Australian builders go bust: Insolvencies rise in construction sector as Aussie dream of home ownership fades

Rising insolvencies in the construction sector threaten to derail efforts to improve housing affordability across Australia, with hundreds of companies going bust in the first two months of this financial year.

Industry figures say the high cost of materials and labour shortages had increased pressure on the building sector, with 285 companies going into insolvency.

About 128 of these were in NSW and 79 were in Victoria, according to preliminary figures from the corporate watchdog, the nation’s two most populous states that also attract the highest rates of international migration and have experienced soaring house prices over recent years.

Nearly 3000 construction companies went bust in 2023-24 according to the Australian Securities and Investments Commission.

MasterBuilders Australia chief executive officer Denita Wawn said reduced economic activity over the past few years had cut the viability of some businesses as the cost of building a home increased by 40 per cent amid worker shortages and inefficient regulation.

“The delivery of new homes and related infrastructure has been obstructed by ongoing and concurrent challenges,” she said.

“Tradie shortages, planning and licensing delays, draconian industrial relations changes, material cost inflation, inefficient regulation, unfeasible lending practices and risk allocation are compounded to make projects unsustainable.”

The Albanese Government has pledged to build 1.2 million new homes by 2029 in an effort to improve affordability, although the National Housing Supply and Affordability Council has forecast a target shortfall of nearly 300,000 dwellings.

Housing Institute of Australia managing director Jocelyn Martin said some of the insolvencies were because the sector corrected a bubble created by stimulus packages that intended to combat the pandemic downturn and rising material costs.

Ms Martin said profit margins had been eliminated over the terms of fixed price contracts and said while material costs had plateaued, the time it took a builder to get paid was still around 12 months.

“We’re still seeing very long lead times for bill times, which are much longer than we saw prior to COVID, where build times were more like seven or eight months,” she said.

“They’re still hitting close to 12 months that’s a long time for a builder to carry the cost and the risk associated with building the home.”

The price of a freestanding house in Australia increased by 10.5 per cent between January 2023 and March 2024, according to research by McCrindle, while the price of units jumped 7.8 over the same period.

The Senate on Wednesday voted through an inquiry to be chaired by the Economics References Committee that will examine how to reduce lending costs and make finance more accessible to first-home buyers.

Liberal Senator Andrew Bragg said accessing a mortgage was a prerequisite for buying a property and said the nation should do more to support the aspiration of first-home buyers.

“If the average working Australian loses access to capital for a mortgage to fund their family home, this will cement the intergenerational divide and destroy the Australian dream,” he said.