HCRA under the microscope: What the auditor general missed about builders’ real challenges

This story was originally published by Law360™ Canada, (www.law360.ca) a division of LexisNexis Canada.

By Leor Margulies and Sukhraj Sandhu

In early October, the Office of the Auditor General of Ontario released its long-awaited performance audit of the Home Construction Regulatory Authority (HCRA). The report set out to evaluate whether the HCRA is effectively fulfilling its mandate to license and oversee new-home builders and protect consumers. While the findings identify several legitimate concerns — particularly around licensing, oversight and complaint management — the report stops short of addressing deeper issues that have frustrated builders since the HCRA’s creation in February 2021.

The HCRA was established by the province in order to bifurcate and take over duties that were previously handled by Tarion in respect of licensing builders, and also establishing ethical rules for how builders are to deal with their purchasers on a fair and equitable basis. Tarion really did not have a legislative ability to address these aspects, other than dealing with warranty breaches or refusing to renew a licence. There was no ability to fine or discipline builders for improper activity or behaviour outside of the warranty program requirements.

The auditor general’s review paints a picture of an organization that is reactive rather than strategic. The HCRA approved nearly all licence applications, often without adequate review of financial stability or compliance history. It routinely renewed licences through an automated “fast-track” process even when builders had outstanding complaints or investigations. The report criticized the HCRA for relying heavily on credit scores to assess financial capacity, for failing to conduct risk-based inspections and for allowing a complaint backlog to balloon to over 1,500 unresolved cases. These observations speak to internal inefficiencies.

However, from the perspective of Ontario builders, they overlook broader challenges, such as significant delays in licensing decisions. For an industry where timing affects everything — from financing conditions to project starts and closings — these delays have real consequences. Many builders have expressed frustration with lengthy and unpredictable timelines for approvals and renewals, often with limited updates or explanations from the HCRA about expected timelines or reasons for delay. These delays hinder housing delivery at a time when the province is calling for record levels of new construction. The auditor general provides no recommendations as to how these approval delays can be improved nor how they can be eased.

At a time when the residential housing industry is facing its worst three years since the 1990-1995 recession (with a few more years to come) in terms of sales and new home starts, the HCRA should be looking at ways to streamline its approval process and work with builders, as well as consumers, to have an efficient sales process that will allow the industry, when the market comes back, to get back on track to building those 1.5 million homes in Ontario.

Another issue the audit overlooks is the regulator’s staff’s apparent lack of industry knowledge. Builders and developers regularly encounter HCRA personnel with limited understanding of real estate development, financing or the construction processes. This has contributed to a regulatory culture focused almost exclusively on consumer protection, without appreciating the complexities of project sequencing, compliance obligations, financing and the market realities of home building. A meaningful improvement would be to recruit experienced professionals from the development and construction sectors and to consistently engage with an industry advisory committee before making material policy changes. This would not diminish the importance of obtaining input from consumer groups but would help align regulatory decisions with the impacts on housing construction issues and costs.

As an example, the HCRA has also issued several “advisories” or compliance interpretations that effectively change regulatory expectations without adequate industry consultation. For a regulator intended to promote confidence and professionalism, unilateral rulemaking can result in impractical guidance. A better approach would be structured consultation with industry and consumers before issuing new policies, similar to processes used by regulators such as the Financial Services Regulatory Authority of Ontario and the Office of the Superintendent of Financial Institutions. No advisory should come as a surprise to the industry when it is issued.

The auditor general notes the more than 1,500 unresolved complaints but does not address how these complaints are handled. Often, a complaint is received and forwarded to the builder without meaningful vetting. Many are unfounded and should have been rejected upfront as frivolous or purely contractual, reflecting no moral or ethical wrongdoing. Builders and their lawyers must then spend hours responding to matters that should not have passed an initial screening. If such complaints were addressed at intake, either by rejecting them or by requesting further information before involving the builder, the backlog would be reduced, and builders could focus on legitimate issues. This would require complaint officers to spend more time initially reviewing submissions but would ultimately improve the system.

Perhaps the most significant gap in both the report and the HCRA’s overall direction is the imbalance between enforcement and support. Consumer protection is an essential part of the mandate, but regulation should not be focused solely on punishment. The current approach leans heavily toward investigation and penalties, with little emphasis on builder education, industry development or proactive compliance assistance. Builders need a regulator that not only identifies wrongdoings but also helps raise professional standards sector-wide. That could mean clearer licensing criteria, offering training programs or publishing consistent best-practice guidance to assist builders in meeting fair regulatory expectations.

Industry and consumers alike need an HCRA that protects consumers while also encouraging builders to do what they do best: build quality homes and deal with their customers fairly.

As head of the Robins Appleby LLP commercial real estate and development group, Leor Margulies has been a leader in the construction lending and development fields for over 40 years.

Sukhraj Sandhu is an associate in the commercial real estate and development group at Robins Appleby. Sukhraj advises on all key aspects of commercial real estate law, including acquisitions, dispositions, development and financing.