Builders warn industry ‘marching towards a cliff’

Business collapses in construction haven’t returned to pre-pandemic levels despite a cost squeeze but industry groups warn of a wave of insolvencies.

Building industry groups are warning of a wave of insolvencies, as soaring prices for labour and materials mount.

The number of business collapses in the construction industry remains below pre-pandemic levels despite a worsening costs squeeze that has triggered a string of high-profile failures among developers.

But peak industry groups are warning of a wave of insolvencies, as soaring prices for labour and materials mount.

Analysis of ASIC data shows the sector had an unusually low failure rate of 953 insolvencies in 2020-21, as businesses were buoyed by government pandemic stimulus packages and a more ­lenient treatment under Covid lockdown rules.

Insolvency numbers were also artificially lowered when the government temporarily allowed businesses to trade while insolvent as part of its suite of support measures. But as relief measures ended, the number of construction firms entering external administration jumped more than a third to 1282 in this past financial year – but still well below the 1447 failures in 2019-20.

Housing Minister Julie Collins. Picture: Nikki Davis-Jones

Housing Minister Julie Collins said insolvencies were not significantly more than usual.

“This is an industry that does a high number of closures regularly, unfortunately,” she said.

Master Builders Association chief executive Denita Wawn said the industry had been the “canary down the inflationary coalmine” for the past six months and the ­viability of many businesses was being squeezed.

Australian Constructors Association chief executive Jon Davies said the sector accounted for 25 per cent of all businesses insolvencies, or over three times its contribution to GDP.

“Construction has a long history of high levels of company failures. In the face of a major skills shortage and escalating material prices, this trend is set to continue unless government intervenes,” he said.

“Projects should not be delayed or deferred as this can have unintended consequences that are worse than the problem trying to be solved. Instead, the nation’s largest infrastructure client – government – should hit the accelerator on reform.”

A confluence of factors including soaring material costs, global competition for workers and supply-chain problems has sparked warnings from peak bodies that the building industry is “marching towards a cliff”.

The collapse of construction giant ProBuild, followed by a string of failures among smaller developers, has crystallised concerns about the industry. A coalition of peak associations and unions have joined to call on the federal government to better protect businesses from bankruptcy, urging the commonwealth to crack down on “unfair” contractual terms that often underpin the sector’s high rates of failures.

Fixed contract terms can leave building companies vulnerable to input-cost price spikes, which can have a devastating impact in a typically low-margin industry.

The group – including National Electrical and Communications Association, Master Electricians Australia, Electrical Trade Unions – has written to Ms Collins, ­Employment Minister Tony Burke, Industry Minister Ed Husic and Assistant Minister for Competition Andrew Leigh with its list of demands.

NECA chief executive Oliver Judd predicted insolvencies to continue to rise, arguing the data had been artificially lower during the pandemic.

“During the pandemic the numbers dropped off significantly off the back of the government measures, including when the government introduced changes to allow businesses to trade while insolvent, but they have bounced back up,” Mr Judd said. “That is why everyone is talking about this cliff that we are marching towards.”