WA builder folds as new home builds halve nationally
Perth-based builders are among the latest casualties of the woes besetting the building industry, with a collapse in new home sales suggesting the worst may still be ahead.
New home sales nationally are down almost 50 per cent since the first interest rate increase in the current cycle in April 2022, with the latest industry casualty being a Perth northern suburbs builder.
Two Rocks-based builder Pride Homes and Developments has folded, with the liquidator Hamilton Murphy’s Stephen Dixon and Brett Orzel appointed to wind up the business.
While the company had about a dozen residential projects and one commercial job underway, it is symptomatic of the troubles besetting the building industry and undermining customer confidence in undertaking new builds.
The human side of this contagion was highlighted by the social media reviews on the company website, since taken down.
“This has been the worst experience of my life and we are left with an unfinished home with structural defects and no idea what to do next or the cost,” posted ‘Veronica’.
‘Carol’ described having had a close call having realised the company was in trouble before she signed a contract.
The demise of Pride Homes and Developments follows the collapse last week of The Slatter Group, which had been operating for 20 years in the Perth market.
Buyers are shunning new homes, concerned that the thousands of building and construction company failures could hit them next.
The number of loans issued for the purchase or construction of a new home has fallen to its lowest level since September 2008, according to the Housing Industry Association (HIA).
Loans issued to first-home buyers have recently fallen to six-year lows, while detached house approvals are around decade lows, and likely to continue to decline for the next year.
The grim numbers don’t end there and rising interest rates will likely make matters worse before they improve.
Multi-unit approvals are barely a third of what they were at their 2016 peak.
Commencement of new homes has not yet slowed under the weight of this record increase in the cash rate, but a downturn in activity will emerge in coming months, according to HIA’s Chief Economist, Tim Reardon.
“The impact of rate increases to date are starting to emerge in official housing data, but it will take a further 12 months for this slowdown to be apparent in work on the ground, and the wider economy.
“This will see the number of homes commencing construction slow, as population growth accelerates.
“In addition to the increase in rates, home building is also set to decline as regulatory costs continue to add to the cost of new home construction.
“If governments continue to make building new homes more expensive, fewer new homes will be built,” Mr Reardon said.
“The RBA’s recognition that the housing issue is due to a failure to build enough homes is a welcome move, but it remains to be seen how this would influence future cash rate decisions.
“It also highlights that interest rates are a very blunt and ineffective tool in managing inflation and the wider economy. Fiscal policy is a far more effective and precise tool,” concluded Mr Reardon.
Late 2024 before any building recovery
Maree Kilroy, Senior Economist for Oxford Economics Australia, told API Magazine that it has been a horrible start for dwelling approvals in 2023, with the sharp downturn now underway set to extend into 2024.
“Strong demand leads are in play, with record overseas migration adding to Australia’s underlying requirement for new dwellings,” she said.
“Pressure on the housing stock has increased, most evident in a red-hot rental market over the past year.
“The undersupply has bled through to home prices, with indicators turning positive despite the considerable headwind of higher mortgage rates.
“We expect it to take until the backend of 2024 for this market pressure to guide dwelling approvals back to growth.”