Material price hikes and labour shortages a major concern for WA homebuilders after two businesses collapse

subcontractors construction

Construction industry leaders in Western Australia are sounding the alarm over future business insolvencies after two home builders collapsed in the past month alone.

New Sensation Homes and Home Innovation Builders both slipped into liquidation this month, with New Sensation Homes director Danny Coyne reportedly blaming a “perfect storm” of factors for the downturn.

Speaking to News Corp, Master Builders Association of Western Australia (MBAWA) John Gelavis pointed to soaring material costs and a shortage of qualified labour as major risks to the sector.

Input costs for steel and timber have surged in recent months, thanks to lingering COVID-19 supply chain delays and logistical shocks caused by conflict in Ukraine.

At the same time, contractors have struggled to keep up with demand driven by rock-bottom interest rates and government stimulus packages.

Demand for housing was sparked by the federal government Homebuilder scheme, a $2.1 billion stimulus package pumping funds into the construction sector in the first years of the COVID-19 pandemic.

The WA government introduced a similar scheme itself, promising $20,000 to buyers looking to construct a new home.

Contractors are now tasked with completing a huge number of jobs while material and labour costs skyrocket, Gelavis said, risking their ability to stay afloat.

“If the trend continues, with more price increases and labour shortages, there will be more and more contracts that are completed with no profit, which will impact all building companies and their capacity to stay profitable,” Gelavis said.

MBAWA last month called on the state government to ease vaccination rules for construction workers to address labour shortages, and expedite the return of international workers to assist in the building backlog.

Construction insolvencies a possibility nationwide

Hardships in the construction sector are partially reflected in national data released by credit reporting agency CreditorWatch.

Some 11.8% of the construction industry owed payments in arrears by 60 days or more in March, by far the highest reading of any industry sector.

The data reflected “almost the normalisation of late payment in the industry,” CreditorWatch said.

While businesses in the hospitality and arts industries were still ranked as the most likely to go bust in March, reflecting the lingering volatility in those fields, CreditorWatch said businesses in the building sector still faced an average 3.9% risk of going under.

The prospect of small contractors entering liquidation is backdropped by the failure of construction giant Probuild, whose February collapse was estimated to have jeopardised $5 billion in public and private projects.

 

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