No one enjoys saying it, but the Australian building industry is on shaky ground following the collapse of several prominent companies in recent times. With Home Innovation Builders the latest contractor to enter liquidation, the major Perth-based operation’s demise was preceded by New Sensation Homes in the same week.
However, building companies across the country have experienced major problems, with Queensland’s Condev and ProBuild going out of business in 2022 alongside Hobart’s Hotondo Homes. As other markets also feel the pinch, these high-profile collapses impact business owners and customers alike.
Scores of anxious buyers with half-built homes find themselves in limbo as they wait to learn more about their investment. However, the building industry now faces the cost of the pandemic, soaring material prices and ill-conceived government grants. Here, we explore the cause of these concerns and what lies ahead.
The Impact of COVID-19
In the early days of the pandemic, there was concern that the building industry would grind to a halt as customers would button down their spending as much as possible. However, the opposite often turned out to be true, as people across Australia used up to $45,000 in government grants to start work on their dream home or complete a renovation project.
According to the Urban Development Institute of Australia’s Tanya Steinbeck, this stimulus exploded demand and helped foster a perfect storm that many building companies are now struggling to navigate.
“We were coming off five years of completely flat market conditions and the industry just could not turn the tap on that quickly,” said the WA chief executive to The Urban Developer.
What comes next remains unclear for other building companies, with about 100,000 detached homes currently under construction in Australia. With many of these built using stimulus money made available by the federal and state governments, completing this extensive backlog is uncertain as many builders battle rapidly rising costs.
Rising Material Costs
Alongside the problematic stimulus money made available to buyers in the early days of the pandemic, COVID-19 has brought about massive supply chain issues that skyrocketed the cost of building materials. In the three months to September 2021, the latest figures reveal that residential construction costs rose a staggering 3.8% nationwide.
With these costs escalating at the fastest rate since 2001, all the most common building materials have risen, with timber prices increasing between 50-100% in 2021. Meanwhile, the cost of steel also soared by 30-60% as concrete increased by 20-40% in the same time frame.
As demand rapidly outstripped supply, the cost of these materials could go even higher this year, especially as inflation and the rising cost of fuel negatively affect the market. With these uncertain times causing extensive delays, many more building companies with exceedingly low-profit margins won’t weather these problems.
Speaking to the ABC, quantity surveyor Matt Saunderson said he’s seen nothing like it throughout his extensive career. “For an average project home worth $400,000, it could have gone up by at least $100,000 in the past 12 months.”
The Way Forward for Builders
There’s no doubt the pandemic and rising costs have seriously damaged the building industry. However, many analysts believe some companies could have averted a crisis by turning down sales in the face of this oncoming storm.
As many were locked into rigid contracts before fully understanding how much the rising cost of materials would affect the industry, contractors saw their already thin margins evaporate before their eyes. And in the worst cases, these businesses collapsed, leaving buyers high and dry.
So, what lessons can be learned from builders moving forward? Despite the endless work available, this demand has been described as a ‘profitless boom’, as companies aggressively compete on pricing in a race to the bottom. Consider setting yourself apart from the competition with services that justify higher prices and better margins.
You should also avoid getting carried away by the incredible demand for construction. As the high cost of materials, long-standing labour shortages and rising interest rates signal hard times ahead, develop a more sustainable model that ensures you can manage projects with greater certainty.
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