The regulators have more data than they have ever had, the tribunals are seeing clear patterns, and the code has just shifted again. For builders already working to standard, the useful question is not how to build well. It is what the evidence now shows about where the industry is exposed, and what that means for the next job.

There is a number that has shadowed the Australian construction conversation for half a decade, and it comes from the most systematic defect research the country runs. In the New South Wales strata sector, the proportion of recently completed apartment buildings reporting at least one serious defect in common property rose from 39 per cent in the 2021 survey to 53 per cent in 2023, according to Building Commission NSW and the Strata Community Association. More than half of newly registered apartment buildings carrying a serious defect is the kind of figure that reframes how an entire industry is seen.

But the number most often quoted is also the number most often misread, and getting it right is the whole point of this piece. That 53 per cent is strata data. It describes Class 2 apartment buildings of four storeys and above, surveyed through strata managers. It is not the defect rate for detached houses, and it is not the defect rate for the small-to-medium residential builder who makes up most of this audience. Australia does not run an equivalent, systematic, public defect survey for Class 1 detached homes. That gap matters, and pretending the apartment figure is a house figure is exactly the kind of lazy translation that turns useful data into noise.

So this is an attempt to read the evidence honestly. What the defect research actually shows, what the tribunals and claims data reveal about where construction is failing, what the new code does and does not change, and where a builder working to standard is most exposed in the current environment. The angle throughout is what the regulators and the data are seeing, not how to hold a trowel.

What the defect research actually shows

The NSW strata defect surveys are the closest thing Australia has to a longitudinal read on new-build quality, which is why they carry so much weight despite covering only one building class in one state. Three rounds now exist, and the trend within them is more interesting than the headline.

The top-line prevalence rose between 2021 and 2023. But the same research found that defects in the newest buildings were trending down. For schemes registered since 2020, after the bulk of the NSW reforms took effect, the serious-defect rate was materially lower than for the older cohort in the survey. In other words, the 53 per cent is weighted by a backlog of legacy buildings completed before the reforms, while the buildings going up under the new accountability regime are performing better. Both things are true at once: the stock carries a serious legacy defect problem, and the trajectory for new work is improving.

The composition of those defects has been strikingly stable across every round. Waterproofing is consistently the single most prevalent serious defect, reported in roughly 42 per cent of buildings with defects in the 2023 research, followed by fire safety systems, structural issues, and building services such as plumbing and lifts. When the surveys ask which buildings have defects at all, waterproofing shows up in the clear majority of them. This is not a mystery failure mode. It is the same category, in the same position, year after year.

The cost data is where the abstraction becomes concrete. The same body of research has put the average cost of rectifying serious defects in the order of $283,000 per building, with tens of millions spent by owners corporations across the surveyed period. Separate industry claims analysis has found that water-related defects, waterproofing, plumbing and drainage combined, feature in around 92 per cent of building defect claims. Whatever the exact figure in any given dataset, water is the throughline. It is the most common, the most expensive to chase once finishes are on, and the most damaging to a builder’s exposure long after handover.

For a detached-house builder reading this, the lesson is not that half your houses are defective. It is that the failure modes the data exposes, water management above all, are universal across building classes. A balcony membrane and a shower hob fail for the same underlying reasons: detailing resolved too late, sequencing that puts trades over each other under time pressure, and a final-stage inspection asked to catch what should have been controlled during the build. The apartment data is simply where those failures get measured.

Why waterproofing stays at the top of the list

If waterproofing is the most predictable defect in the country, the obvious question is why it has stayed there through a decade of reform, tighter standards and better products. The answer the field consistently gives is that waterproofing is not really a product problem. It is a design, sequencing and supervision problem that a product cannot rescue.

On The Good Builder Podcast, builder and educator Nagy Mourad made the point that waterproofing is a discipline and condensation management is an engineering problem, and that the industry has too often treated both as an afterthought to be sorted at the wet-area stage. We covered his argument in full in our profile on why the industry needs better builders, not just more of them. His position is not alarmist. It is that respect for the building physics, and resolving the detail before the trades arrive, is what separates a membrane that lasts from one that fails in year three.

