A shocking number of Vic builders have gone bust this year: What lies ahead?

The soaring cost of building materials combined with a lack of good workers and rising interest rates is crippling Victorian tradies. See how much material prices have increased.

Nearly 100 Victorian building businesses have gone under in the first three months of this year, with experts warning more construction industry pain is on the way.

Master Builders Victoria is predicting a 24.4 per cent reduction this financial year in detached home and higher-density building activity, compared to the 2021–22 year.

“The sharp reversal in activity is shared by both the detached house and higher density sectors within the market. For Victoria, 2022–23 is likely to represent a low point,” the MBV’s submission to the 2023-24 state budget notes.

The $64.2bn Victorian building sector — employing about 358,900 people and made up mostly of small businesses – is not expected to start picking up again until the middle of the decade.

MBV policy director Meagan Peacock said insolvency data from the Australian Securities and Investments Commission (ASIC) showed 32 Victorian construction businesses had gone under just last month, with 95 in the first quarter of 2023.

“This is a 4.4 per cent increase when comparing figures to the first three months of 2022,” she said.

In the entire 12 months to August 2021, a total of just 360 construction insolvencies were recorded in Victoria — painting a picture of steady decline in the industry post Covid lockdowns.

“The mood (in the industry) is one of trepidation with people really understanding that there is a downturn. Residential building has come off and people are quite nervous. I think it’s hit volume builders harder because they’re entry level housing builders,” Ms Peacock said.

Major builders Porter Davis Homes, Lloyd Group and PBS are among recent, high profile construction company casualties.

In January this year Melbourne residential builder Hallbury Homes — with 20 staff and 50 projects over 42 sites — went into administration, potentially owing up to $12m.

And another large home builder, Simonds Group, recently flagged plans to cut jobs to reduce its overheads.

MBV policy director Megan Peacock said the rise in builder insolvencies had been influenced by the wind-down of the Australian Taxation Office’s soft approach to taxation during the pandemic and “aggressive” interest rate hikes by the Reserve Bank,.

Material shortages, price increases and difficulty recruiting, and keeping, skilled tradespeople post Covid were other major issues.

The Jacob family purchased a contract with Porter Davis for their dream home in Keilor East, with the slab finally poured in February this year. A month later the company folded. Picture: Ian Currie

But it’s not just big builders that are facing headwinds.

“Small businesses and sole traders comprise a very large proportion of our industry. Of the

127,370 building and construction businesses, 62.7 per cent operate as sole traders and 30.4

per cent hire up to four employees … the small size of construction businesses is reflected in their pattern of turnover. The majority (59.2 per cent) turn over less than $200,000 per year, with just over one in five (22.4 per cent) earning less than $50,000 annually. Just 1.4 per cent of building and construction businesses have annual revenues more than $10 million,” MBV’s Victorian budget submission states.

Higher density home building is set to recover slightly more quickly in Victoria than the detached home market, but depends on Melbourne returning to similar migration levels that preceded Covid for demand, it says.

More skilled migrant tradespeople are also needed in the state, to address “acute shortages in trades … including electricians, bricklayers, carpenters, roofers, plumbers, and construction managers (and) critical shortage of site supervisors, estimators, drafts people, building surveyors, and engineers”.

Victorian Mark Anthony in his half built Porter Davis house in Mitcham. Picture: Ian Currie

Skyrocketing material costs – particularly for builders locked into fixed price contracts – were crippling many businesses.

In the twelve months to the December 2022 quarter, while CPI rose by 7.8 per cent, prices for steel, concrete, cement and sand, timber and other building materials skyrocketed, the MBV said.

Tradespeople told the Herald Sun the cost of other items like grout, silicon, glues and other adhesives had also soared.

The builder body has called for an urgent review of Victoria’s Domestic Building Contracts Act, in the wake of the Porter Davis collapse, which left 1500 unfinished projects in Victoria.

A further 779 customers who had signed a contract and paid a deposit were also affected, along with 410 staff who were made redundant.

MBV interim CEO Michaela Lihou said the current act lacked flexibility in fixed priced contracts and was placing an unrealistic stranglehold on builders, that ultimately hurt consumers, rather than protected them.

“The rigid lack of flexibility in these contracts, on top of supply, skills and labour shortages, as well as inflation and interest rate rises are continuing to impact the building and construction industry,” she said.

“MBV wants to see an urgent review of the Domestic Building Contracts Act (1995) to include cost escalation clauses and to review the staged payments.”

“Our argument is simple. A review of a contract, which may include some fair and reasonable price rises based on data, is better than an unrealistic fixed contract which drives a builder into a wall.”

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