Andrew Spring, partner at building insolvency specialist Jirsch Sutherland, said it “wasn’t surprising at all” to see two tier-one construction firms go bust in quick succession after Christmas, given the serious headwinds the sector is now facing.
“The industry is in a really difficult position at the moment,” Mr Spring told 9news.com.au, predicting that the tough times would likely stretch into 2023 because “it does take time for the full weight of these sort of (major) insolvencies to come home all the way down the chain”.
Hopeful homeowners who had the misfortune to pick the wrong construction company won’t escape the financial bomb.
After scrambling to find a new builder, they were shocked with a six-figure bill increase because the cost of materials had spiralled since they signed with Privium.
“It’s been really stressful,” Mr Jacobson, a father-of-three, said.
They are now struggling to pay for rent and a mortgage at the same time because timelines on the build have completely blown out.
Ms Jacobson said they weren’t even told Privium was going bust.
“We found out on social media,” she said.
Many other Privium customers had not been lucky enough to find a new builder, she said, and they were now “priced out of the market”.
Dyldam Developments, Hotondo Homes franchise Tasmanian Constructions, ABD Group, BA Murphy, Pindan and Inside Out Construction have all gone bust in recent months.
“We’ve seen increases in the cost of materials between 15 to 20 per cent throughout 2021,” he said.
“(That) was then compounded by the supply crisis which has caused delays, and that’s increased the fixed costs for these builders as well.”
Fixed-cost contracts between developers, construction firms and sub-contractors spelled doom for the likes of Probuild, Condev and Privium, Mr Spring said.
“When you have timing overruns, labour price increases, contractor price increases and material cost increases, then you’re eroding your margins really, really quickly,” he said.
“And when you’ve got some of these larger projects, which may run into the years, you just can’t make that up.”
Mr Spring said the construction industry had been over-represented in the insolvency space for some time, largely because of fixed-cost arrangements.
“I wonder whether, off the back of this, we may need to see a reset in the industry as to how they go about pricing for work and assessing how to deal with these types of really rapid, difficult fluctuations.”
Building approvals have slumped
Australia’s recent housing boom had also driven prices of materials and labour up, he said, however the uptick in building appears over, at least for now.
“The decline was much larger than economists had expected,” Diana Mousina from AMP Investments said.
January approvals were 24.1 per cent lower compared to a year ago.
Ms Mousina predicted approvals would “track sideways” over the next few months, adding the reopening of Australia’s international border should result in positive approval activity on a 12-month horizon.
