“Nervous” home builders confront “worst ever” conditions

So far this year, we have witnessed several major Australian residential construction firms fall into liquidation, including ABG Group, Privium, Probuild and Condev. Multiple smaller construction firms have also gone bust, including Home Innovation Builders, Next and Hotondo Homes Hobart.

Building giant Metricon is also reported to be on the verge of collapse following the sudden death of founder and CEO Mario Biasin last week.

Co-founder of the Association of Professional Builders, Russ Stephens, recently estimated that half of Australian building companies are currently trading insolvent, and believes the recent collapses are merely the “tip of the iceberg”.

This view broadly accords with statements from Master Builders Australia, which claims that 98% of its members are seeing their profits squeezed or are losing money.

With this background in mind, head of construction and infrastructure at BIS Oxford Economics, Adrian Hart, has given an interview where he claims the construction industry is facing its toughest conditions in 50 years:

“The feedback we’re getting is this is the worst experiences they’ve had regarding cost and capability challenges ever – and that includes the resources boom”…

“You have to go back to the 1970s oil shock to get an idea of the sort of price increases that we’ve seen in the industry right now”.

“It’s the worst experience that we’ve had in the industry, full stop”…

“When companies do collapse, they can often leave employees and the whole supply chain of their own without payment or further disruption,” Hart said.

“This can have a ripple effect through the rest of the construction industry. The Australian economy moves a lot with construction”.

“From a broad economic perspective, it’s also bad to have these sorts of situations because it ultimately leads to higher unemployment and further problems down the track”…

So where to from here? [QUT property economist Andrea Blake] says there will be an “inevitable” slowdown, possibly as soon as the next 12 months.

And that should make anyone in the construction industry “nervous”.

As I’ve said previously, the building collapses have arisen despite the Housing Industry Association forecasting red hot construction levels for the foreseeable future:

“There were 75.7 per cent more detached homes under construction at the end of 2021 than pre-COVID. There are also more homes approved and waiting commencement than in any previous cycle,” [stated HIA Chief Economist].

“With this elevated volume of homes in the pipeline, the number of homes under construction will remain at this high level until at least June 2023″.

Accordingly, Australian home builders are experiencing a “profitless boom”. They are busier than ever thanks to the HomeBuilder stimulus, but are losing money.

Imagine working your backside off only to end up poorer? That’s the situation facing the Australian building industry.