The latest insolvency data from the Australian Securities and Investments Commission (ASIC) shows that 2,773 construction firms went into external administration in the financial year to 9 June 2024. This was a 138% increase on the same period in 2022:
Perth builder Jason Janssen pinned the blame for the surge in construction insolvencies of federal and state government subsidies implemented at the beginning of the pandemic.
“As an industry, it’s going to take most builders two to five years to get back to where they were financially before the government stimulus. This is almost like an extinction-level event for the building industry”, he said.
“The problem was it effectively pushed three to four years’ worth of work into the pipeline in a 12-month period”.
“I’ve actually had to sell my own personal assets to tip money into the business, to basically finish off clients’ houses that were losing me money. Over the last three years, I’ve been going to work every day losing money as a builder”, he said.
Janssen’s critique is fair. The federal government’s Homebuilder stimulus and similar state-based schemes encouraged thousands of buyers to sign fixed-priced contracts to build new homes.
The extra buyer demand, combined with disruptions to global supply chains, then sent building, materials, and labour costs soaring, causing many builders to lose money on these fixed-price contracts.
Higher interest rates and state government ‘big build’ infrastructure projects added to the perfect storm by raising financing costs and worsening materials and labour shortages.
Janssen also ridiculed the Albanese government’s fanciful target to build 1.2 million homes over five years.
“Now the government’s basically hitting us up as an industry nationwide to help them build 1.2 million houses in the next five years. It’s not going to happen. We are beyond capacity”, he said.
As shown in the chart above, the record volume of homes built in a single 12 month period was 223,500 in March 2017.
What hope does Australia have of building 240,000 homes annually for five consecutive years when interest rates and materials costs are structurally higher, thousands of home builders have gone broke, and builders are competing with state government infrastructure projects for resources?
Even if Australia did manage to build the targeted 1.2 million homes, they would end up being low-quality throwaway high-rise rubbish, similar to what was built during the 2015-2020 apartment boom.
