Across Australia, company failures increased by 23% in March, led by the construction industry.
Australian Securities and Investments Commission data shows there were 549 administrations and liquidations in March, which was up almost 23% from a year ago.
Over the March quarter, 1239 companies collapsed, up 20.5% on the same three-month period a year ago.
The construction industry has borne the brunt of the collapses, with Porter Davis Homes, Lloyd Group, and PBS the most prominent recent examples.
The recent wave of failures are just the “tip of the iceberg”, according to Scott Taylor, a partner at the legal firm Taylor David.
He anticipates more well-known companies will fail over the coming months.
“Construction companies are approaching one in three insolvencies, after sitting at one in four during the pandemic, and one in five prior”, Revive Financial’s Jarvis Archer said.
“It seems trading conditions will remain very difficult throughout the year, causing worrying insolvency levels and the potential for debt contagion, the knock-on effect of an insolvencies causing the failure of its trading partners”.
Master Builders Australia (MBA) and the Urban Development Institute of Australia (UDIA) last week pinned the blame for the construction failures on fixed price contracts entered into over the pandemic following the Morrison Government’s HomeBuilder stimulus package.
Fixed-price contracts account for around one quarter of all contracts in Australia’s residential construction sector.
Therefore, when construction costs soared 30% over the past two years, builder margins turned negative, pulling many into insolvency.
For example, all of Porter Davis’s construction contracts in Victoria were on fixed-price terms, which locked in the cost of the project up to 18 months before it was finished.
Porter Davis soon started losing money as expenses rose, driving the business into bankruptcy and displacing thousands of clients and workers.
The home building industry’s crisis has also come at the worst possible time, given housing demand is surging as a result of unprecedented net overseas migration.
As long as demand exceeds the market’s ability to build new homes, Australia’s rental crisis will inevitably get worse and homelessness will rise.
Unless immigration is moderated to sensible and sustainable levels, the nation faces a permanent housing shortage.
