HIA: Should Trades be Licensed?

Licensed Trades: Measuring the Impact

Over the past few years there has been increased community concern about the quality of building work carried out on homes. This includes building works on houses, townhouses, and apartments. These concerns relate to the quality of work carried out by builders but also various trades undertaking work on building sites.

A number of reforms are being proposed to address the problem of poor-quality building work.  Some of these proposals may have merit but others may not, and only increase costs and further reduce housing affordability.

One proposal that is regularly raised is the idea of licensing trades who work on building sites. Currently trades, other than plumbers and electricians, working on Victorian home building sites do not need to be licensed. Instead, the builder as the head contractor is responsible to both consumers and regulators for the building work.

The justification for the proposal to license trades is that it will ensure that trades meet minimum qualification requirements and can be held accountable for their work. A trade licensing scheme could work in a similar way to the existing builder licensing scheme.

The difficulties with licensing trades include:

• Increased costs for a trade to obtain and keep their license
• Over time, less competition and higher costs as some previously unlicensed tradespersons decide not to become licensed. This could result in fewer trades to carry out work
• The bureaucratic process of obtaining qualifications and being licensed being a barrier to entry for new trades and trades from outside Victoria
• Licensed trades having to compete against unlicensed trades who charge consumers lower prices for their work.

All these difficulties would increase the cost of trades which are ultimately borne by consumers. With the shortage of skilled and experienced trades being a major challenge, any reforms that reduce the number of trades available to work would be extremely problematic.

A licensing of trades scheme may however be justified for at least some trades, such as waterproofing, if it can be proven that the benefits will be greater than the costs. This is expected to be a significant challenge for any proponent of a trade licensing scheme.

A trade licensing scheme would first need a rigorous training system and license assessment process for new entrants to the trade. It would also need a process for continuous improvement for existing trades. Strict enforcement to prevent unlicensed trades working, and especially directly for consumers looking for the lowest price, would also be critical for any benefits to be achieved.

A major reason for some in the industry supporting licensing of trades, is that it will make trades accountable for their work. The theory is that a trade who performs poor quality work or refuses to fix or complete work will be sanctioned by the regulator and may lose their license.

Unfortunately, this is unlikely to happen and the builder or client who engages a trade directly will have to rely on traditional methods to resolve disputes. Quite rightly, there would be no reason why a regulator or consumer would suddenly accept that builders could avoid their responsibility for work they engaged a trade to carry out under a new trade licensing regime. 

For the above reasons, it is very difficult to justify a trade licensing scheme for all trades. There may, however, be merit in licensing specific trades if there is a high risk of harm to consumers if the work is not compliant or defective.