Building Levy threshold is set to increase from $20,444 (including GST) to $65,000 (including GST) from 1 July 2024.

The consultation received 59 submissions from Building Consent Authorities (BCAs), industry bodies and various individuals. Of those, 68.5% of submitters agreed the threshold should be increased to $65,000, which was MBIE’s preferred option.

Most submitters who said they supported increasing the Levy threshold to $65,000 thought it aligned with recent increases in the cost of building and construction, and better reflected the cost of small building projects these days, given it hadn’t been updated in 30 years.

Another reason for their support was the expected reduction in cost for smaller building and construction projects. The Levy change is in response to its $71.6m account balance, which the Treasury and Office of the Auditor General say should trend to zero over time. To achieve this goal, MBIE has raised the threshold and will increase spending by $6.3m per annum in:

• Digital channels and engagement.
• Compliance pathways.
• Building for climate change.

Subject to change?

It is estimated that the raised threshold could lead to cost savings of up to $113 for projects under $65,000. However, MBIE told Under Construction that the threshold would be reviewed in three years and may change in 2027.

“The Building Consent Baseline Review provides us with an opportunity to assess the performance of MBIE’s building system regulatory function and take stock of the current cost base of the system and likely future funding needs, to inform the next Building Levy review,” said Antonia Reid, Policy Director at MBIE.

“With each Building Levy review and proposed rate change, the rates are set to fund the costs that MBIE forecasts it will face over the next three years. The rate also depends heavily on expectations of building consent volumes and values over that period. 

“At the next review, MBIE will look at how much is needed to fund the services over the coming three years and forecast the required levy rate from there; this may result in a proposed increase or decrease.”

Increasing investment in services

MBIE says increasing investment by $6.3m per annum in services would improve:

• Quality and volume of the information, education and guidance delivered.
• Compliance pathways in areas such as the Building Code, Acceptable Solutions and Verification Methods.
• Regulation of the building industry around climate change.

The Building Levy amount is paid to MBIE by a building owner or developer when they submit their plans to a BCA for consent for a building project. The BCA that processes the consent receives 3% of the Levy paid as an administration fee.

“It funds a range of functions and activities under the Building Act 2004, including information and guidance, compliance, enforcement, monitoring and reporting,” said Reid.

No rate increase

The Building Levy consultation also asked for feedback on whether to decrease the Levy rate from $1.75 (including GST) per $1,000 of building work value.

“In the consultation on proposed changes to the Levy, we received mixed feedback on the proposal to change the Levy rate, with just under half in favour of a reduction and just over half in favour of maintaining the existing rate and improving the regulatory services the Levy funds,” said Reid.

The group that opposed reducing the Levy rate included six BCAs and nine industry bodies. Reasons for disagreeing with the proposal to reduce the Levy rate to $1.48 included:

• The impact on the amount of cost recovery a council can collect from the 3% administration fee.
• The impact on MBIE’s ability to strengthen the regulation of the building and construction industry in the longer term.
• The fact that there other areas that could use the additional investment if funds were available, such as training and resources.

As a result, the Levy rate will remain the same for now, said Reid.

A good start

While the increase to the Levy threshold will save customers money, Registered Master Builders Chief Executive Ankit Sharma told Under Construction that wider industry considerations are still needed.

“We are supportive of all actions to reduce costs in the system. However, reducing the Levy in isolation will only make a small difference. It needs to be taken in conjunction with other, more significant changes. 

“Some of these are already under way, such as the changes to the Resource Management Act and the detailed review of the building consent system. These will have a much greater impact on costs.”