After almost collapsing, Australia’s biggest builder Metricon is back – but the industry issues that plagued it haven’t vanished

The boss of Australia’s largest builder has offered a rare insight into the issues plaguing the housing industry, and the sad reality faced by first-time buyers today.

When the country’s largest homebuilder teetered on the brink of collapse a few years ago, the construction industry watched on in horror.

How is it that a behemoth like Metricon, with 2500 staff and thousands of new dwellings in the pipeline, could find itself in such a dire position?

As the beleaguered company battled to survive, Brad Duggan was brought in as chief financial and operating officer in mid-2022 and was promoted to chief executive less than a year later.

Against the odds, Mr Duggan has led an extraordinary $80 million turnaround and a return to profit.

Now, he has delivered a rare post-mortem on the major systemic issues in homebuilding that almost brought down Metricon.

A perfect storm of factors

Just prior to the outbreak of Covid, the residential construction sector was at the tail end of a two-decade long period of stability.

Most builders were able to forecast what their future costs were going to be, allowing them to offer customers fixed-price contracts and long lead times.

“Then you hit quite a tumultuous and unprecedented time with Covid, we had a war in Ukraine, which is where a large amount of lumber comes from, plus all the disruption of shipping,” Mr Duggan said in a candid interview on the popular The Elephant in the Room property podcast.

“In effectively 18 months, we saw a 45 per cent increase in input costs. When you put that into an environment where you’ve guaranteed a customer’s price and locked it in for 12 months, it becomes really difficult.”

Australia’s largest homebuilder Metricon was pushed to the brink in 2022. Picture: David Caird

That meant a major boom in construction, sparked by the HomeBuilder stimulus package, was virtually “profitless”.

A staggering 7000 operators went bust in three years, throwing the industry into chaos and plunging the entire notion of building a new home into great uncertainty.

“You’ve got big monsters like Porter Davis in that group, and that organisation alone was building 2500 homes,” Mr Duggan recalled.

“That’s a significant amount of capability that went missing.”

Metricon chief executive Brad Duggan led a mammoth turnaround and a return to profit.

Many desperate builders that were struggling to hold on tried to abort contracts or jack-up costs, leaving customers with half-finished homes in limbo.

“We’d made a lot of commitments to customers and once we sign a contract and we’re on site, there’s no way we’d even think about trying to reprice,” Mr Duggan said.

“That was a non-negotiable for us.

“The secret to success for us was the grind. We had to find a way to get to the end of that workbook that was caught in the fixed-price contract scenario.”

He worked with Metricon’s suppliers, financiers and trade credit insurers to buy time, and undertook a restructure of the entire business.

Three years on from the point of collapse, Metricon is humming, but Mr Duggan is conscious that his success story is rare.

“There are fewer builders out there with the ability to make a difference in [addressing] housing supply,” he said.

“It’s great from a competitive point of view, but not from the point of view of the pretty significant housing challenge [Australia] faces.

“The other thing you can’t forget is the impact these builders have in their communities. If a big builder falls over, the consequences … are significant.”

And while supply chain disruptions, severe cost hikes for materials and even crippling labour shortages have eased to varying degrees, the fact remains that homebuilders are under pressure.

Without urgent action, not only will more builders remain under significant pressure, but the country will have little chance of addressing a crippling housing supply shortage.

Major issues plaguing builders

For one, homebuilding costs are through the roof.

“A like-for-like house from 2019 to 2025 would be about 50 per cent more expensive,” Mr Duggan said, adding that half of the increase is materials and the other half labour.

Passing all of those additional expenses onto consumers is increasingly impossible in a market where home prices broadly continue to rise.

“People can’t afford those houses,” he said.

Construction costs have skyrocketed over recent years. Picture: David Caird

Another major factor hurting the industry is that the time it takes to build a new home in Australia has skyrocketed dramatically, Property Council of Australia chief executive Mike Zorbas said.

“We are building homes at half the speed we did in 1995,” Mr Zorbas said, describing the situation as “tragic”.

That’s arisen due to a major slump in productivity, Mr Zorbas said, and an unwillingness or inability to address it over recent times.

“We must boost productivity across the construction sector to create the assets we need for world-class, liveable cities.

“Planning systems at the state and federal level are essential, but in many cases, they have become like barbed wire that proponents must cut through.”

Productivity in the construction sector is low and industry groups blame red tape. Picture: David Caird

During the week, Prime Minister Anthony Albanese delivered an address to the National Press Club and reiterated his commitment to address the issue of productivity in residential construction.

