The Australian construction industry has faced a staggering crisis, with 2,213 companies entering administration between July 2022 and June 2023, including major players like Porter Davis and Condev. This sector accounted for nearly 30%of all insolvencies. The root causes? A perfect storm starting with COVID-19:
Material Cost Surge: Pandemic-related shutdowns, especially in China, led to skyrocketing prices for building materials. Timber prices, for example, rose by over 60%.Slim Profit Margins: The industry’s standard 10% profit margin left little room to absorb these unexpected costs.Operational Disruptions: Lockdowns and strict COVID-19 protocols slowed down construction, while a labor shortage further escalated costs.Fixed Price Contracts: Builders were trapped in fixed-price contracts, unable to adjust to the rising costs, leading to severe financial shortfalls.Natural Disasters: Prolonged La Nina weather conditions further delayed construction, compounding financial pressures.
The impact extends beyond the industry. Homeowners have lost life savings on unfinished projects, while builders and employees face financial and mental health struggles. Despite adjustments in pricing and increased government regulation, the industry’s recovery remains a challenge. Caution is advised for those engaging with builders: seek referrals, ensure full insurance, avoid upfront payments for incomplete work, and use independent inspections. This crisis serves as a stark reminder of the fragility and interdependence of our economic sectors.
BUT ” there is plenty of construction going on ” just due your due diligence. Maybe the cheapest quote is not the one to select.