Builders driven to the wall as material costs go through the roof

The cost of building a home in Victoria is rising faster than in any other state because supply prices have spiked, forcing a growing number of business failures that have left hundreds of millions of dollars worth of projects in limbo.

One builder told The Age that his customers wanted new homes built, but the supply problems left him feeling as if he owned a fancy restaurant with people queueing round the block but “not enough steak to serve them”.

Building supplies are costing more, and they are taking longer to turn up.Credit: Paul Rovere

Global supply chain hold-ups caused by the pandemic have caused inflationary pressure and slowed the pace of home building by up to 30 per cent, with new data from the Master Builders Association of Victoria showing the state’s builders are bearing the brunt.

The average cost of supplies used in home building rose 10.2 per cent in the year to September in Melbourne, compared to 5.9 per cent in Sydney and 8 per cent on average across Australian cities. Steel product prices grew by more than 25 per cent in Victoria.

Australia’s biggest home builder, Melbourne-based Metricon, is taking four months to build a regular 200 square metre, single-storey home that would ordinarily take three months, its founder Mario Biasin told The Age.

“I’ve been in this business for nearly 50 years, and I’ve never seen a situation like this where you’ve got a supply chain disrupted to this extent,” he said, adding that he had heard of home buyers facing six-month delays on building.

Mr Biasin, who urged the federal government to open its skilled migration program to boost labour supply, said his company started sourcing timber from Eastern Europe, where supplies were more plentiful but cost twice as much as Australian timber.

“A lot of our carpark has been unused, so we converted it into a timber yard,” he said.

Dean Adams, of Alphington-based Hylton Constructions, said the delays and shortages meant his firm was running at a reduced profit. “Profitability is way down, so we are reducing the jobs that we are taking on,” he said.

“We can’t honestly answer questions about whether the house will be built in the same amount of time as previously,” he said. “We are putting conditions in contracts to make people aware that there are certain elements that may go up, which is making a lot of people more cautious.”

Builder Dean Adams says his customers are losing confidence. Credit: Luis Ascui

Three major builders – Melbourne-based ABD Group, Brisbane-based Privium and Tasmania-based Inside Out – have gone into liquidation or administration in recent months, while another 83 construction companies went into administration in September – a one-third increase on the same period last year.

More building was done in Victoria than in NSW in the locked-down months of 2021, and while the sector helped keep the state’s economy growing during the economic downturns, the Master Builders Association warned more firms would probably collapse as they weaned off JobKeeper.

Queensland-based Privium has left about 170 incomplete projects across Victoria, the association estimates, including a $50 million project to build 92 townhouses in South Morang.

ABD Group stopped work on a $140 million project to build 300 units in Spotswood, as well as a 25-level residential tower in Footscray. Its subsidiary has halted work on a 53-unit project in Kew.

Many building contracts commit to prices before work starts, which means unforeseen rises to expenses can cause projects to make a loss, association chief executive Rebecca Casson said.

“It appears that the large increases on builders’ material and labour costs following COVID-19 shutdowns combined with the reduced workforce capacity is starting to impact Victorian builders significantly. This could be a major issue for our industry moving forward,” she said.

“Our sector still requires support to ensure it can steadfastly remain the cornerstone of our state’s post-COVID economic recovery.”

The state government commissioned Anna Cronin, the state’s Commissioner for Better Regulation and Red Tape, to investigate supply shortages in the sector. The association says the report was delivered to the government in November and urged the government to release the findings and pursue solutions. A government spokesman said Ms Cronin’s report was still being considered.

“Supply chain disruptions due to the pandemic continue to be a major issue across the country – we understand the challenge this presents to builders and their clients,” he said.

Deloitte Access Economics director Chris Richardson said there was a wicked combination of global inflationary pressures, labour supply gaps caused by state border closures, delays in global supply chains and lockdowns in key manufacturing hubs.

“It’s a strong sector, but you have costs shifting really sharply, and with fixed contract costs, that combination is a classic one where builders go bust,” he said. “They are usually ones who’ve promised a fixed price and the nature of their business is low margin.“

Gerald Stutterd, director at builders Carter Grange, based in Mulgrave in Melbourne’s south-east, said there was supply and price pressure his company had to pass on to clients.

“When your supplier says things are going to go up, if you want it, you have to pay for it,” he said.

“It is like having a five-star restaurant with people lining up out the door with not enough steak to serve them.”

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