Construction insolvencies soar 59 per cent following Reserve Bank of Australia’s fourth interest rate rise
The number of building companies going under has soared during the past year — with insolvency levels more than double what they were during Labor’s early months in power four years ago.
Construction insolvencies have soared by 59 per cent in the wake of this year’s four interest rate hikes and a major corporate collapse — and are more than double the level of four years ago when Labor first came to power, new data from the corporate regulator shows.
The Reserve Bank’s aggressive increases are particularly hurting the building sector during a housing shortage with 1448 building firms going into external administration for the first time between July 1 and October 4 this year.
This covered the fourth rate rise for 2026, so far, on September 29 that took the cash rate to a 15-year high of 4.6 per cent.
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But in 2026, the building sector has by far the highest failure rate with its tally of first-time insolvencies bigger than the combined total for accommodation and food services, retail trade, professional, scientific and technical services and manufacturing and transport, postal and warehousing.
When first-time and continuing external administrations were combined, the number of construction industry insolvencies climbed to 1873 over that same three-month time frame.
That was more than double the 704 tally for July 1 to September 25, 2022 when the Reserve Bank had raised rates five times that year.
The latest reporting period covered the western Sydney-focused Bathla Group, with 542 entities, going into voluntary administration on August 25 owing creditors $3.4 billion.
But the Housing Industry Association’s chief economist Tim Reardon said RBA rate rises had diminished the capacity of Australians to borrow to build a new house as Labor’s changes to negative gearing deterred prospective investors.
“What we’re seeing at the moment is established prices for housing decline and at the same time, construction costs and interest rates increasing the cost of building new which means households are increasingly unable to finance a new home build,” he told The Nightly.
“We anticipate that will continue to decline until at least the end of the year regardless of any further rate increases.
“We’re going to see new home sales also continue to decline.”
The prospect of yet another interest rate rise in early 2027 could spark a housing-led economic downturn.
“What I am concerned about is if we return in 2027 and market confidence has eroded further by an additional rate increase, that could see investors and owner-occupiers withhold from the market for longer and cause wider economic challenges,” Mr Reardon said.
Reserve Bank of Australia deputy governor Andrew Hauser noted higher interest rates were tough on borrowers.
“We’re very sensitive to the fact that higher interest rates increase the burden on mortgage holders,” he told Citi’s Australia and New Zealand Investment Conference in Sydney on Wednesday.
“We see higher hardship rates, we see more calls to the National Debt Helpline - I visited the National Debt Helpline, some of those stories are really heartrending.
“Consumer confidence is low, not least because of higher interest rates.”
Separate data from credit check group Equifax showed the number of business owing a debt to the Australian Taxation Office climbed by 22.6 per cent in the year to September 30, with 37,800 active defaults.
But for the construction industry, the annual increase was higher at 24.4 per cent.
