Hundreds of property owners were left with unfinished houses as another construction company collapsed this week and more insolvencies are expected to come — so what is the prospect of building a home?
Key points:
- The Australian Constructors Association is calling for the government to look at compensating contractors for price rises
- The Master Builders Association says what the next 12 months hold is still uncertain
- The experts agree that the industry’s cashflow challenge is beginning to improve, but there will be more challenges to come
About 300 policyholders are waiting anxiously for support after Oracle Platinum Homes went into voluntary administration owing about $14 million.
Master Builders Queensland chief executive Paul Bidwell said he was confident there would be “pain” for the Queenslanders involved, but “ultimately their houses will be built”.
Oracle is just the latest of dozens of construction companies to have gone to the wall amid the loss-making building boom.
Mr Bidwell said trade and material shortages and cost hikes were still impacting all sectors of the industry, but there were pockets of improvement.
“There is no clear indication that the situation is going to revert to something more manageable until the back half of 2023,” he said.
“Some builders are saying, ‘Look, we think we’re on top of all the material price rises’ — others are saying, ‘Far from it.'”
Australian Constructors Association chief executive Jon Davies said in a 12-month period contractors had seen price increases of up to 70 per cent, but they were required to lock in prices long in advance.
“Why should anyone pay less for something than the actual cost if this has happened through no fault of the contractor other than not having an accurate enough crystal ball?” he said.
“Really the government can lead the way here and look at compensating contractors for these price rises.
“That money then feeds down and out through the complex networks of suppliers and consultants.”
Cashflow problems fading
Housing Industry Association chief economist Tim Reardon said the bulk of the cashflow issues facing the industry was behind it and that material shortages had eased, but the challenges were not over.
“What we’re seeing at the moment is that the rise in the cash rate that started back in May is starting now to bite, and we know that rising the cash rate is going to cause the market to slow,” he said.
Mr Bidwell believed builders were more accustomed to dealing with those issues than they were 18 months ago and were hopefully communicating increased costs and time frames with customers to allay concerns.
“But ultimately the consumers will vote with their feet,” he said.
The volume of homes under construction is expected to decrease over the next three years but remain higher than pre-pandemic levels.
The time-frame of building houses has blown out to 12 months, but Mr Reardon expects that to reduce to pre-pandemic waits of about eight months over the next year.
“When that happens, builders whiplash out the other side of that — they gain back that cashflow challenge they’ve had and they have the improved efficiency as a consequence of what’s happened over the past year,” he said.
“We’re still likely to see ongoing material price increases and labour is acutely short, and probably the biggest problem we’re going to have in 2023 will be a shortage of land.
“It’s likely that 2023 will be the year of the knockdown-rebuild because of that — those homes that are getting built will be for people that already own a block of land.”
Mr Reardon said as material supplies became more abundant, cashflow problems would get passed up the supply chain to wholesalers and producers.
But he said increases to the cash rate and how that would impact demand would pose the biggest challenge for builders over the next couple of years.
Future insolvencies forecast
Mr Reardon said the industry was nearing the end of the insolvency cycle, with only a relatively small number of firms folding, but it was not over yet.
“Insolvencies in the past 12 months were 28 per cent lower than pre-COVID,” he said.
“Now, that’s a little misleading, because of course those insolvencies are focused quite intensely over the past four months, on a narrow segment of the building construction sector — residential home builders.”
He doubted whether the Australian Taxation Office’s freeze on debt recovery had led to the scale of insolvencies predicted by the move.
But Mr Bidwell said the association was concerned about future insolvencies due to debts not being followed up.
He said some builders were hoping they would make profits on contracts signed this year, but they would still have to absorb the losses from 2020 and 2021.
“It’s not sustainable to keep on wearing losses month in and month out,” he said.