Speaking of the burden of over-regulation on homebuilders, Mr Albanese said: “If we can cut through on some of the red tape, then that will reduce costs.”

Housing Industry Association managing director Jocelyn Martin said the remark was music to her ears.

“The process of home building in itself is quick and efficient,” Ms Martin said.

“Government red tape and excessive regulation have been the key reasons why it is so difficult to increase supply.”

A recent report by the industry body found almost half of the total cost of building a new home comprises taxes, regulatory charges and other fees.

“While housing policy is largely influenced at a state and local level, this doesn’t mean the Federal Government can shy away from ambitious housing policies and reforms,” she said.

“This should include policies that would help deliver more land to market to meet demand, attract more workers into the industry and to ease the taxes and unnecessary regulations imposed on building a new home.”

Prime Minister Anthony Albanese has committed to addressing productivity issues. Picture: NewsWire / Martin Ollman

New South Wales is leading the country in planning reform, attempting to overhaul processes and incentivise councils to speed up their approvals of new dwellings.

Earlier this year, a bipartisan roundtable proposed a number of reforms, including compliant projects receiving fast-tracked development approvals in a little as 20 days, compared to the current average of 101 days.

Premier Chris Minns is also working on rolling out swifter planning processes in new priority precincts as part of transport-oriented development reforms.

However, some councils across Greater Sydney remain resistant to change.

An absence of tradies

Skills shortages across virtually all components of the sector are another major factor in the productivity collapse.

Analysis by Master Builders Australia found for every new qualified tradesperson who enters the industry, an extra 2.4 homes can be built.

“We need more skilled, qualified tradies on the ground to build the homes our communities desperately need,” Master Builders Australia boss Denita Wawn said.

A skills shortage remains a major challenge for the construction sector. Picture: David Caird

Mr Duggan said it’s a complex issue with several moving parts, aside from a lack of workers.

For example, Victoria and New South Wales lost a lot of tradies to Queensland during and in the aftermath of Covid.

“The scale of that loss can’t be underestimated,” he said.

On top of that, in those states, there are now a lot of tradies “working in tunnels on big [infrastructure] projects where they can make astronomical salaries”.

There are some signs the workforce is bouncing back, but an inevitable growth in demand for new homes will strip those gains away, he said.

Modular not a silver bullet

Groups representing builders and developers are pushing for a greater investment in new industries that can improve efficiencies and costs.

For example, a lot of focus has been placed on innovation in building techniques, including the development of a modular or prefabricated industry.

Mr Duggan worries the solution is over-hyped.

“If it could be done and big builders could make money out of it, they’d already be doing it,” he said.

“But the costs are prohibitive.

“We can build a single storey home in 60 days. A modular home in a box out of China, we could probably stand it up in 40 days. Is 20 days less worth an extra 10 or 15 per cent? I’m not sure.”

Construction giant Porter Davis was one of several thousand builders to go bust in just three years. Picture: Jason Edwards

Master Builders Australia chief executive Denita Wawn believes a big part of the challenge is that Australia is so far behind in focusing on innovation.

“There are a range of reasons, including the fact that there simply has not been enough money from the governments on research and development in our industry. That is slowly changing.

“Equally, we also know that the geographic spread of the industry also sometimes makes these things more expensive.

“Some volume builders told me that it’s cheaper to build housing frames from scratch than using prefabricated trusses because of the cost implications. So, we need to sit down as an industry and work through these issues, which we are.”

Positive signs but more to do

Tens of billions of taxpayer dollars have been committed to efforts to improve housing supply.

During his first term in government, Mr Albanese outlined an ambitious goal of building 1.2 million new homes across the country in five years, with four years left to go.

Modelling indicates the sector will fall well short of that by about 20 per cent, the Housing Industry Association has revealed.

Ms Wawn said a lot of good work had been done since the government established the Housing Accord two years ago.

“But with the re-election of the Albanese Government, we now have the opportunity to actually enhance and also ensure that those targets are now met,” she said.

“We’ve got to realise the problem of housing supply in this country is decades in the making. And for the first time, we’ve seen a Federal Government actually recognise that they’ve got a leadership role in resolving this problem.

“We’ve seen a huge amount of reports, some significant planning undertaken over the last three years, and we are seeing green shoots of increases in housing approvals, slowly, but some significant changes need to be made and problems addressed.”

However, she said the group’s modelling indicated no state or territory is currently on track to meet its individual supply targets under the Housing Accord.

“However, we say it is achievable if we address these productivity bottlenecks.”

Originally published as After almost collapsing, Australia’s biggest builder Metricon is back – but the industry issues that plagued it haven’t vanished