Home builder dominos collapse into insolvency pit

There were 3,917 liquidations or administration appointments in Australia in 2021-22, with Equifax head of product and rating services, Brad Walters, noting that the construction sector accounted for 28% of all insolvencies:

“Small-scale operators in Australia’s construction industry could well be the canary in the coal mine for the difficulties that lie ahead for this sector,” [Walters] said.

“Rising rates of construction industry insolvencies and cost of living pressures continue to place a heavy financial burden on sole traders and small business owners.”

Australian Securities and Investments Commission figures also revealed a 12% surge in home builders going to the wall in the three months to April, compared to the final quarter of 2021.

The list of collapses across the home building industry is exhaustive and includes: Probuild, ABG Group, Condev, Hotondo Homes Hobart, BA Murphy, Inside Out Construction, Home Innovation Builders, Dyldam Developments, New Sensation Homes, Next, Pindan, ABD Group, Pivotal Homes, Waterford Homes, Snowdon Developments, Solido Builders, Langford Jones Homes, Affordable Modular Homes Pty Ltd and Statement Builders Pty Ltd.

All have gone bust since December 2021.

Australian Builders Collective president, Phil Dwyer, believes “we will see a lot of builders go broke – not so much in the next three months, but after that”. Thus, the situation facing the home construction industry will get worse before it gets better.

Dwyer’s view is backed by IBISWorld, which last month reported that insolvencies are “trending upwards” in the home construction industry:

Construction insolvencies

IBISWorld also forecast that enterprise numbers across the home building industry will fall by 9% in 2022-23, “contracting for the first time in a decade” by thousands:

Home construction outlook

The home building industry is facing a perfect storm of factors driving the insolvencies.

First, the Morrison Government’s HomeBuilder stimulus enticed thousands of buyers into the market that signed fixed price contracts with builders. The surge in demand coincided with a squeeze on inputs, sending costs soaring. Then construction times blew out as input costs continued to rise.

The end result is that Australia’s home building industry has been caught in a loss-making boom. While builders are busier than ever, most are losing money on each home that they build because their fixed price contracts are below their now higher costs. As a result, many builders have already gone broke, with many more still to follow.

Instead of supporting the building industry, the Morrison Government’s HomeBuilder stimulus has instead contributed to its demise.

Unconventional Economist
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Comments

  1. “Ye miserable, crawling worms, are ye here again, then ? Have ye come like Nimshi son of Rehoboam, secretly out of yer doomed houses to hear what’s comin’ to ye ? Have ye come, old and young, sick and well, matrons and virgins (if there is any virgins among ye, which is not likely, the world bein’ in the wicked state it is), old men and young lads, to hear me tellin’ o’ the great crimson lickin’ flames o’ hell fire ?”

        • Spare some blame for builders that normally do 8 jobs a yr and signed up 30. Smartest blokes in the room, based on the size of their jet ski & Harley collection.
          Peak bubble = peak greed

          • And, if we’re honest, spent the deposits on jetski fuel rather than building materials…oops
            F’it another phoenix, another set of business cards, another wife, another life
            maybe, as customers who accept this sort of behavior, we also play our role in perpetuating the problem.

          • Just to explain
            Imagine we lived in a society with zero expectation of any government or other intervention (no insurance, no ombudsman, no…) what decisions would we make when seeking a builder? What value would we place on the stability and longevity of the business. What price would we attach to the honesty of the participants?

            I find it interesting that in Australia we try to synthetically create the environment that we want through legislation and government / large company intervention (insurance in its various forms) rather than seeking out and engaging exclusively with businesses which embody the values which we claim to …ahm value
            And you know what’s funny is that I’m sure most of you are shaking your heads and muttering wtf is he talking about

          • drsmithyMEMBER

            I find it interesting that in Australia […]

            Industry regulation is hardly a phenomenon unique to Australia.

      • DingwallMEMBER

        Lol KRudd, Abbott and Turnbull are all up there with him. Albo will join them if he can’t sort out something as straight forward as the gas/electricity debacle.

  2. LVO, is this another future inflationary impulse as builders move to cost-plus or higher margin fixed contracts? Assuming also that cost-plus would be totally rorted and distorted in favour of the builder…

  3. Fishing72MEMBER

    Pretty sure insolvency is the business model for many Aussie construction companies. Flight of the Phoenix!

    • That’s my question, any where to track where these guys pop up again, maybe under the missus name as director ?