Numerous construction companies have gone into liquidation in Australia over recent months. What does this mean for other building companies and their customers?

Throughout 2022, numerous Australian construction companies have gone under, including some of the larger builders, such as Probuild and Condev. These companies are signs of major issues in the construction industry that have been ongoing for a couple of years now. Are these challenges finally catching up with builders, despite housing booms? Here’s what widespread closures of construction companies imply for the industry at large.

Signs of Larger Issues

Any time a construction company goes into liquidation, it’s natural to take a close look at things to try and see what went wrong. However, in 2022 trends are appearing among the companies that are going under. For instance, many builders are struggling to get the materials they need because supply chain issues have led to prohibitively high prices. Only so much of this can be trickled down to clients.

Numerous factors are driving supply chain delays. While the COVID-19 pandemic may have initially triggered the problem in 2020, things like labour shortages, the war in Ukraine, and ongoing COVID-19 variants continue to strain supply chains. Additionally, manufacturers and other supply chain businesses are still feeling the ripple effects of the past two years of supply chain disruptions. So, all of this is getting compounded into a very difficult situation for Australian construction companies.

Of course, builders do have some steps they can take to respond to supply chain issues and rising construction costs. For example, switching to alternative building materials, such as green building materials, can help alleviate delays without compromising build quality. Even if something like cellulose insulation costs a bit more than conventional options, it may end up paying off if it is more readily available.

Similarly, builders need to plan ahead as much as possible. This may mean taking steps like buying extra materials in advance, creating an efficient demolition plan, and budgeting with clients to account for rising costs. This is especially important in housing because the situation in residential construction is particularly complicated.

Long-Term Struggles for Residential Construction

The average price to build a new home in Australia has risen significantly, jumping by $76,000 as of Q2 2022. This adds a new layer of difficulty to the residential construction market that’s only worsening things for construction companies. Many companies are grappling with labour shortages, making it more difficult to keep projects on time. Delays are worsened even further by supply chain issues, as mentioned above.

On one hand, it is somewhat surprising that residential construction companies are going under given the housing boom over the past couple of years. What this trend implies is that supply chain issues, as well as labour shortages, have advanced to such a degree that residential construction is no longer viable for many people. It also hints at a “thin ice” situation for construction companies. Some builders that have gone into liquidation have done so in the middle of building homes they were already financially committed to.

What seems to be happening is that construction companies are continuing to dive into projects, only to begin sliding on a slippery slope. Government support funding from the height of the COVID-19 pandemic has dried up for many companies, so there is nothing to fall back on anymore when expenses and delays spiral out of control.

What this may ultimately mean is that the cost of building a new home is going to be much higher than usual for a while. Unfortunately, that means fewer people will be able to afford to build new homes. This may have the positive side effect of reducing demand on backlogged construction companies and materials suppliers, though. So, while it will take some time, the market is likely to eventually reach a new equilibrium that will bring prices back down again.

Surviving a Difficult Market

The past few years have been challenging for construction companies all over the world. Sadly, this is leading many companies to go under, falling victim to ever-rising expenses in a turbulent supply chain. Construction companies can take steps to protect themselves, though, including stockpiling key materials when available, switching to alternative materials, and planning with clients to account for rising costs from the start.

Despite the grim state of things today, current trends imply that the construction industry will bounce back eventually and find a new equilibrium where companies and clients can thrive again.