Master Builders Victoria (MBV) has been working tirelessly to address the impact of the current supply chain issues and trade shortages hampering our industry.

State and Federal Government incentives for the building and construction industry, such as the successful HomeBuilder Grant, have delivered a much-needed boost in the face of the COVID-19 pandemic.

The successful HomeBuilder program was implemented last year at a time that our industry was facing a cliff.

These incentives have generated billions of dollars in economic activity and helped secure the viability of thousands of businesses and jobs throughout this pandemic.

Nevertheless, the international supply chain constraints were unforeseen, and these are now having a critical impact on our industry, which may adversely affect the broader Australian economy if not addressed.

Even so, it is important to note that we are not alone.

Current conditions have seen a reduced capacity in supply chains for building products in both Australia and overseas.

Many materials are in short supply, including timber and steel.

While I will use the term “shortage” throughout this article to describe the building material (and especially timber) supply issues, it is important to note that the problem is one of demand.

For example our local Australian timber mills are currently producing 105 per cent of normal fibre output into our market.

Timber imports usually make up about one-fifth of Australia’s total supply; however, competing forces worldwide – such as increased demand in the US and Europe – have seen Victorian timber imports drop significantly.

Unfortunately, some Australian merchants are having their imported timber shipments abandoned partway through shipping and dumped at ports in Shanghai and Singapore by shipping companies as they re-task their vessels to take containers to the US.

Due to the global shipping and container shortage, companies in the US are paying up to four times the normal 40ft container global shipping rates in a desperate attempt to get merchandise from China.

On average, Australian merchants are already paying 60 per cent more for imported timber compared to local timber.

If those same merchants were to pay shipping rates to compete with US importers, many Australian builders would not be able to even consider using imported timber on jobs that were quoted and contracted before the current supply chain issues.

It is important to note that there is only one Australian/local LVL manufacturer.

All other LVL companies import 100 per cent of their product.

And, if on the remote chance that merchants and builders can get materials, there is still a significant delay.

For example, LVL lead times are now out to 16 weeks and, even if a builder can get timber frames and trusses, they can’t progress jobs without beams.

Other conditions contributing to the current supply shortages in Australia include bushfires and cyclones, a train derailment in the Nullarbor, a temporary pause for South Australian mills due to a recent lockdown, shipping delays due to the Suez Canal blockage, and a worldwide shipping container and vessel shortage.

This unfortunate overlap of world events has led to real pressure on the domestic building sector within Victoria and across Australia.

In addition to these supply constraints, there has been increased demand due to the various stimulus measures and increased spending capacity from ordinary Australians.

Australians who would typically have spent money on overseas travel have instead turned their attention to home renovating or purchasing new homes.

We understand from talking to many of our members that the extent of the delays and the cost increases vary greatly, and they depend on the contractor, their suppliers, and their locations – and we know this is a very real problem across our industry.

These factors have already resulted in significant price increases for both products and trades, as well as substantial delays and unavailability of stock.

The latest ABS figures show structural timber prices rose 6.6 per cent during the June 2021 quarter and are now 11.7 per cent higher than a year ago.

And, in some cases, we know this is at the low end of the price increases.

For example, some merchants are communicating further 15-18 per cent price increases on timber and LVLs from 1 September 2021.

Last month, MBV members joined a special webinar to hear firsthand some of the reasons for the current supply chain shortages crippling our industry.

We provided our members with crucial legal advice including confirmation that they cannot include a special condition in their contracts to charge owners for any unexpected price rises.

This is strictly prohibited under the legislation.

Even if owners agree to this clause being inserted into a contract, these clauses cannot be included in our contracts in any capacity whatsoever.

MBV remains very concerned about builders who have entered contracts and cannot absorb the ever-increasing costs which, by law, cannot be passed onto consumers.

This may also increase the risk of insolvencies, especially for small businesses trying to manage limited cash flow.

Some MBV members have reported that their businesses have stalled awaiting on supplies.

One small business member is reporting a projected loss of $500,000 on contracts because they cannot pass these costly price increases onto consumers.

MBV fears that building and construction insolvencies could continue to soar, especially as Victoria accounted for nearly 40 per cent of all building and construction insolvencies across Australia this year.

In the first four months of 2021, there were 145 building and construction insolvencies in Victoria – up 34.3 per cent on the same time last year.

This was the highest January to April total since 2014.

The building and construction industry’s share of all Victorian insolvencies is also at a record high (26.3 per cent over the 12 months to April 2021).

Prior to 2019, the volume of building and construction insolvencies in Victoria had been trending downward.

On our members behalf, MBV is continuing to work with all levels of government and industry partners to try to address these supply chain and trade shortage challenges.

Following advocacy by MBV, the Victorian Government has requested the Commissioner for Better Regulation and Red Tape Commissioner, Anna Cronin, to investigate this issue.

We have been working closely with the Commissioner and her team.

And, our national team, Master Builders Australia, is also working with the Commonwealth Government on this issue too.

Concerningly, some have argued that global prices are falling and the market will self-rectify.

However, it is vital to note that demand is still not expected to peak for a while yet, especially as there is still a massive pipeline of new homes to be built.

In addition, international borders are not expected to reopen in the near future, so this national issue may continue for many months to come and possibly well into the first half of 2022.

In the meantime, MBV is asking consumers to be patient with their builders and tradespeople and we are also asking all builders and tradespeople to be patient with suppliers.

Everyone is trying their best in some exceptionally challenging and unprecedented circumstances.