Australian building companies are going bust in the face of rising costs, with a second Perth construction firm going under in days.
The formal appointment of liquidators for Home Innovation Builders was lodged with the Australian Securities and Investments Commission on Monday.
The application was made on Friday, the same day another Western Australian company – New Sensation Homes – was placed in the hands of WA Insolvency Solutions.
Now many clients face an anxious wait over what will happen to their homes.
Many clients face an anxious wait over what will happen to their homes after the collapse of a building company. Pictured is a female tradie
A client of Home Innovation Builders said she had a feeling the company had been in trouble for a while.
Tiarna Nouwland has a slab and a pile of bricks at her property at Gabbadah, north of Perth, instead of a home for her family of six.
‘Unless we can come up with close to $300,000, we may have to sell the lot and take a loss,’ Ms Nouwland told The West Australian.
Skyrocketing prices of commodities have Australian tradies struggling to make ends meet, with thousands of businesses at risk of going bust.
Gold Coast firm Condev, Brisbane-based Probuild and Hobart’s Hotondo Homes are among the other companies to collapse in 2022.
Supply chain issues and lack of stock from national and international sources led to a spike in demand and prices for materials, with tradies bearing the brunt.
Costs of metal ores, plastics and timber have been consistently rising for years, but particularly through the pandemic as factories were forced to shut down for extended periods.
The trickle-down effect of these surging costs mean Australian workers are forced to cover the difference, with the country on the verge of a major crisis.
‘I don’t think a lot of companies are taking the cost increases seriously. It’s a perfect storm,’ Matthew Mackey, executive director of engineering company Arcadis, told Daily Mail Australia last month.
‘Smaller businesses don’t have the cash flow, they don’t have the same safety net. They’re going to feel the pain a lot sooner and a lot more harshly.’
Extended waiting periods for materials are affecting employment in the construction industry. Tradies on a construction site are pictured
Materials, including steel and timber, are having the most significant price surge due to international demand and lack of supply. Electrical products, PVC, and roofing materials are also getting more expensive.
While large companies manage big orders, small to medium businesses are struggling – with extended waiting periods for materials affecting jobs.
Margins are also significantly decreasing, with the construction industry generally only earning profits of between two and four per cent.
Mr Mackey said contractors were feeling the pinch after locking themselves into agreements months before the cost of materials rose, so they had to bear the weight of the difference and make only razor-thin profits or even a loss.
‘Some people are blaming the pandemic, some are blaming material cost increases, but there’s a bigger issue and it’ll affect just as much the bigger companies as the smaller businesses,’ he said.
Prices of materials have been rising steadily since the start of the pandemic, but exploded in April and May last year (average prices of commodities – Arcardis statistics)
The market is trying to respond to the volatility. It’s less now about supply availability, but energy costs are going through the roof, commodity prices continue to rise and material costs are still increasing.
‘Contractors, particularly trades, are going to be struggling. If they’ve already signed a contract that doesn’t allow for fluctuations in materials, they’re going to be stuck with those prices.
‘If costs have gone up in six months, they’re going to have to wear those costs, and that’s the issue,’ Mr Mackey said.
The rising cost of structural steel has wide-ranging impacts on the market and means inflation is trickling down to Australian tradies.
‘If iron ore goes up, that has a direct impact on the cost of steel. That is passed down to the person who’s providing the materials and that is passed to the contractor,’ he said.
Brisbane-based Probuild is one of the building companies to collapse in Australia in 2022. Pictured is a Probuild site at Darling Harbour in Sydney
The Arcadis director also said the lingering effects of the Suez Canal blockade, where the 400m, 20,000-container Ever Given was stuck for six days, were still affecting the market.
‘You wouldn’t believe one ship blocking a river would create such a shortage. That impacts transport costs,’ he said.
Rising costs are also believed to have fuelled the collapse of major construction firm ProBuild, as the company owed $14 million to workers for its doomed 443 Queen Street project in Brisbane.
The chief executive of South African parent company Wilson Bayly Holmes-Ovcon that owns Probuild said there had been ‘red flags’ years ago.
Wolfgang Neff told an interim results presentation last week that in hindsight operations in Australia should have been abandoned a lot earlier.
‘If we knew everything we know today we would have pulled the plug years ago,’ he told the Herald Sun.
A young female maintenance engineer is pictured testing voltage with a digital multimeter
‘The reality of it was the exposure in terms of the guarantee facility over the last 18 months restricted this decision. The risk versus reward became untenable.’
Last month, it was revealed ProBuild owed 786 employees across 19 projects $14million, and even more to its 2,300 creditors.
Master Builders Victoria chief executive Rebecca Casson underlined Mr Mackey’s fears for tradies, telling Daily Mail Australia she feared it would send several businesses into insolvency.
‘With building contract prices locked in, the large and unanticipated surge in the price of many building items such as timber and steel-based products meant that some builders were finding the cost of completing works more expensive than expected.
‘In many cases, this can make projects loss-making,’ she said.
‘MBV has stated that labour shortages will also impact building and construction insolvencies in Victoria over the coming months.’
Australian Council of Trade Unions secretary Sally McManus said rising costs were in turn making workers’ wages ‘go backwards’, pointing the finger at Prime Minister Scott Morrison for failing to address the growing crisis.
‘The Morrison government has been nowhere to be seen when it comes to fixing wages growth and this inaction is now a huge weakness for the whole economy,’ she told Daily Mail Australia.
The pandemic isn’t to blame. With the cost of living going up and wages going nowhere, a worker earning $68,000 last year received a pay cut of $832.
‘As one of the largest employers in the country, the Prime Minister could immediately take action on this by sending a signal to other employers and giving his own workers a pay rise, but instead gave them a real wage cut,’ Ms McManus said.