The $76k cost will hit the build

New figures have revealed that the cost of building a home has risen by as much as $76,000, meaning more construction companies will “hit the wall.”

The cost of building a home skyrocketed to a record $76,715 in April as supply chain and labor shortages continued to bite, with alarm bells ringing that more construction companies will collapse in the coming months amid rising prices, forcing contracts become unprofitable with a fixed price.

It’s because the number of construction companies going under this year has accelerated, with predictions that massive price increases will not abate and continue into the next fiscal year.

The $76,000 increase in construction also marks the first time the national average value of approved new homes crossed $400,000 at a time when home and land parcels were seen as an affordable entry point for first-time homebuyers and families.

Economist Maree Kilroy said the huge backlog of work and the global rise in raw material prices will continue to hit the industry.

“The pressures home builders face will not abate in this environment, and we expect more builders to hit the wall, especially less capitalized small to medium-sized operators,” she told the Australian Financial Review

The construction sector has been hit this year by a wave of construction company collapses that shaken confidence in the sector.

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In February, construction giant Probuild shockwaves sent through the industry when it went bankrupt, followed by: Gold Coast-based company Condevwhile Australia’s largest home builder, Metricon, was recently thrown out $30 million lifeline to keep the struggling company afloat.

Smaller operators have also fallen, including: Hotondo Homes HobartHome Innovation Builders and Sydney-based Next onewhile the staff of the builders of Queensland Pivotal Homes were all terminated on site last week.

Over the weekend, Queensland-based construction company Solido Builders also revealed that it unfortunately appointed liquidators

Experts agree that the horror run puts the construction industry at the highest risk of more insolvencies.

Russ Stephens, co-founder of the Association of Professional Builders, has estimated at about 50 percent of Australian construction companies are currently trading insolvent – meaning they can’t pay their bills.

Ross McEwan, CEO of National Australia Bank, said construction was the “sector of most concern” for the bank’s loan portfolio.

ANZ chief Shayne Elliott has described the construction industry as a “fragile sector”, adding that companies that struggled to pass on higher costs were also more at risk of failing in a recession.

“The business model has evolved into a fixed-price contract model. The problem with that is that if you’re dealing with cost shocks or staff shortages, the company can’t pass it on,” he told the Australian-Israel Chamber of Commerce luncheon.

“So you’re in this weird situation, which is a bit counter-intuitive: Construction is booming and construction companies are collapsing.”

It comes as the Australian Bureau of Statistics showed that housing approvals were significantly lower than in April 2021, down 32.4 percent.

From March to April, new home approvals also fell 2.4 percent to 14,908 — surpassing economists’ expectation of just a one percent drop.

JP Morgan economist Jack Stinson predicted that building permits will continue to fall as interest rates rise and house prices fall.

The end of the federal government’s HomeBuilder grant coupled with significantly rising costs in the construction industry will lead to a steady decline in construction approvals in 2022, added Anneke Thompson, CreditorWatch’s chief economist.

“Most builders and subcontractors have workloads, and the inclement weather in NSW and QLD, exacerbated by the late delivery of construction supplies across the country, has delayed many existing projects, reducing capacity for future approvals,” she said.

Rising interest rates will also have a knock-on effect on new home demand, although it could help with cost and capacity pressures plaguing the industry, Ms Thompson added, although other experts have argued that a lack of construction of a pipeline companies financially crippled.

“It can also help reverse the growing number of construction companies that are unable to meet payment terms. CreditorWatch data shows that the industry is a repeat offender when it comes to payment arrears,” she says.

The data shows that 12 percent of construction companies have an average of more than 60 days in arrears, driving contractors to focus more on government contracts that guarantee their pay, which also impacts available builders to complete the work.

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