Soaring costs send thousands of home builders bankrupt

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Last week, Equifax head of product and rating services, Brad Walters, noted that out of the 3,917 liquidations or administration appointments in Australia in 2021-22, 28% were in the construction sector.

IBISWorld also reported that construction insolvencies are rising and projected that the number of firms operating 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

Thousands of construction firms to fail.

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

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All have collapsed since December 2021, leaving creditors owed millions and hundreds if not thousands of families reeling.

These collapses have arisen because builders signed thousands of fixed price contracts to build homes and were then caught out by soaring input costs. As a result, margins have turned negative, with many firms now building at a loss.

According to the latest CoreLogic Cordell Construction Cost Index (CCCI), the situation is set to worsen further with national residential construction costs soaring 2.4% over the June quarter and 10.0% over the 2021-22 financial year – the highest annual growth rate on record outside of the introduction of the GST (10.2% over the year to March 2001):

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Construction cost index

Cost inflation runs rampant across construction industry.

CoreLogic head of research, Tim Lawless, also noted that cost pressures should continue to rise “with a lack of materials, elevated fuel costs and broader inflationary pressures… likely to push building costs higher for some time yet”.

The upshot is that Australia’s home builders are busier than ever, due to the Morrison Government’s HomeBuilder stimulus, but are also losing money hand over fist. They are experiencing a “loss-making boom” that will very likely send many more firms bust.

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About the author
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.