“Perfect storm” sends Aussie home builders bust

The situation has gone from bad to worse for Australia’s residential building industry.

Following the recent collapses of major Australian construction firms Condev, ABG Group, Probuild and Privium, giant Metricon is now facing a similar fate:

On Wednesday, it was reported that Metricon was in emergency talks with clients after falling into financial strife just days after the sudden death of co-founder Mario Biasin.

Metricon employs approximately 2500 staff, primarily in eastern Australia, where it has a pipeline of roughly 4000 homes under construction.

The company’s bosses are expected to meet with major clients including the Victorian Government on Thursday. Metricon is so large that the Daniel Andrews-led government sees it as too big to fail due to the thousands of direct and indirect jobs that rely on the firm.

Company memos seen by the Herald Sun have detailed concerns about cash flow. “It has come to crunch time,” one document is said to have stated.

Many smaller builders have also collapsed recently.

Earlier this month, an industry insider warned that these collapses are only the “tip of the iceberg”, with factors including rising labour and material costs squeezing margins, especially where customers have signed fixed-price contracts.

Construction insolvency expert Andrew Spring also warned that rising interest rates would add to an already “nightmarish stacked deck of rising material costs, COVID-19 shutdowns, supply problems and labour shortages”.

Whereas general manager of commercial and property services at Equifax, Scott Mason, described a hidden crisis in the industry amid a “profitless boom”:

“Rising costs, disrupted supply chains and periodic lockdowns have created a profitless boom, with many construction companies committed to projects that are no longer financially viable thanks to major price increases for building materials”.

As noted last week, the crisis facing homebuilders has arisen despite near record construction levels courtesy of the HomeBuilder stimulus:

Australian dwelling construction

A profitless building boom.

But soaring costs amid the proliferation of fixed-price contracts has meant that 98% of Master Builders Association members are having their profits squeezed or are losing money.

The situation will only get worse as mortgage rates surge over the next year.

Unconventional Economist

Comments

  1. Holiday In ScomodiaMEMBER

    Tradie I know said one well known new estate builder is losing ~$60k a house currently, he and his mates are wary to work for these types after having margins screwed for years, quite a few have ditched subbying for volume builders altogether to chase flood/fire work or do smaller private jobs with less hassle to get paid…

  2. UpperWestside

    I feel for the young ones who are going to get burnt by this.
    Maybe to govt should bail out some of their mates who are trying to develop the koala habitat south of Sydney and just buy back the land.
    .

  3. Said it before and I’ll say it again, this is a late 80s redux. Remember the property guys like the white shoe brigade, Floyd Podgornick and the corporate raiders like Skase, Goward etc? The property guys fell then the sharemarket/raider types.

  4. Perfect storm that could be seen if you had your eyes open.
    Rising Costs
    Rising Inflation
    Record breaking rises in property (shelter) prices
    Rising Interest Rates
    Flat lined wage growth
    The storm is brewing, gathering force and strength.
    Society has become soft, so whethering the storm will be hard, but will bring strength for those willing to adjust to change.

    • Ronin8317MEMBER

      The builders could have hedged with future contracts, but why do that when the government will bail you out?

      • Display NameMEMBER

        Every tradie should have wood and brick futures bundles locked in 6 moths ahead of the market. If they exist.

  5. JoeJackMEMBER

    If the Victorian government sets a precedent and gets involved in “saving” Metricon, what happens when other building companies inevitably get in trouble? They will all expect the sum: Tax payer funded support.

  6. So in the good times they rip the ar$e out of people,
    Then expect us to feel for them when not so good?

  7. This is soooo long overdue. There may yet be hope that we see a major housing crash and thus restore hope to young people whose only crime is to buy shelter rather than use property as a wealth creation tool. Let the builders go bust. They’ve screwed society enough.

  8. Metricon should fail and NOT be bailed out by govt. this is capitalism. if victorian govt step in then IBAC/ICAC should investigate exactly what is going on and why and fully disclose before election. Andrews is going to lose election anyway