Australian home builders continue to fall like dominos amid soaring construction costs and plunging buyer demand.
On Friday we learned that two of Australia’s largest building firms had collapsed, which follows dozens of major home builder failures over the past 18 months.
Grant Thornton Australia has been appointed as the liquidators for Melbourne-based Porter Davis Homes (PDH), which has 470 employees and thousands of building contracts with “mum and dad” customers.
Lloyd Group, which has 59 projects for government clients currently under development and supports about 200 staff, has also appointed Deloitte as administrators.
Both builders claim their failures were caused by razor-thin margins and rising building costs.
PDH has more than 1500 homes under construction in Victoria and 200 more under construction in Queensland.
A further 779 contracts with clients have been signed but construction has not yet commenced.
“The liquidators will not be trading the PDH Group companies and works on current builds will cease immediately”, Grant Thornton said in a statement.
Grant Thornton blamed “rising input costs, supply chain delays, labour shortages, and a drop in demand for new homes in 2023” for PDH’s demise.
Australian home builders are facing a ‘perfect storm’ of pressures that are driving the wave of insolvencies.
First, the Morrison Government’s home builder stimulus encouraged thousands of buyers to sign fixed price contracts to build new homes.
Disruptions to global supply chains then sent building and materials costs soaring, causing many builders to lose money on these contracts.
Second, the pull forward of buyers from the HomeBuilder stimulus has now left a deep demand deficit.
This void is illustrated by the collapse in construction loans to their lowest level since the onset of the Global Financial Crisis in 2008, alongside the halving of new home sales.
The sudden increase in interest rates and the reset of fixed-rate mortgages is also likely to cause some new home buyers to default on their building contracts, adding to the industry’s woes.
Additionally, rising debt servicing costs have increased the financial strain on home builders themselves.
The crisis in the home building industry has arrived at the worst possible time given housing demand has ramped up via record net overseas migration.
The inevitable result will be a deepening of Australia’s rental crisis and increased homelessness as demand continues to run way ahead of the industry’s ability to supply news homes.
