Fire engineers are blowing the whistle on a "ticking timebomb" threatening the construction industry, says the Property Council.
A group of fire engineers have legal advice that councils are acting outside the law in what they are demanding from new building designs.
The councils reject that.
The impact of everyone trying to pass all the risk on, was it was getting harder to build anything at a time of housing shortages, the Property Council's chief executive Connal Townsend said.
"The overall public policy setting of how the heck we manage risk, is completely out of whack," he said.
"We've just got people passing the ticking timebomb from one hand to another and blaming each other. It's pointless.
"We have to tackle the way risk is allocated and the fact that councils are left carrying the liability is just hopeless, absolutely hopeless."
The previous government tried hard to fix the problem but couldn't, and it was urgent this government confront it, he said.
The risk issue was a perverse result of building laws being overhauled in 2004 to combat the leaky building crisis.
Lawyers, including the Law Commission in a 2014 report, have since then resisted changing the way liability is doled out.
"The net effect of our joint-and-several system is that councils are left carrying the can," Mr Townsend said.
"This story with the fire engineers, all they've done is blown the whistle on a ridiculous problem that has to be solved."
The government understood the problem and the Ministry of Business, Innovation and Employment was grappling with it, he said.
The ministry said it was considering the relevance of the legal opinion obtained by the fire engineers.