In late February, Australian Constructors Association CEO Jon Davis warned that the Australian construction sector “was not in good shape” and that more building firms could follow Probuild into administration, due to the increased cost of materials and labour and ongoing absenteeism because of COVID-19:
“Everyone assumes that everyone’s making bucket loads of money,” Davies said, noting city skylines are often dotted with cranes, and governments talk up the accelerated spending on infrastructure as a spur for economic growth.
“The reality is at a higher level the industry is not in good shape,” he said. “In fact, probably the more work [contractors] have, the more exposed they are to these risks.”
Since then, more builders have gone bust, buckling under rising supply costs.
Perth-based companies Home Innovation Builders and New Sensation Homes last week joined giants like Condev, Probuild and Privium on the construction scrap heap. And this has left scores of subcontractors, tradies and homebuyers facing possible financial ruin.
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Part of the reason is that construction costs are rising at their fastest pace since 2001, according to CoreLogic:
Residential construction costs have risen by 2.4% over the three months to March 2022…
Annually, the national CCCI increased by 9.0% over the year to March, the highest annual growth rate since the 12 months to March 2001 (10.2%) which included the impact from GST being introduced…
Timber costs continue to rise, with cladding, decking and other timber items affected. Steep rises in metal prices are now affecting the market, with structural steel, fixings and metal components hit hard. We have continued to see volatility in the rest of the market, with imported products the most vulnerable due to elevated shipping costs. Rising fuel costs are on the radar and we have continued to see further increases in the cost of materials.
Supply-side problems aside, the construction industry was already facing a tough period ahead once the backlog from the HomeBuilder stimulus has passed. This will inevitably create a vacuum of demand in 2023, especially given construction rates have run well ahead of population growth over the pandemic. Rising interest rates will further heighten risks for the sector.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
