The ‘domino effect’ will cause a tsunami of homebuilder collapses

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I noted earlier this week that Privium, Condev, ABG Group and Probuild are among the major Australian construction companies that have gone into liquidation in recent months, alongside many smaller builders.

An industry insider also warned that meltdowns are just the “tip of the iceberg” as factors such as rising labor and material costs squeeze margins, particularly when customers have signed fixed price contracts.

Now construction insolvency expert Andrew Spring – a partner at Jirsch Sutherland – has warned of more pain for the homebuilding industry, with rising interest rates to add to an already “Nightmarish stacked bridge of rising material costs, COVID-19 shutdowns, supply issues and labor shortages”:

“The problem is that rising interest rates either bring or dampen the housing boom, or eradicate it to such an extent that the buyer fears that the value of his property will continue to decline. ‘rise, and may actually decline,” Spring said. .

“Prices could start to weaken even faster.”

“For the developments that are being built right now, if they have presales in place, what is the risk now that those presales will actually end?”…

Giants like Probuild and Condev have already closed, while Privium Group, Dyldam Developments, Hotondo Homes franchise Tasmanian Constructions, ABD Group, BA Murphy, Pindan and Inside Out Construction have gone bankrupt in recent months…

“It’s inevitable that there will be a lot more insolvency in the construction industry,” Spring said, which will inflict a “domino effect” on builders, contractors and trades.

The irony of this is that the tsunami of homebuilder meltdowns occurred against the backdrop of near-record building levels, thanks to the HomeBuilder stimulus:

Housing construction levels have skyrocketed thanks to HomeBuilder.

However, soaring material and labor costs, combined with the proliferation of fixed-price contracts, have kept most builders from turning a profit, despite being busier than ever. Thus, the Master Builders Association claims that 98% of its members see their profits reduced or lose money.

Basically, HomeBuilder has delivered a profitless boom for the home building industry in Australia.

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