Building firms are entering administration at more than twice the rate of other industries, a new report has revealed.
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The Australian Constructors Association (ACA) on Wednesday released a report shining a spotlight on the poor health of the building industry and the need for urgent action.
ACA chief executive Jon Davies said the message is clear - the industry is in deep trouble, and government must act now to create a more sustainable industry.
"Building sector profit margins have fallen from around 3 per cent to below 1 per cent and liquidity has collapsed from 15 per cent to below 5 per cent," he said.
"Most concerningly, over half of all large builders are now carrying current liabilities in excess of current assets-a technical definition of insolvency.
"The building industry is a textbook example of market failure."
Jim Carroll of J & J Carroll Builders in Lavington said the problem is fourfold - fixed price contracts, soaring prices, delayed approvals and diminished consumer confidence.
"Our profit margins have definitely been impacted," he said.
Fixed price contracts bind builders to a predetermined lump sum that cannot be modified, forcing them to cover additional costs arising from price increases in materials, labour or project delays.
"COVID had an impact on our trades and our suppliers, so that impacted our building times," Mr Carroll said.
"On top of that, since COVID we've had everything from rain to council approval times and structural engineering times - every facet of our build has been extended.
"To give you an idea with suppliers, we're still waiting 10 to 12 weeks for various supplies.
"It seems to be grid-locked with regulations."
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As a result, consumers are now paying more.
"If you walk in the door today and I give you a price, I can't fix a price until we've got approvals and we're ready to build," Mr Carroll said.
"So talking to a client I say, 'this is the price today but we'd expect the price in six months time to be around here, so if you're looking at getting financing you should be asking for what it will be in six months not what it is now."
Mr Carroll said interest rate increases have also taken their toll.
"Because we build residential homes, any change in consumer confidence we see straight away," he said.
"And we saw a drop in consumer confidence from the very first interest rate rise.
"We're getting double whammied at the moment - prices are going through the roof yet our inquiries have gone down.
"Eighteen months ago we were getting housing loans extended, so we were revving the wheels trying to get the motor running and then all of a sudden the Reserve Bank came in with their continued interest rate rises, so it was like revving the motor up with the handbrake on."
The ACA's report proposes government clients lead the way by committing to new rules of engagement.
The new guidelines recommend that building contracts become less transactional and involve the builder at the earliest opportunity to ensure an accurate price can be determined.
"Changing current practices will create the conditions for improved productivity and a healthier industry," Mr Davies said.
"A profitable construction industry is in everyone's interests and should be a key priority for all governments."
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