Association of Professional Builders warns the industry is facing a massive financial challenge

About half of Australia’s home building businesses are believed to be running at a loss, sparking calls for urgent action to prevent a financial disaster.

About half of Australia’s home building businesses are struggling to run a profit and larger companies are now feeling the most stress, according to one advocacy group.

The Association of Professional Builders has warned the industry is facing a massive financial challenge as larger companies clear an 18-month backlog.

Allowing escalations of fixed price contracts under $500,000 and providing more support were needed to help stop a “massive collapse” in the industry.

Governments have also been quietly canvassing loosening the requirements for builders to retain their licence.

Builders are facing massive financial challenges. Picture: David Caird

APB Co-founder Russ Stephens said there had been a change in the mix of builders who were struggling as larger companies felt the pinch.

“At the back end of last year it was more the smaller builders and the bigger ones had cash reserves,” he said.

“This change is simply because the large building companies signed so many contracts under the government’s stimulus.

“They signed two, three or four times the amount of contracts they would normally sign in that period.

Many larger construction companies are feeling the pinch. Picture: Kiel Egging

“The reasons that’s so important is because the companies that signed so many haven't been able to build that amount.

“That’s caused a backlog and then, with prices rising the way they have, the bigger companies are losing money on projects. They’re still working on projects from 18 months ago.”

Metricon, one of the nation’s biggest home builders, recently injected $30 million into the business amid rumours it was under financial stress.

Governments are now sounding out measures to help builders make it through the crisis.

This could include temporarily relaxing the criteria for their licences which require evidence of their financial state until the costs come down.

Association of Professional Builders co-founder Russ Stephens says there has been a change in the mix of builders who were struggling. Picture: Supplied

“It is quite easy for a large building company to pay people on time but still be underwater,” Mr Stephens said.

“That's why when you see builders go into liquidation they owe millions of dollars … In this industry we front load jobs.”

Mr Stephens said this meant about 50 per cent of builders were believed to be running a loss without showing it and that action was needed to stop a “massive collapse”.

This included improving the financial skills of builders and changing attitudes to cost escalation clauses in contracts.

“Australia is the only country that doesn’t have those clauses, that is why the United States and Canada are still going strong,” he said.

“We need to change our culture and make this part of the standard process, that way consumers will need to hold sufficient reserves to cover that risk

“We can’t expect businesses to continue carrying that amount of risk.”

A state government spokesman said these clauses already existed for projects over $500,000.

“This is an appropriate threshold,” he said.

Master Builders Victoria and the Housing Institute of Australia have also backed escalation clauses for the industry.

Shadow Treasurer David Davis said the state should remove the burden of unnecessary regulation where possible and support the industry by making sure it paid for work quickly.

“We are very, very aware of the problems that domestic home builders in particular and other part of construction sector is facing with huge increases in the cost of wood, steel, concrete and other items,” he said.