An expert is warning that Australia’s building industry is facing a “massive collapse” and financial ruin amid a perfect storm of fixed price contracts and soaring input costs.
According to Russ Stephens from the Association of Professional Builders (APB), around half of all Aussie home builders are experiencing negative equity, with the industry facing a “massive collapse”:
APB Co-founder Russ Stephens said there had been a change in the mix of builders who were struggling as larger companies felt the pinch.
“At the back end of last year it was more the smaller builders and the bigger ones had cash reserves,” he said.
“This change is simply because the large building companies signed so many contracts under the government’s stimulus.
“They signed two, three or four times the amount of contracts they would normally sign in that period.
“The reasons that’s so important is because the companies that signed so many haven’t been able to build that amount.
“That’s caused a backlog and then, with prices rising the way they have, the bigger companies are losing money on projects. They’re still working on projects from 18 months ago”…
Mr Stephens said this meant about 50 per cent of builders were believed to be running a loss without showing it and that action was needed to stop a “massive collapse”.
Russ Stephens of APB was featured in another article where he claimed 80% of Australia’s 10,000 to 12,000 building firms had lost money over the past 12 months:
“Eighty per cent of builders in Australia have lost money in the last 12 months. That’s horrific,” he added.
“Around 50 per cent of building companies in Australia are currently experiencing negative equity.
“About 25 to 30 per cent [of these companies] can’t pay their bills on time”…
“The first step [of a company collapse] is where the business loses so much money they have negative equity”…
The second step is insolvency, at which point the company is essentially finished…
“If the rules were followed as they’re intended, half the industry is going to be wiped out”…
It is fair to say that the Morrison Government’s HomeBuilder stimulus has turned out to be a disaster for the industry, since it drove a huge lift in new home demand at the same time as inputs became increasingly scarce.
Accordingly, builders signed many contracts at fixed rates and then competed with each other for scarce resources, driving up costs even further. Construction times blew out with input costs continuing to soar.
The end result is that most builders are experiencing a “profitless boom”. Volumes are booming, yet they are losing money at an alarming rate. Many Aussie builders have already gone bust, with more to follow.
HomeBuilder has ended up being another epic policy failure of the Morrison Government. Rather than ‘saving’ the building industry, it has ended up hastening its demise.
