Aussie builders are in crisis.
The executive director of the New South Wales Master Builders Association, Brian Seidler, wants others to know what his industry is up against.
“A small business goes in to do three to four homes a year and is hit with hikes of 40 per cent. They are absolutely bleeding,” Seidler told A Current Affair.
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“We’re now in a position where builders are saying, ‘We’d like to renegotiate contracts. If I go and do the job, I’ll be coming out at a loss.'”
In July, last year the government shut down all construction in NSW for two weeks.
The ACT did the same in August, followed by Victoria in September.
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Following the reopening, restrictions on local government areas had further impacts.
Absenteeism rose to nearly 35 per cent on some projects in NSW.
Although Australia doesn’t rely on many products from Ukraine or Russia, the war has upset the global supply of nickel, copper, and iron too.
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“We’ve had increases of up to 40 per cent in steel, 35 per cent in timber, but generally we’ve had a large increase in doing building work,” Seidler said.
“We’ve had a successful home building program from the previous federal government, so everyone wanted to build.
“So we had builders pricing projects they couldn’t start for 20 months – even more – but clients were saying we want to hold you firm (on) the price you gave us.”
Seidler is advising builders to negotiate with their clients, but he admits there’s no easy solution.
“Every new contract, we’re saying to builders now to do a ‘cost plus’. That means it’s a cost to you, plus a percentage. Any cost that’s increased is automatically passed onto the client,” Seidler said.
But the banks want to know exactly how much to lend customers.
The average construction expense in Australia now exceeds $400,000.
The cost of building a house has jumped more than $76,000 in a year.
“Our clients have been loyal to us the whole time, so we can’t just keep upping prices,” builder Richard Achram from InHaus Living said.
“So we have to take part of the hit as well.”
He’s trying to find the right balance between keeping his customers happy and his head above water.
“Twenty per cent on a bathroom or a home – it’s a lot of money for some people. There’s other methods to reduce that, by either changing materials over and just getting smart,” Achram said.
Unprecedented rainfall has added to the pressure, with contracts allowing extensions of time, but not costs.
This perfect storm has impacted builders across all sectors.
Construction on the IMAX theater and W Hotel in Sydney has stood still, following the demise of ProBuild.
Gold Coast-based company Condev Construction went into liquidation earlier this year.
And Australia’s biggest home builder, Metricon, has been forced to deny claims it’s in financial trouble.
“The subbies and the builders are screaming for materials, the suppliers haven’t got them and then the owners want their house built for the same price they were quoted,” Nine’s Scott Cam told A Current Affair.
He’s one of many builders struggling to get his hands on materials.
“Brick ties for example, some people will know what they are, just a small piece of metal that ties your frame to your brick work, we can’t (get) them. I just hope that we can survive it,” Cam said .
Even Nine’s The Block is feeling the pressure.
“We’re running out of materials, but we’ve got a corporate budget we can work towards and we can get extra money,” Cam said.
“But if you’re a mum and dad at home, in reality that’s a really hard position to be in, if you’re doing a small reno that you’ve saved for and your materials have increased by 30 to 40 per cent. “
So will we see more builders fall?
“It’s about how they can sustain the next six to eight months, then I’m thinking until things start to plateau out,” Seidler said.
Economist Chris Richardson agrees.
“Construction will get better, but it’s not going to be clear until they start charging you more for a reno or rebuild. Probably half a year away before that becomes obvious,” Richardson said.
“COVID changed the economy in lots of ways and those big waves will take time to settle down.”
Until then, it’ll be especially difficult for small businesses, which make up 95 per cent of the construction industry.
“All we’re asking is that customers be aware that there are definite increases,” Seidler said.
He said if a builder starts a job but then falls over and has to get another builder in to take over, two things can happen.
“One, the price will reflect increased rates and secondly, there’s usually a premium to pay by the incoming builder because they’re taking on the liability of the previous build,” Seidler said.
He advises customers to “renegotiate and be reasonable”.
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