New figures have revealed that the cost of building a house has jumped by $76,000, meaning more construction companies will “run into the wall”.
The cost of building a home soared by a record $76,715 in April as supply chain and labor shortages continued to bite.
It comes as the number of construction companies going bankrupt this year has accelerated, with forecasts that huge price jumps will not subside and are likely to continue into the next fiscal year.
The $76,000 increase in construction also means for the first time that the national average value of new approved homes topped the $400,000 mark at a time when house and lot complexes were seen as a hot spot. affordable entry for first-time home buyers and families.
Economist Maree Kilroy said the huge backlog and global increases in commodity prices will continue to plague the industry.
“The pressure facing homebuilders is not expected to ease in this environment, and we expect more builders to hit the wall, especially less capitalized small and medium-sized operators,” he said. she declared to Australian Financial Review.
The construction sector has been hit by a wave of construction company collapses this year, shaking confidence in the sector.
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In February, building giant Probuild sent shockwaves through the industry during its liquidation, followed by Condev, a Gold Coast based companywhile Metricon, Australia’s largest homebuilder, recently saw itself $30 million lifeline to keep the struggling company afloat.
Over the weekend, Queensland construction company Solido Builders also revealed that they had infamous liquidators.
Experts have agreed that the construction industry’s horror run means it is most at risk of further insolvencies.
Russ Stephens, co-founder of the Association of Professional Builders, has estimated at around 50% construction companies in Australia are currently insolvent, meaning they cannot pay their bills.
National Australia Bank chief executive Ross McEwan said construction was the “sector of most concern” for the bank’s loan portfolio.
ANZ chief Shayne Elliott described the construction industry as a “fragile sector”, adding that businesses were struggling to pass on rising costs and were also more likely to fail in a downturn.
“The business model has evolved into a fixed price contract model. The problem with that is that when you end up with cost shocks or labor shortages, the company can’t pass them on,” he said at a House of Commons luncheon. Australian-Israeli trade.
“So you’re in this weird situation, which is sort of counterintuitive: construction is booming and construction companies are collapsing.”
It comes as the Australian Bureau of Statistics showed housing approvals were well down from April 2021 levels with a 32.4% drop.
From March to April, new home approvals also fell 2.4% to 14,908 – beating economists’ expectations of a drop of just 1%.
JP Morgan economist Jack Stinson predicted that building approvals will continue to fall as interest rates rise and house prices fall.
The end of the federal government’s HomeBuilder subsidy combined with a significant increase in costs in the construction sector will continue to lead to a steady decline in building approvals throughout 2022, added CreditorWatch chief economist Anneke. Thompson.
“Most builders and contractors are at full working capacity, and bad weather in New South Wales and Queensland, exacerbated by the late delivery of building materials across the country, has delayed many projects. existing ones, reducing the capacity for future approvals,” she said.
Rising interest rates will also have an effect on demand for new homes, although this may contribute to cost and capacity pressures plaguing the industry, Ms Thompson added, although other experts have made argue that a lack of construction pipeline could cripple businesses financially.
“It can also help reverse the growing number of construction companies unable to meet payment deadlines. Data from CreditorWatch has shown the industry to be a repeat offender when it comes to late payment,” she said.
Its data showed that 12% of construction companies have an average of more than 60 days in arrears, which has seen contractors focus more on government contracts where their paychecks are certain, which also has a impact on builders available to complete the work.
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