Home builders tumble like dominos as cost crisis escalates

After lobbying the NSW and Victorian governments for assistance in June, one of Australia’s largest home builders – Metricon – continues to teeter on the brink of collapse. Yesterday, it unceremoniously sacked 225 employees over Microsoft Teams in a desperate bid to reduce costs:

The move will impact 9 per cent of its workforce…

Most of the roles that will go are not in building or construction itself, but in front-of-house jobs like sales and marketing.

In a statement, Metricon’s acting chief executive Peter Langfelder said the company was contracted to build 6,000 homes.

“We are working to restructure our front end of the business given the current climate and the need to move forward more efficiently,” he said.

BIS Oxford Economics senior economist, Maree Kilroy, also warned that “the squeeze on margins felt by home builders will likely lead to more builders toppling over, especially less capitalised small to medium sized operators”.

Already, Australia’s home building industry is in crisis with literally dozens of firms going under in 2022.

The main cause is the sharp rise in input costs across the construction process, as shown in the below graphic from Fairfax:

Home building costs

Extreme building cost inflation.

The June quarter CPI, released last week by the ABS, similarly recorded the biggest rise in dwelling construction costs on record, reflecting “high levels of building construction activity combined with ongoing shortages of materials and labour”:

New dwelling prices

Rapid cost inflation drives up new dwelling prices.

New dwelling prices rocketed 20% in the 2021-22 financial year, easily topping the 14% increase when the GST was introduced in 2000.

Despite a record number of homes under construction across Australia (see next chart), builders are falling like dominos because the cost of construction has risen above their fixed price contracts.

Homes under construction

Record number of homes under construction.

In short, Australia’s home builders are experiencing a “loss-making boom”, whereby they are busier than ever, but also losing money on every home built.

Many more builders will go under before the supply pressures ease.

Unconventional Economist
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Comments

  1. ChristopherMEMBER

    If the cost of construction is up 20% and we have a housing shortage – then housing boom incoming?

  2. pfh007.comMEMBER

    Amazing that all those constructions costs are going up and there are shortage of construction labour but there is no upward pressure on wages for construction jobs.

    At least none that is showing up in CBA and NAB snooping of deposit account transactions (Note: just as well people are only worried about government snooping around their transaction data)

    The construction boys would seem to have plenty of bargaining power.

    Have they ever thought of joining a union?

    • Word is trades start a job and just do one and not come back due to better offer. Block layers are the worst. We have staring avoiding using block due to this reason.

    • Yippin CreekMEMBER

      I am highly suspicious of this cost pressure meme. All previous building busts had collapses just like this or worse.

      More likely some form of greed consequence.