A compliant home is not necessarily a quality-built home.
  — Nagy Mourad, via The Good Builder Podcast

That line is the hinge of this entire pillar. Compliance is the floor the law enforces. Quality is what the builder chooses to deliver above it. The defect data is, in effect, a measure of the distance between the two. Where that distance is large, water gets in. The regulators have responded by tightening the waterproofing provisions in successive code updates and, in NSW, by introducing compulsory licensing for waterproofers and registration of building-element specialists under the Design and Building Practitioners Act. The direction of travel is clear: the responsibility for getting water management right is being formalised, named, and made individually accountable.

NCC 2025: what changed, and what conspicuously did not

The biggest misconception about NCC 2025 is that it is a major residential update. It is not. Despite the name, this edition is primarily a commercial building code update, and for residential builders the most important fact about it is what it leaves untouched. We set out the full operational detail in our practical breakdown of the new code, but the headline for this pillar is straightforward.

The seven-star NatHERS minimum and the Whole-of-Home energy budget, both introduced under NCC 2022, remain in place unchanged. The proposed residential energy-efficiency increases that some in the industry feared did not proceed. And in a decision with real planning value, building ministers agreed to pause further residential NCC changes, beyond essential safety and quality measures, until around mid-2029. We covered that decision and what it means for investment certainty when it was formally confirmed. For the first time in years, builders have a stable residential ruleset they can standardise and price against.

What NCC 2025 does change for residential and mixed-class work sits mostly around moisture and apartments. The edition brings new waterproofing and water-shedding provisions for Class 2 to 9 buildings, including new Deemed-to-Satisfy options for balcony and podium waterproofing on concrete substrates and updated drainage-fall requirements. It tightens condensation management, a direct response to a decade of condensation defects appearing in cooler, wetter climate zones as homes have become more airtight. And it carries enhanced carpark fire-safety requirements and a suite of commercial energy measures that fall outside most detached-home work.

The condensation change deserves a moment, because it is the clearest example of the code chasing a field failure. As the industry pushed homes toward seven stars, walls and roofs became better sealed and better insulated. The unintended consequence was moisture trapped in cavities that could no longer breathe, and a rise in condensation-related defects. The NCC 2025 condensation provisions are the regulatory correction. A builder who treats them as a box to tick, rather than as building physics to understand, is likely to meet the next category of moisture defect from the other direction.

The compliance map is fragmented, and that is now a risk in itself

Australia’s building code fractured along state lines on 1 May 2026, and for any builder working across borders the fragmentation is itself a compliance exposure. Victoria, the Northern Territory and Tasmania moved to NCC 2025 on that date. The Australian Capital Territory adopted from 1 May 2026 with a six-month transition allowing either edition until 1 November. New South Wales and Queensland deferred mandatory adoption to 1 May 2027, each with its own variations. We mapped the practical consequences of this split in what the NCC 2025 compliance split means for builders working across state lines.

The state variations are not cosmetic. NSW has confirmed that the new energy-efficiency standards will not apply to the common areas of apartment buildings, and that owners undertaking remedial work can choose between the NCC 2022 and NCC 2025 waterproofing requirements. Tasmania has reverted the condensation-management and energy-efficiency provisions to earlier requirements through state variation while still applying the new waterproofing provisions. The Northern Territory continues to run its own jurisdiction-specific energy settings. The result is that a builder with jobs in two states cannot run one specification across both, and a standard detail updated for a Victorian job may simply be the wrong reference for a NSW one.

This is the structural reality worth internalising. The pattern of states moving at different speeds is not a one-off glitch of this cycle. It happened in 2022, it has happened again in 2025, and it will happen at the next edition. For a builder, that means the operative code is a function of where the job is and when it was approved, and confirming the correct edition with the certifier at the point of lodgement is no longer a formality. It is the first compliance decision of the project.

What seven stars has actually changed on site

The move from six to seven stars under NatHERS, with the Whole-of-Home budget layered on top, was the most significant lift in residential energy standards in over a decade. Several years into its rollout, the field picture is clearer than the debate that surrounded its introduction.

The first practical reality is that seven stars is a fabric-and-systems problem that has to be solved at design, not at the end. NatHERS rates the passive thermal performance of the building fabric, walls, roof, floor, glazing and orientation, while Whole-of-Home assesses how the house actually operates, including heating, cooling, hot water and any solar. A home can pass the fabric rating and fail Whole-of-Home on an inefficient hot-water system, or carry enough solar to pass Whole-of-Home while failing the fabric rating on poor glazing. The two have to be designed together, which is why the assessors who add the most value are engaged during design development rather than handed a finished plan to rate.

