Thousands of failed builders reveal scale of industry’s dire plight

Multiple building companies are collapsing every day in Australia.

That is the nightmare that has unfolded according to the Australian Security and Investments Commission, which has revealed 2,117 Australian building companies went into liquidation in the 2022-2023 financial year to 18 June.

Even allowing for the decimation of the hospitality sector caused by Covid, the building industry is by far the most prolific when it comes to business failure. Less than half as many hospitality and accommodation ventures (1013) collapsed in the same period.

ASIC’s data revealed 7,578 companies entered administration or had an external controller appointed for the first time. By comparison, 4,912 collapsed the previous year.

The fact that more than a third of these business demises were in the building sector is testament to the struggles that ensued when Covid-era economic stimulus packages were ended, contractual arrangements that saw builders tied to a price as material and labour costs subsequently soared and a lack of supply for new homes nationally.

While smaller builders have borne the brunt of the carnage, large construction corporations have also encountered high-profile troubles, including BGC Housing Group, Clough Group, Porter Davis, Lloyd Group, EQ Constructions, ProBuild and Metricon.

The issue is disastrous for the industry, subcontractors, staff and also customers.

For the latter, the collapse of Porter Davis highlighted the grief caused by these collapses when customers who had signed tender agreements were ruled ineligible for Victorian government compensation and were left tens of thousands of dollars out of pocket.

Around the country, thousands of building industry clients are out of pocket, facing financial heartache or even ruin as their unfinished or non-starter building projects have stalled.

Approvals lifting but outlook uncertain

The latest ABS Building Approval release showed national total dwelling approvals lifted 20.6 per cent in seasonally adjusted terms to 15,032 in May. This robust growth comes off a very weak April.

In addition to the solid May approval result, considerable upwards revisions were also made, with 1,708 dwellings added to earlier months in the 2022-23 financial year.

Private houses gained 0.9 per cent, with Victoria driving all of this growth (+7.3 per cent). Declines continued to play through across all other states, with the biggest declines in South Australia (-7.2 per cent) and Western Australia (-4.5 per cent).

National private attached dwellings rebounded 59.4 per cent for the month to 6,722 – the strongest result since December 2022. New South Wales anchored this improvement.

Maree Kilroy, Senior Economist for Oxford Economics Australia, said the underlying demand for housing is receiving a boost from record migration, proving support to the established home market.

But the recovery phase would be drawn out she said.

“The relay of this to new dwellings will take a few years to play out,” Ms Kilroy said.

“Greenfield land and off-the-plan indicators remain negative, with buyer confidence suppressed by build cost escalation, delays, home builder administrations, and rising borrowing costs.

“It’s not until late 2024 that we anticipate this market pressure will guide dwelling approvals back to growth.”

Building approvals offering hope

Master Builders Australia (MBA) Chief Economist, Shane Garrett, said higher density home building approvals jumped by 59.4 per cent during May, recording their strongest monthly total since the end of last year.

“However, detached house building approvals remained flat during the month and are about 15 per cent down on a year ago.

“May’s sharp increase in unit/apartment building approvals is welcome given the severity of shortages in the rental market.

“The difficult conditions in the rental market are the result of prolonged underbuilding in the medium/high-density part of the market. This dates from before the pandemic.

“The 12 interest rate increases we have endured so far have made it much more expensive to build new homes.”

Soaring interest rates and high building costs are doing little to ease the pressure on the building industry.

MBA Chief Executive Denita Wawn said increasing the construction of necessary new homes will contribute to alleviating inflationary pressures throughout the economy.

“While the fight against inflation appears to be favourably shifting, it is crucial not to jeopardise progress by imposing unnecessary cost pressures through government regulation.

“By pumping up costs right across the economy, proposed changes to industrial relations would be very counterproductive in terms of beating inflation and unduly add costs to construction,” Ms Wawn said.