A slew of Australian construction companies have collapsed in recent months, with an insider blaming a “perfect storm” for factors that could see even more companies fold.
Some of Australia’s biggest construction companies continue to crumble under the pressure of a “perfect storm” of factors that have driven up housing construction costs and created costly delays.
The cost of building a new home is estimated to have risen by $76,715 in two years, with average construction expenses exceeding $400,000 for the first time, according to the Australian Financial Review.
That’s a figure that doesn’t seem unrealistic to Master Builders Gold Coast Regional Manager Adam Profke.
“Houses are more expensive to build today than they were two years ago,” he said.
Mr Profke said builders had been battered by material supply problems since the emergence of the Covid pandemic, which has now been made worse by Australia’s trade sanctions against Russia after its invasion of the ‘Ukraine.
Although Australia does not get much wood from Russia and Belarus, it depends on the region for the supply of laminated veneer lumber (LVL), an engineered wood created by gluing multiple layers of thin wood together which is popular for use as a structure. beam due to its strength.
‘LVL is in every two-storey house,’ Mr Profke told news.com.au.
Mr Profke said laminated timber is used to hold the top floor in two-story houses, and said it was also used in one-story houses if people wanted perfectly straight wood, because all the trees do not grow perfectly.
The Australian Timber Importers Federation (ATIF) estimates that Russia supplies between 40-50% of the Australian construction market demand for a range of engineered wood products including LVL, formwork LVL and I-beams.
Earlier this year, the federation warned former trade minister Dan Tehan of substantial damaging consequences if trade sanctions were imposed, although it respects the government’s moral stance.
“ATIF estimates that restrictions on imports of wood products from Russia will lead to a 10-20% reduction in employment throughout the supply chain,” the organization informed in a bulletin. from March-April.
“Further delays in construction activity are also likely to further aggravate supply difficulties and put upward pressure on product and building prices.
“ATIF believes the Australian housing industry will face significant risk if Russian imports of wood products are threatened by trade sanctions.”
The collapse of construction giant Probuild happened in February before materials from Russia and Belarus were marked as “conflict timber” on March 4, and the government agreed that goods shipped earlier would not be subject to the 35% import tariff.
However, the issue has put additional pressure on businesses in an already difficult environment.
Several other failures followed the fall of Probuild, including the collapse of Gold Coast-based Condev in March. Australia’s largest homebuilder, Metricon, also recently received a $30 million lifeline to keep its struggling business afloat.
Smaller operators have also succumbed, including Hotondo Homes Hobart, Home Innovation Builders and Sydney-based Next, while staff at Queensland builders Pivotal Homes were all made redundant on the spot last week. Over the weekend, Queensland construction company Solido Builders revealed it had appointed liquidators.
Mr Profke said a number of factors played a part in the problems facing the construction industry.
“It started with Covid and people slowed down in terms of building activity and then we had stimuli that kicked off activity and increased demand,” he said.
“Covid restrictions meant people weren’t traveling and therefore saving money, so they decided to put that money into their homes, boosting the renovation market. But due to Covid, the supply of materials has been reduced.
Mr Profke said demand for the products had completely exceeded demand – and that was before Russia’s invasion of Ukraine created even more problems.
Delays in getting materials due to both the Ukrainian conflict and Covid restrictions meant builders couldn’t complete as many projects as they used to, and material costs were also rising.
“If you normally build 10 houses a year…but only build two or three, you are losing profits and losing money,” he said.
“The hammer blow is the fact that what you planned to build the house for cannot be delivered for it, it costs more and also eats away at your profit.”
Mr Profke said the price of lumber and reinforcing steel had risen almost 100% in the past 12 months. Other important items had increased by 40 or 50%.
“We’re seeing price increases on a monthly basis, and although it’s slowed down since last year, we’re still seeing price increases for something new every month,” he said.
This is partly due to Australia’s heavy reliance on foreign materials for its home building projects.
“At one point during the Covid lockdowns, you couldn’t buy a doorknob or a lock at Bunnings, which was almost unheard of,” Mr Profke said.
“Unfortunately, almost every element of the construction supply chain is delayed, as most of what we use comes from overseas.”
Even though builders could find locally made products, these suppliers were generally unable to meet the huge increase in demand.
Unfortunately, Profke thinks more companies could collapse.
“We hope for the best, but we also have to be realistic – some companies won’t be able to sustain losses on an ongoing basis,” he said.
“I think every business will be at risk at some point, no matter how big or small, businesses that can better manage their risk will be able to better withstand it in the long run.
“There isn’t a single builder in the industry that hasn’t suffered some sort of financial loss as a result of what’s happening right now.”
The irony is that the demand for their construction services continues to be high.
“The work is there, especially in Queensland and the Gold Coast, there is a lot of demand in the industry, it’s just a matter of dealing with the backlog,” he said. .
Mr Profke said he was unsure if the government could do anything to solve the problem in the short term.
“They cannot stop the war in Ukraine,” he said. “And the other thing to remember is that the suffering that is happening in Australia is also being felt by the construction industry around the world, we are not alone.”
Importantly, Profke said people working in the industry need to take care of their mental health.
“If people are extremely stressed, I would encourage them to seek help where it’s needed,” he said.
“These factors are beyond our control and we are overcoming them as best we can.”