New Zealand’s leaky building saga has shaken public confidence in both the building industry and the regulatory competence of government. The growth of the Certified Builders Association of New Zealand (CBANZ) is an example of a market response to the problem. In the process, it is showing what consumer protection might look like in the absence of government regulation.

CBANZ recently started airing an ad that claims its members are the best builders in New Zealand.

The ad speaks to two audiences. To the public it says, you can trust our members to build your home (free of leaks and other problems). To builders it says, if you want to be trusted by the public, become a member.

The catch is that in order to get buy-in, CBANZ needs to convince the public that it really does stand for quality. That means it has to deliver on its promise of members delivering quality workmanship and consumer protection.

Of course quality workmanship and consumer protection are exactly what government regulation tries to achieve.

An empirical comparison of market and government mechanisms is well beyond the scope of this article. However, a few observations are not.

Neither solution is perfect. The market is unlikely to pick up all problems and did not prevent the leaky building saga. There will be lags between issues arising and the market offering solutions such as robust voluntary industry standards. However, the same applies to government. After all, there is little doubt it would have regulated if it had foreseen the leaky building issue. Lags and benefit of hindsight apply either way.

But the market model has advantages not shared by the government approach. Competition incentivises innovation and value creation. Thus CBANZ competes with the Registered Master Builders Federation (RMBF) to provide peace of mind to the public at minimum cost to its members. Government regulators do not face the same incentives.

The market is also more flexible than the government. CBANZ and RMBF can customise their value propositions to different market segments. Those who do not care for either organisation are free to use a non-affiliated builder. Amending government regulations is not as easy, and opting out is usually impossible.

The point of all this is to remind us that the market does tend toward protecting consumers’ interests and that alternatives to government regulation exist.