In a worrying statistic for the $360 billion construction industry, analysts report that up to a quarter of insolvencies are Australian companies within that industry.
“It’s a bit of a shocking statistic,” says Australian Constructors Association chief executive Jon Davies. “Particularly when you look at it in terms of the industry’s contribution to the economy (eight to 10 per cent of GDP) — it’s a disproportionately high level.
“At the moment you are hearing a lot of people talking about a ‘profitless boom’ and it has been a reality.
“But the bigger issue is not so much the profit margins. It’s the willingness of our industry to accept risks that they really aren’t able to quantify, and they really shouldn’t be trying to, from clients that are more than happy to try to pass those risks on to them.”
Major Australian companies such as Pindan Group and Hutchinson Builders are being hit hard with external administration or overheating issues.
Hutchinson Builders chairman Scott Hutchinson summarises that “in 12 or 18 months, there’s likely to be a lot of builders going broke and most of them don’t know it yet. Then we’ll have a flight to balance sheets”.
Crisis point: the reasons
With home building at record highs, many suggest that a surge in building activity due to economic stimulus forced developers to act swiftly.
They say policy announcements came without proper forethought about the implications and consequences, leading to the current construction supply shortages.
A range of factors has played a role, including rising shipping costs due to a shortage of empty containers because of COVID-19, rising labour costs, record-low interest rates and a national housing shortage. Building material defects and unprecedented demand for new housing stock across the country have also strongly contributed.
BIS Oxford Economics associate director Adrian Hart says that pressure on construction costs would emerge from 2022-2023 as the dollar of work done rises to unprecedented levels.
How to rebuild construction
With a national repair bill estimated in the vicinity of $6.2 billion, even before the COVID era, urgent reform is required to help ease construction back on track.
Failures would continue if governments don’t make great changes to the way construction is done in Australia, says CFMEU national secretary Dave Noonan.
“This national crisis in construction can only be resolved through close consultation with workers and the Construction Forestry Maritime, Mining and Energy Union will continue to play a constructive role in developing solutions for our industry,” Mr Noonan says.
“Now is the time to come together – not silence dissent.
“We’ll be producing detailed policy solutions and will work with the federal and state governments across Australia over the coming months.”
(Source: Urban Developer)