Yes you do need an incentive, and I agree that you need to short-circuit the current situation which entails long-running cases between owners and developers, and of course insurers. The only winners there are lawyers, but to be fair, the lawyers are only winning because the developers didn’t do the right thing in the first place. And the truth is, there will always be rogues in any industry, we may wish that every building meets BCA and is free of defects, but that will never happen.
One of the most common things that happens is where a developer is faced with a claim, and/or owners succeed in a claim against the developer, the developer goes into liquidation/is wound up. So the owners get nothing. There are numerous ways of doing that to avoid liability. Then the developer appears again in another corporate entity, i.e. the phoenix company scenario. Bear in mind owners would be unsecured creditors and way back in the line of parties to be paid in the event of insolvency.
Developers don’t care if they are suspended, they will find another way to get back into business.
The only way to make it work is to lock up a certain amount of money, however much is determined to be appropriate, at the outset. So if a developer wants to put up an apartment block and sell to the public, they lodge a form of bond at that time. If it is a large development, it will be a large amount of money, and that will put the price of the properties up, but personally I would be willing to pay that for peace of mind.
There are numerous models in other contexts that you can look at, for example the National Guarantee Fund which is for the purposes of compensating people who suffer a loss from the default or certain other misdeeds of stockbrokers. This was originally funded by the stockbrokers, and that cost is reflected in every fee paid for a trade. Funds like this (fidelity funds) are administered by separate entities. There are lots of other examples.