Why the building industry is in crisis as Porter Davis enters liquidation

Victorian home builder Porter Davis has collapsed following in the footsteps of Probuild and Condev Construction. So what is exactly behind the industry’s crisis?

The collapse into liquidation of Porter Davis follows the Herald Sun revealing lengthy delays on builds across Melbourne earlier this month.

Victorian home builder Porter Davis has gone bust as the nation’s building industry is hit with rising costs, fixed-price contracts and supply chain issues.

Insolvency experts Grant Thornton announced on Friday morning they had been appointed liquidators to 14 companies in the Porter Davis Homes Group.

So given there has been a housing boom, what exactly is going on?

Why are builders facing ruin?

A lethal mix of fixed-price contracts, surging costs and stretched supply chains.

Government stimulus rolled out during the pandemic fuelled a building boom.

But costs such as timber, steel and concrete have surged driven by factors as diverse as floods in Queensland and New South Wales and the war in Ukraine.

The industry has also struggled with higher labour costs while more recently there has been a drop off in future build demand.

Builders who have signed up to build homes on fixed-price contracts are now facing large losses as they deliver projects.

Porter Davis has more than 1,500 homes under construction in Victoria and a further 200 builds in Queensland.

The signs your builder might be in trouble

Slowdowns, delays or missed deadlines can all be red flags.

Delays in payments to subcontractors or others in the supply chain or, more extreme, subcontractors refusing to go on-site should also be of concern.

“These signs indicate a company is struggling with its cash flow and it’s important to recognise them,” Andrew Spring, a construction insolvency specialist with Jirsch Sutherland, said.

“Monitoring project performance from tender to handover is essential in a time where many factors that are outside of a business’s control can impact a project’s financial success.”

What does the industry want?

Home builders locked into loss-making fixed-price contracts want more flexibility to increase them.

The Victorian government has so far resisted a push by the industry to allow them to pass on a jump in materials costs to customers.

In the meantime, builders have been reaching out to customers seeking to renegotiate fixed-price contracts by essentially asking the client to stump up more cash to have their home built.

What does Porter Davis say?

The Porter Davis Homes Group Board of Directors said they were “hopeful that a solution could be found to support Porter Davis customers in completing their homes”.

The Board stated they “regret the current circumstances and that their efforts to secure a funding solution for the Group could not be achieved”.

Porter Davis has around 470 employees and was expected to turn over $555m in revenue this financial year.

What happens when a big builder goes bust?

In the case of Porter Davis, the board called in liquidators Friday morning after being unable to find a rescue buyer for the group.

The liquidators — Grant Thornton’s Said Jahani, Matt Byrnes and Cameron Crichton — are now running the home builder and work has stopped on more than 1500 homes across Victoria.

The liquidators have said they will not operate the company as a going concern and they are working to see if there are builders willing to take over customer contracts.

By the Porter Davis board calling in liquidators it means the company has avoided receivership which involves a secured creditor – think the bank – forcing a business into insolvency.

I’m a Porter Davis customer, what should I do?

Grant Thornton said impacted customers could look to register claims with the Victorian Managed Insurance Authority which provides insurance cover to homeowners if a builder collapses.

Home builders operating in Victoria are required to take out insurance with the VMIA.

Grant Thornton has also released fact sheets for customers and creditors.

Originally published as Why the building industry is in crisis as Porter Davis enters liquidation