Australia’s home builders continue to fall like dominos with 10-year old Sydney building company Jada Group yesterday joining the long list of collapses, owing $2.4 million to 45 creditors.
Like the other collapses before it, the soaring cost of materials was cited as a key factor behind Jada Group’s demise.
Indeed, the next graphic from The SMH illustrates the extent of the issue, with costs soaring across the entire home building process:
Home building costs soar across the board.
The situation has been exacerbated by the Morrison Government’s $2.1 billion HomeBuilder stimulus program, which drove demand higher in the face of supply problems, thereby adding to the inflationary pressures. According to the Australian Treasury, HomeBuilder was inundated with 113,113 new home applications and 24,642 renovation applications, thereby helping fuel the pandemic construction boom across the nation:
Building applications soared under HomeBuilder.
Given most builders signed fixed price contracts, many were then caught short when construction costs soared, pushing their margins into negative. The result is the wave of collapses sweeping across the industry.
Denita Wawn, chief executive of Master Builders Australia, believes the residential construction industry has become the canary in the inflationary coal mine:
“Two years ago, contracts were being terminated because everybody thought they would lose their job. All of a sudden, JobKeeper and HomeBuilder came along and people weren’t travelling, the building industry went from no work to too much work”…
“It had to go somewhere, so people were spending it on their homes. We were a bit of a canary in the inflationary coal mine. Inflation hit us hard 12 months ago.”
In a similar vein, Housing Industry Association chief economist, Tim Reardon, noted that “it’s been very difficult for builders to price the construction of a home … given the rapid increase in prices and builders typically bear that risk”.
That said, Australia is not alone when it comes to home builder collapses. New Zealand ‘s construction industry is facing similar problems, which Master Builders Association national vice-president, Johnny Calley, believes has the potential to “wreak havoc” on the economy.
Calley claims inquiries for residential new builds have plummeted between 70% and 80% across New Zealand, reflecting “skyrocketing material costs, tougher bank lending, higher home-loan interest rates and soaring inflation”. In turn, there are now fears of mass job losses and builder collapses.
Ultimately, the world’s home building industries have been caught in a perfect storm of booming at the same time, with supply unable to keep pace with the unprecedented demand.
The resulting cost escalation is now sending builders broke, despite being busier than ever. Many are stuck on fixed-priced contracts and they are collapsing at an alarming rate.
