Nation’s building industry braces for another ‘horror year’ of company collapses

Australia’s $360bn building sector is preparing itself for a horror 2024 as insolvencies spike on the lagging impact of contracts signed during the Covid-19 pandemic.

Australia’s $360bn building sector is bracing for another horror year with insolvencies predicted to spike in 2024 as the lagging impact of Covid-19 continues to bite.

Revive Financial head of business restructuring Jarvis Archer said the construction sector was set to experience high levels of insolvency for at least the first half of 2024.

“December has perhaps been the busiest in my 22-year career, and from the long lists of daily insolvencies, it appears that is mirrored across the sectors,” Mr Archer said. “January is already looking busy, which is a first.”

The construction sector is the worst impacted by corporate failure, topping even the troubled accommodation and food services industry.

The latest statistics from the Australian Securities and Investments Commission (ASIC) show there were 3046 construction-related company collapses for the year to December 3, up almost 38 per cent from 2213 for the whole of 2022. Construction collapses account for a little over 27 per cent of the 11,160 company failures so far this year.

Major reasons for the failures reported to ASIC included under capitalisation, poor financial planning, lack of cashflow and poor economic conditions.

Association of Professional Builders chief executive Russ Stephens predicted “a lot more closures” in the sector in 2024 as builders were caught out with contracts signed during the Covid-19 boom that did not account for inflation and supply chain challenges.

The building boom brought about by the Covid-19 stimulus measures exacerbated shortages while dwelling completion times blew out in many parts of the country.

“The problem is not going away,” Mr Stephens said. “Equity has been eroded and the tide will go out to reveal the mess.”

Association of Professional Builders co-founder Russ Stephens.

“The industry is improving and supply chains are settling down, but we are still dealing with the legacy issues from Covid and some of these builders were not quick enough to react. There will be more closures of building companies including in commercial construction.” The Gold Coast-based association, which coaches more than 600 builders on how to improve their costs and cashflow, is reporting increasing demand for its services.

Founded by Mr Stephens and Sky Kolade in 2014, its membership grew by 30 per cent this year. Mr Stephens said one bright spot in the industry was the increasing adoption of artificial intelligence (AI) by builders, allowing them to automate many costly back-office processes, including contract writing and planning.

“It’s almost impossible to run a construction company these days, especially a smaller one, and still tick all the boxes,” he said. “The increasing adoption of AI will help; A survey shows that over half our members are using chatGPT.”

The dire predictions for next year have been underscored by the spike in construction failures leading up to Christmas.

A Gold Coast builder, who is the son-in-law of one of the Glitter Strip’s richest men, put his construction company into liquidation, leaving creditors owed more than $1.2m and an unfinished job at an elite private school.

Ross Wolbers, whose father-in-law is prominent developer Norm Rix, called in liquidators to his W3D Constructions on December 7.

Builders signed contracts during the height of the Covid-19 pandemic which did not account for inflation and supply chain challenges.

Separately, Queensland-based Casa Building Group collapsed just days out from Christmas owing $3.7m to hundreds of creditors.

Queensland Building and Construction Commissioner Anissa Levy said it was important to acknowledge the resilience shown by the sector.

“The industry has remained resilient despite enduring extremely difficult times because of the Covid-19 pandemic, natural disasters and a shortage of building materials and skilled trades,” Ms Levy said.

“Building and construction services will continue to be in high demand due to the increasing number of homes needed for our growing population and the infrastructure required to support those homes as well as for the Brisbane 2032 Olympics.”