Byron Bay builder Nic Lenders reckons he spends up to six weeks each year with his accountant.

Much of that time is spent trying to ensure his business meets the requirements of the NSW Home Building Compensation (HBC) fund.

This financial year, he had to top up his company's cash flow by several hundred thousand dollars as surety.

"It was completely unsubstantiated, I had no less money than the year prior," Mr Lenders said.

"I don't know what their algorithms are, I don't know who is doing this behind the scenes, whether you get a different assessor from the underwriters from one year to the next ... we have no clarity on this, no transparency.

"I managed to find the money, but a lot of builders would have absolutely no chance of doing that."

The compulsory state government scheme is designed to protect home owners if a builder is unable to finish their project or fix defects.

Builders must buy home building compensation cover for every residential project worth more than $20,000.

The maximum payout is capped at $340,000.

Mr Lenders said he knew of instances where the cost of buying the insurance on multi-million dollar projects had been higher than the maximum payout.

In March, the State Insurance Regulatory Authority (SIRA) made changes to prevent the fees exceeding the maximum claim.

Mr Lenders said SIRA had also shifted the goalposts for eligibility in recent years, so a builder could not longer use personal assets such as their home as surety.

"We are not making anywhere near enough money for the risk and liability we take on every day."

Hampering housing supply

Critics of the scheme say it is driving people out of the industry, pushing up the cost of building and standing in the way of increasing housing supply across the state.

Quantity surveyor Matthew Saunderson said a lot of builders with the capacity to take on more work were unable to do so, because they could not meet the asset threshold for obtaining the HBC insurance.

"Every builder at the moment is screaming about the home building compensation system," he said.

He said the federal government's target of building 1.2 million houses over the next five years could be hindered by the HBC scheme.

"I just don't think it's going to be possible with the way home warranty insurance is in NSW," Mr Saunderson said.

Peter Sarris has a team of builders at work on his dream home at Knockrow, in the Byron Bay hinterland.

His builder paid $70,000 in HBC insurance for the high-end project and, as is standard practice, passed the fee on to Mr Sarris.

Mr Sarris said a quote for the same project in the ACT came in at $13,000.

"It's disproportionate to what you get out of it, and it's there to protect me, the client, and I just don't see the value," he said.

Government launches review

The outcry from builders is now being heard by the state government.

It has now launched a review of the HBC fund, headed by Bronwyn Weir, looking at confidence issues in the industry, as well as housing supply.

"The scheme is there to protect consumers, but it is also there to support industry and promote industry to thrive," Ms Weir said.

"Everywhere I look at this review there is a question of striking a balance, and I think that is part of why the government wants these issues looked at closely."

Industry feedback

The Housing Industry Association (HIA) is part of the review's advisory panel.

HIA NSW executive director David Bare said reform to the scheme was long overdue.

Submissions to the review are open until November 11 and a final report is due next February.