The second reality is that glazing and orientation carry disproportionate weight, and builders who treated the change as a simple insulation upgrade found that out the hard way. The third is that the rollout itself was uneven, with states adopting between late 2023 and mid-2025, and early adopters reporting confusion over accredited software and documentation before the process bedded down. With residential settings now paused to 2029, the industry finally has the stability to make seven stars routine rather than a moving target. The builders who use that window to make high-performance fabric their standard specification, rather than a compliance scramble per job, will carry a genuine advantage into the next cycle.

Bushfire construction: the standard is stable, the map is not

Bushfire construction is governed by AS 3959, currently the 2018 edition with its 2019 and 2020 amendments, which sets construction requirements across six Bushfire Attack Levels from BAL-Low through BAL-12.5, 19, 29 and 40 to the most severe, BAL-Flame Zone. The standard itself has been stable. What is changing underneath it is the exposure, and that is where the live risk for builders sits.

A BAL is a site-specific assessment driven by surrounding vegetation, slope and proximity, and the determination sets the construction requirements for the whole building footprint. As bushfire-prone area mapping is reviewed and, in many regions, expanded in response to a changing climate and successive severe fire seasons, sites that were previously unrated or low-rated are being pulled into higher BAL bands. For a builder, that has direct cost and method consequences: higher BAL ratings drive material selection, glazing, screening, sub-floor and deck detailing, and at BAL-FZ some elements have no deemed-to-satisfy construction solution at all and must be resolved through tested systems or a performance solution.

The practical intelligence is that bushfire compliance is increasingly a planning-stage variable rather than a fixed site attribute. A builder quoting work in or near a designated bushfire-prone area should treat the BAL assessment as a live input that can move with mapping reviews, not as a number that was settled years ago. Pricing a build to an outdated BAL is a margin risk that lands entirely on the builder.

Defects, claims and insolvency: who actually pays

The defect conversation cannot be separated from the financial one, because the question of who pays when something fails is being actively rewritten. Construction has sat at or near the top of Australia’s corporate insolvency statistics for years. Industry tracking of ASIC data points to several thousand construction insolvencies a year, with the sector consistently the hardest hit, and a national insolvency count in the 2025 financial year running well above the long-run average. We explored how insolvency actually unfolds, and why builders often fear the wrong part of it, in our conversation with a national insolvency specialist in the piece on why the liquidator wants to keep your business alive.

The connection to quality is direct and uncomfortable. When a builder becomes insolvent, the warranty and rectification obligations do not vanish, but the practical ability to enforce them against that builder does. The defect becomes the owner’s problem, or the insurer’s, or the next builder’s. This is precisely the gap that the wave of consumer-protection reform is targeting. Victoria’s shift to a First Resort home-warranty model, which allows a homeowner to claim while the builder is still operating rather than only after death, disappearance or insolvency, is the clearest example. The accountability for defects is being moved closer to the builder and made harder to escape through exit.

That same reform wave is formalising documentation as a compliance obligation, not just good practice. Victoria has moved to make certain undocumented variations a criminal offence, tied to contract and variation thresholds, a development we covered in the report on undocumented variations becoming a criminal offence. The throughline across all of it is that the regulatory environment is steadily closing the routes by which poor quality and poor documentation used to become someone else’s problem. For builders already running tight documentation and standing behind their work, this is broadly protective. For those relying on informal agreements and the old exit routes, the exposure is rising sharply.

The inspection regime is getting more active, and more visible

Alongside the legislative changes, the way regulators physically check work is shifting from reactive complaint-handling toward proactive, targeted site auditing. The clearest example is Building Commission NSW, which has built an established programme of regional compliance operations, sending inspectors across dozens of towns in coordinated sweeps and publishing the results.

One recent operation across the NSW Mid North and North Coast visited more than 100 sites across 17 towns and issued 75 penalties, with unlicensed work and specific compliance failures recurring as the standout findings across campaign after campaign. We covered the pattern in the report on the North Coast compliance blitz. The Commission has signalled this enforcement posture is expanding geographically rather than softening, following more than 850 regional site visits in a single year, described as the largest effort of its kind.

