WHEREAS the Government of Alberta passed the New Home Buyers Protection Act on November 20, 2012; and

WHEREAS the rules and regulations pertaining to the New Home Buyers Protection Act came into effect February 1, 2014; and

WHEREAS the implementation and application of the New Home Buyers Protection Act by builders and lenders is inconsistent; and

WHEREAS financial implications on rural and remote rural home buyers are disproportionately higher than for urban home buyers due to the implementation of the New Home Buyers Protection Act; and

WHEREAS the mandatory implementation of the New Home Buyers Protection Act appears to directly implicate the shortcomings of the Safety Codes Act but fails to address the problem at hand; and

WHEREAS the province failed to develop a sufficient system to address the needs of builders in a timely manner or provide the necessary education to the public, home builders and permit issuers which caused undue delays to permit issuance; 

THEREFORE BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties opposes the mandatory nature of the New Home Buyers Protection Act and its associated rules and regulations, and urges the Government of Alberta to amend the legislation to allow consumers to decide if they wish their new homes to be covered by warranty; and

FURTHER BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties opposes the New Home Buyers Protection Act and its associated rules and regulations being mandatory in all areas of the province as a blanket legislation which unduly harms small businesses and community growth in rural Alberta; and

FURTHER BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties urge the Government of Alberta to respect the individual freedoms of all Albertans to sell and purchase their homes on terms amenable to both parties, recognizing that the terms of the transaction between two individuals do not require regulation by government;

FURTHER BE IT RESOLVED that Alberta Association of Municipal Districts and Counties encourages the Province of Alberta to correct the shortcomings of the Safety Codes Act and ensure the diligent enforcement thereof. 

The rules and regulations of the New Home Buyers Protection Act came into force February 1, 2014. This legislation makes purchasing a warranty on various components of new home construction mandatory.

Whereas the option to purchase new home warranties has been available on new homes prior to this government action, the government is now forcing all home builders to purchase an insurance product regardless of individual circumstances.

The increased costs for this warranty program will accrue to both those seeking to build a new home, and municipalities tasked with ensuring compliance with the new program.

Now that the program has been operating for a year it is apparent that the increased costs are higher than the Government of Alberta indicated prior to the program implementation. Initial estimates for warranty coverage were approximately $1700, whereas the known costs today are $3400. Furthermore, before program implementation, the program was to include the ability to be exempt from the program if the homeowner built the house. Now we know there is a $750 non-refundable application fee, and it took several months after the program was implemented before guidelines regarding what qualifies as an owner builder were provided.

As clearly identified on the Alberta Municipal Affairs website, several lenders will not issue a mortgage without proof of the warranty provided under the Act. [1] This adds undue complexity, time and cost to the process of building a home. In remote rural Alberta there are very few lenders to choose from.

The actual costs of obtaining a warranty are also disproportionately higher for the small father/son type builders, which is what the predominant number of builders in remote rural Alberta are. Without any substantial portfolio of projects for the insurer to consider, the rates rise significantly. As permit issuers [2], we have been notified of cases where the insurance cost was to be in excess of $15,000. In one of these instances the prospective home owner was informed that the entire amount of the insurance had to be paid up front and could not be incorporated into the mortgage. Understandably, this stopped the project indefinitely.

These costs are exorbitant and have far reaching effects on remote rural communities within Alberta. The New Home Buyers Protection Act is directly to blame for hindering development. Small home builders (approximately three homes constructed per year) cannot compete in this environment. Residents cannot afford to live in rural Alberta when these additional costs are legislated upon them. This affects the livelihood of the builders and reduces one’s hope of building a new home in rural Alberta. This also manipulates the competitive environment that should be free enterprise and distorts it into a relative monopoly for the high volume builders.

The Government of Alberta was not prepared for the program to commence, causing extreme wait times.  Specific examples of the delays caused are detailed here:

A prospective homeowner applied for the owner/builder exemption, which took 55 days (40 business days) to receive. [3] The Municipal Affairs website indicates the entire process should not take more than 10 business days.

A large home builder in the region (approximately 15 homes per year) applied to construct an eight unit condominium. It took 147 days (104 business days) to navigate the process to receive the mandatory insurance. This delay was in large part due to the New Home Buyers Protection Act and the online system not accommodating multiple units for one registered lot. [4]

While new home buyers may initially feel comforted with the idea of having a warranty on their new home, the warranty insurance provider may exclude policy coverage for “negligent or improper maintenance, or improper operations of the new home”. Further, warranties may be voided where a homeowner undertakes renovations and does not hire the original builder to make the changes. [5] There are instances where through issues with the home due to poor workmanship and material selection (however minor they may be), the homeowner is effectively legislated to continue using the poorly performing original builder for all successive renovations to the home. This places homeowners in an incredibly difficult situation, and again serves to monopolize the residential construction industry by eliminating the ability of another contractor to obtain work without voiding a homeowner’s existing warranty.

As clearly stated above, the ramifications to prospective home owners, owner builders, small volume builders and rural communities are many. The Act has already caused small volume builders to cease building residential homes [6], has caused investment to leave the community; and in some circumstances has caused development to stop. Yet people and our government lament the population and growth problems of rural and small town Alberta, and our government creates economic development action plans and other strategies to spur on growth in our regions. Perhaps all it takes for rural Alberta to prosper is to allow rural Alberta to do what it always has done, do what it needs to do, and let it grow organically from what it already is. For all acts to be enforced as blanket legislation across the province does not allow this to happen. There are already enough challenges of living remotely, removed from a large urban center. This legislation adds yet one more layer of challenges, costs and headaches to rural residents, and does not create a thriving rural Alberta, and certainly does not eliminate the anger, mistrust and anxiety of perspective homeowners.

While there may be instances where shoddy construction or dishonest practices of a few contractors who do not do a good job [7] have created financial burdens on those who may have purchased a home of sub-standard quality, the ability of a purchaser to select a new home with a warranty or research the reputation of a contractor were in place prior to mandatory warranty practices being put in place by the Government of Alberta.

Home builders already experience significant costs in obtaining safety and building code permits. These permits are supposed to ensure the home is built to provincial standards. Reputable contractors follow the rules, take pride in the quality of their work, and provide Albertans with safe homes. Mandating a warranty concurrently with requiring safety code permits leads one to conclude that the standards are either inadequate or not being enforced as well as homeowners expect.

Mandating the purchase of an insurance product violates an individual’s free agency, and the principles of free enterprise.

Resolution 19-14F, titled simply “New Home Buyers Protection Act” was previously presented at the AAMD&C convention. Portions of this resolution are directly copied from resolution 19-14F.

[1] Alberta Municipal Affairs website, retrieved on February 5, 2015 http://www.municipalaffairs.alberta.ca/home_warranties_information_for_owner_builders.cfm

[2] References Mackenzie County and MD of Smoky River

[3] Mackenzie County Development Permit number 108-DP-14 and corresponding Building Permit number 098-B-SC-14

[4] Mackenzie County Development Permit number 40-DP-14 and corresponding Building Permit number 092-B-SC-14

[5] Section 7; Insurance Act –Home Warranty Insurance Regulation. Alberta Regulation 225/2013

[6] County of Paintearth letter to Honourable Diana McQueen, dated October 9, 2014. See attached.

[7] Minister Griffiths; New legislation to give new home buyers in Alberta more protection. CTV Edmonton. October 25, 2012

Additional Member Background

The AAMDC has no active resolutions directly related to this issue.