Rising construction costs push builders to the brink

(Picture: Norbert Nagel/Wikimedia Commons)

The competing pressures of a hot property market and rising construction supply costs are claiming victims as builders are pushed to the brink.

The Morrison government is adamant that the nation will build its way out of the pandemic, pouring $2.5 billion into the Homebuilder support package to support the construction sector.

More than 121,000 Australians applied for the grant, which is expected to support around $30 billion of residential construction projects.

But with 53,980 (42 per cent) more residential home builds under way than a year ago, some suggest the market has been overstimulated, putting intense pressure on builders to deliver, with one builder saying: “The problem is that the industry can’t build that many houses.”

Across the nation, building firms are showing signs of stress after trying to keep their head above water amid a frenzied market.

Aside from labour shortages, the industry is battling a range of issues, including the building materials shortage due to disrupted supply chains. One insider says that build prices have risen by around $30,000 since the start of the pandemic.

The situation has become so dire that the industry is rife with speculation that at least one or two of the larger building firms have been handing back contracts that could no longer be fulfilled due to rising building costs making it untenable to complete projects.

One of the builders rumoured to be handing back contracts is Metricon.

But Metricon chief executive Mario Biasin dismissed the current “malicious” rumours circulating about the firm’s capacity to service its customers.

But the cracks are showing elsewhere, with 25 per cent of all insolvencies nationally happening in the construction sector.

Last week, Privium and other companies in the group were placed into voluntary administration, with debts of more than $28 million. The firm operates in Queensland, NSW and Victoria.

Named the 11th largest builder in Queensland by the HIA this year after completing more than 600 projects worth $180 million, the firm is blaming surging construction costs.

Melbourne’s ABD Group also appears to be on the verge of collapse, ceasing work on three high-profile contracts, with two contracts torn up. The collapse would leave between $50 million and $80 million in outstanding debt, sources say.

The fall-out is hitting construction businesses too. Safa Scaffolding, on the Gold Coast, went into voluntary administration in June.

Builders are in short supply across the country, with many booked a year or more in advance.

Read more at The Urban Developer.