Metricon, home builders may be thrown state government lifeline for cost blowouts

Metricon and other home builders could be thrown a lifeline by the state government to cope with the sector’s cost blowout crisis.

Victoria is considering support to get Metricon and other home builders through a crisis of cost blowouts, with Treasurer Tim Pallas saying the sector’s future was a serious concern.

It came as industry leaders called for quick changes to be made to building rules so rising costs could be passed on to purchasers.

Mr Pallas said ensuring the residential housing construction industry made it though serious

financial pressure was a priority.

However, he would not be drawn on what form that support might take.

The sector has been strained as builders have been forced to work with surging costs of materials and labour under fixed price contracts.

Builders have been forced to work with surging costs of materials and labour under fixed priced contracts. Picture: David Caird.

One of the nation’s biggest companies, Metricon, injected $30 million into its business last week to ward off ongoing rumours about its financial future.

Mr Pallas said a decent share of his attention was now focused on the state of the market in Victoria.

“At the moment I’m a little concerned about that, I have to say,” he said.

“As you would appreciate with fixed price contracts, we’re seeing a bit of pressure in that market.

“The government’s looking at what it can do to assist.”

Mr Pallas said he didn’t want to announce the government’s strategy ahead of time, but said there were ways the state could offer support that would be revealed soon.

“Particularly in terms of how our own, their own, commitment to the big (affordable housing) build goes,” he said.

Metricon injected $30m into its business to ward off rumours about its financial future. Picture: Ian Currie

“There’s $5.3 billion worth of effort and activity there that in itself is putting pressure on.

“Principally our focus at the moment is the situation that Metricon is facing.”

When asked about the current state of the company, Mr Pallas said he didn’t want to make any “market sensitive” observations.

Master Builders Victoria chief executive Rebecca Casson described the current situation as a “profitless boom”.

“The vast majority, if not all, of the state’s builders are currently experiencing a challenge to their profitability,” she said.

“We are seeing chronic skills shortages across various occupations – carpentry, bricklaying, plasterers, project managers and building surveyors – to name a few.

“Adding to this are the current supply chain challenges and the unprecedented rising cost of materials, putting extra pressure on builders who have signed fixed-price contracts.”

Ms Casson said these costs could not be passed on to consumers and the pressures were making a toll on the mental health of many working the industry.

One solution is to introduce ‘escalation clauses’ into contracts below $500,000 to let builders bill clients when the costs of materials rise. Picture: David Caird

She said Better Regulation and Red Tape Commissioner Anna Cronin had recommended the introduction of “escalation clauses” in contract below $500,000 to let builders bill clients when the costs of material rise.

“This type of clause would go a long way to alleviate many unprecedented cost pressures facing Victorian builders,” Ms Casson said.

Housing Institute of Australia regional director of Victoria, Fiona Neild, also backed in cost escalation clauses.

“With this elevated volume of homes in the pipeline, the number of homes under construction will remain at this high level next year and potentially into 2024,” she said.

“An acute rental shortage has also seen strengthening demand for multi-units.

“A further deterioration in affordability will see demand continue to shift in favour of multi-units and there are also early signs that migration is returning.”