Two pieces of intelligence sit inside this for builders. The first is that unlicensed work on site is a recurring trigger for penalties, and the licensed builder carries responsibility for verifying the credentials of those doing licensed work on their jobs. A verbal assurance is not a defence. The second, easily missed, is that these operations now run alongside free regulator-led seminars on licensing, supervision and compliance obligations. The same regulator turning up to inspect is also offering the briefing on exactly where builders are getting caught. Attending is one of the lowest-cost ways to get ahead of an inspection.

Methods and materials: where field performance is shifting

The standards conversation increasingly intersects with how homes are built, not just whether they comply. Two shifts are worth tracking for their performance and compliance implications.

Modern methods and prefabrication

Offsite and modular construction is being actively pushed up the national agenda, with the federal housing plan directing funding toward prefabricated and modular uptake and a national voluntary certification scheme intended to simplify NCC approval for prefabricated housing. We covered that package in the breakdown of the federal housing plan. The compliance significance is that the long-standing approval uncertainty around offsite construction, the friction that has slowed its adoption, is being directly targeted. From a quality standpoint, factory production offers more repeatable conditions, but the compliance burden does not change: a module must meet the NCC regardless of where it is built, and imported units carrying overseas certification are a known risk area.

Engineered and mass timber

Engineered timber products and mass-timber systems are gaining ground in Australian residential and mid-rise construction, supported by code changes in recent editions that expanded the use of timber in taller buildings. The performance questions the field is working through are familiar ones in new form: moisture management during construction and in service, connection detailing, and durability over the building’s life. The material is not a shortcut, and its performance is highly sensitive to detailing and protection during the build. As with every other shift in this pillar, the standard sets the floor and the execution decides the outcome.

What is coming next on sustainability compliance

With residential energy settings paused to around 2029, the near-term sustainability pressure on detached-home builders is less about the next star rating and more about bedding down seven stars and the moisture-management provisions that came with it. But the medium-term direction is not in serious doubt. The trajectory across successive code cycles, and across the broader policy environment, points toward higher energy performance, lower operational carbon, and eventually a harder conversation about embodied carbon in materials.

On the commercial side, NCC 2025 already introduces mandatory on-site solar for several non-residential classes and tighter fabric and services requirements, a signal of where residential settings tend to follow a cycle or two later. The builders best positioned for the post-2029 environment are the ones using the current pause not to stand still, but to make high-performance fabric, proper moisture management and accurate energy documentation their normal way of working. When the settings move again, that becomes a head start rather than a scramble. Treating professional development as the mechanism for staying ahead of these shifts, rather than a licence-renewal chore, is part of the same posture, a case we made in why CPD is smart business rather than a tick-box.

Reading the whole picture

Put the evidence together and a coherent picture emerges, one that is more useful than the crisis headline and more honest than the industry’s occasional defensiveness. The legacy stock carries a real and expensive defect problem, concentrated in apartments and dominated by water. The newest buildings, constructed under tighter accountability, are performing measurably better. The code has stabilised for residential work, with the genuine changes concentrated on moisture and apartments. And the regulatory environment, through registration, first-resort warranty, documentation liability and active site auditing, is steadily closing the gap between what the law requires and what builders actually deliver.

For a builder already working to standard, none of this is a threat. It is the opposite. Every instrument in this shift, the formalised responsibility, the active inspection, the harder-to-escape accountability, rewards the builder who already documents properly, supervises tightly and stands behind the work. The exposure falls on the operators who relied on no one checking. The distance between a compliant home and a well-built one has always been where reputations are made. The difference now is that the regulators, the tribunals and the data are all measuring that distance more closely than they ever have.

This article is general industry analysis for the Australian residential construction sector and does not constitute legal or professional building advice. Builders should confirm current National Construction Code requirements, state variations and adoption dates with the relevant regulator or certifier for their jurisdiction and project. Figures are drawn from the primary and industry sources named in the text. Last updated: June 2026. Refresh on any state NCC adoption change, new strata defect research round, or major reform announcement.

Author: The Good Builder

The Good Builder is a media platform that provides news and insights for Australia’s home building industry. From exclusive stories and curated insights to bold industry perspectives, we deliver the news and updates that keep builders, suppliers, and the entire home building industry inspired and ahead of the curve.