Probuild, Condev, Privium and ABG Group are among the major Australian construction companies that have gone into liquidation in recent months, alongside many smaller builders.
An industry insider has warned that this is only the “tip of the iceberg”, with factors such as the rising cost of labor and building materials having a major impact on home builders, especially if customers have signed fixed price contracts.
The insider says builders likely won’t make money on most homes they build in the next 12 months:
Mark*’s employer builds between 450 and 500 homes a year, but he said ‘outrageous’ supplier prices had helped drive the average price of a home in NSW from $330,000 to $440,000 in the last 12 months…
“We were always able to fix our prices with our suppliers for 12 months to two years before, but now we don’t see that. Suppliers break deals, they come to you with extraordinary price increases and compound increases,” he revealed.
“Steel and wood are up over 60%, everything has been imported, so your bathroom items and appliances are 15-20%, then add the labor side, trades, masons and tilers require 50% easier and that’s just to keep them on your site…
“As a builder we have lost all our power and this is where it gets dangerous, this is the start of something really bad and scary”…
A number of well-known construction companies have collapsed this year and it’s sent shockwaves through the industry with millions owed to creditors, but there are warnings this is just the “tip of the iceberg”.
The main reason for these collapses is that construction costs have risen at their fastest rate since 2001, according to CoreLogic:
Residential construction costs rose 2.4% in the three months to March 2022…
Annually, national CCIC increased 9.0% over the year to March, the highest annual growth rate in the 12 months to March 2001 (10.2%) which included the impact of the introduction of the GST…
Wood costs continue to rise, with siding, decking and other wood elements being affected. Sharp rises in metal prices are now affecting the market, with structural steel, fasteners and metal components being hit hard. We continued to see volatility in the rest of the market, with imported products being the most vulnerable due to high shipping costs. Rising fuel costs are on the radar and we continued to see further increases in the cost of materials.
The ABS Producer Price Index for the March quarter also saw a sharp rise in producer inflation, partly due to a 3.0% increase in building construction costs. during the quarter:
The irony is that the builder meltdowns occurred despite near-record work volumes thanks to the HomeBuilder stimulus:
Australian housing approvals and starts have skyrocketed under HomeBuilder.
So basically HomeBuilder delivered a “profitless boom” for the industry, with the Master Builders Association affirming 98% of its members see their profits reduced or lose money.
Leith van Onselen is Chief Economist at MB Fund and MB Super. He is also chief economist and co-founder of MacroBusiness. Leith previously worked at Australian Treasury, Victorian Treasury and Goldman Sachs.
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