In normal times, Australia’s home building industry would be in rude health. This week’s March quarter housing construction data from the Australian Bureau of Statistics showed that annual dwelling approvals and commencements were tracking near record highs, while completions are at cyclical lows:
Dwelling approvals and commencements boom, completions bust.
The combination of these factors has driven the pipeline of homes under construction to record highs, according to the Housing Industry Association:
Record number of homes under construction.
So why have there been dozens of major construction collapses this year when home builders are busier than ever? And why has IBISWorld forecast thousands of home builders to fail in 2022-23, with the number of firms “contracting for the first time in a decade”?
Thousands of home builder to fail this financial year.
The reason is because the Morrison Government’s HomeBuilder stimulus enticed thousands of buyers into the new home market at fixed price contracts. Pandemic-related supply chain issues then caused building input costs to surge, which pushed builder margins into negative.
The latest CoreLogic Cordell Construction Cost Index revealed that construction costs soared by 10.0% over the 2021-22 financial year, which was the highest annual growth rate on record outside of the introduction of the GST:
Construction cost inflation soaring.
Worse, CoreLogic warned that construction costs could rise even further given “a lack of materials, elevated fuel costs and broader inflationary pressures”.
The upshot is that Australia’s home builders have never been busier, but are also losing money at an alarming rate as their costs exceed revenue.
The inevitable result is that the conga-line of builder collapses will continue this financial year, and the situation facing the industry will get worse before it gets better.
