Last week we reported data from the Australian Securities and Investments Commision (ASIC), which showed that 2,117 companies across the building and construction sector fell into external administration in the financial year to 18 June.
This represented a 75.4% increase over the corresponding period of the previous year.
The number of construction companies in administration was also more than double that of the next largest category, accommodation and food services, which reported 1058 external administrations in the financial year to 18 June.
High borrowing rates, rising input costs, and challenges getting workers and financing are causing developers to postpone projects and placing others at risk of collapse.
Russ Stephens, co-founder of the Association of Professional Builders, believes the outlook facing the housing construction industry is dire, with builders caught between high costs and falling demand from buyers.
“This slowdown is going to catch them out, and that’s the reason why we will see a lot more liquidations over the next six months – it’s going to get worse before it gets better”, Stephens said.
“The sales process can take up to six to 12 months for builders. We are seeing consumers in that process have second thoughts and sit back and wait and see what happens with builders, interest rates and inflation. We are also seeing the amount of new inquiries start to slow down as well”.
The one sliver of good news is that materials cost inflation is easing, as illustrated by the next chart from the Australian Bureau of Statistics (ABS):
“This reflects a softening in new demand and improvements in the supply of materials”, noted the ABS.
The bad news is that building insurance costs are soaring, which is adding to the industry’s woes.
“Victorians will be slugged with a 43% increase to Domestic Building Insurance as the home building industry continues to feel the strain of surging cost and company collapses”, reports the Herald-Sun.
“The Victorian Managed Insurance Authority on Monday announced the increase to premiums, which will take place from September 1”.
“Housing Industry Association executive director for Victoria Keith Ryan said the decision to increase premiums for this insurance by 43% was a “blow for Victorian home builders and their clients””.
“Mr Ryan said the change would also squeeze the cash flow of home builders who were already struggling with rising costs of labour and materials”.
The forward-looking indicators for the housing construction industry were already dire, with dwelling approvals, construction finance commitments and new home sales all collapsing.
Treasury Secretary Steven Kennedy recently told a Senate Estimates hearing that the construction downturn will run until 2025, with investment in new dwellings projected to fall by 2.5% this year, 3.5% in 2023-24, and 1.5% in 2024-25.
Oxford Economics Australia also forecast that total building work would fall by a cumulative 21% over the three years to financial year 2025.
These projections are an unmitigated disaster for housing supply, which is already experiencing falling rates of construction amid the most rapid population growth on record:
Australia needs to add 329 dwellings to its housing stock every day (net of demolitions) just to accommodate the 1.5 million net overseas migrants projected to arrive in Australia by 2026-27.
This will obviously be an impossible task, which means Australia’s housing shortages will continue to worsen, driving up rents and forcing thousands of Australians into homelessness.
