More than three-quarters of new home builds are behind schedule during housing shortage crisis

Three-quarters of new homes are being completed behind schedule during a housing shortage crisis and amid widespread expectations of more interest rate hikes - calling into question Labor’s ambitious housing targets.

With more home builders going out of business, a new report from credit check firm Equifax found just 23.2 per cent of new builds were finished on schedule during the past year which was even worse than the 28.8 per cent on-time rate for major home renovations.

Equifax’s commercial general manager Brad Walters said home builders were increasingly absorbing costs, which made it harder for them to pay material suppliers and sub-contractors - such as carpenters, plumbers, plasterers and electricians - to keep their projects running on time.

“Businesses have needed to absorb more costs as opposed to being able to pass them on,” he told The Nightly.

“That’s actually impacted their profitability, their liquidity, their ability to pay suppliers on time and it’s a sector which has long been criticised as being thinly capitalised so it’s quite dependent on ongoing cash flow.

“In an environment where there’s delays to the cash flow, it just further exacerbates the problem.”

Building subcontractor capacity is eroding with trade business exits soaring by 58 per cent during the last financial year as the number of new small construction businesses fell by 19 per cent, the report revealed.

More than a third, or 34.7 per cent of Australians surveyed, said they would have to stop a home construction project entirely or at least scale it back if costs increased by more than 5 per cent.

Only one in five Australians building a new home said they could manage a 6-10 per cent increase above their original cost, as fewer builders proceed with fixed price contracts during a period of high inflation and soaring material costs.

Australia’s residential building completion rate of 173,367 is also well behind the 240,000 annual average needed for Labor’s National Housing Accord target of 1.2 million homes in the five years to June 2029.

“At the moment, it’s hard to see a trajectory that has us catching up to those numbers,” Mr Walters said.

ANZ on Monday became the first of Australia’s big four banks to forecast two more rate hikes by November 3, which would take the Reserve Bank cash rate to an 18-year high of 4.85 per cent.

With inflation entrenched above the RBA’s 2-3 per cent target, even tighter monetary policy means homeowners can’t borrow as much to either build or renovate a home, further squeezing the margins of home builders.

“For every rate hike, it actually just further erodes their capacity to be able to handle either higher-priced projects and/or any potential overrun at all,” Mr Walters said.

“They find that their pipelines continue to dry up because they can’t find projects that stack on the feasibility side of the equation.”

More than one in three Australians - or 35 per cent of the population - nominated a shortage of qualified contractors as a barrier to buying, building or renovating a home, a YouGov online survey of 1063 adults taken in late July and early August as part of iCIRT’s inaugural construction cost index that is combined with Equifax commercial credit application data.

A similar number - or 31.3 per cent of those surveyed - regarded trade shortages as a critical threat to housing supply.

An overwhelming 83.6 per cent of respondents blamed worker shortages for delaying new housing and apartment completions.