When shoddy work grabs the headlines and three reputable builders enter administration in a week, it’s long past time to look at the causes of the biggest crisis in the history of the home-building industry.
The sketchy, “fly by night” builders collapsed many months ago often in a blaze of bad publicity that cast every builder in a bad light. Now, reputable, long-established builders are under extreme pressure and homebuyers are being left with unfinished homes, spiralling costs and insurance that doesn’t cover costs.
None of this happened overnight.
The slow decline started in 2016, when the home-building industry — at the tail end of a boom — was busy completing about 25,000 homes. Building approvals fell from 25,420 in 2015 to just 13,570 in 2019.
The industry started to cannibalise itself as many of the volume builders competed for market share. There was a seismic shift of labour to the resources industry and suppliers and builders wound down their businesses to service dramatically reduced demand.
It’s now clear that this is when Government should have stepped in to support the industry. But hindsight is a wonderful thing. nothing was done when action was needed.
The collapse of the industry’s capacity to build homes — the canary in the coalmine — was ignored and it was not until 2019 that building approvals seemed to have turned the corner and there were nascent signs of recovery.
Then came COVID-19.
It’s easily forgotten now, but then there were fears that entire economies might be decimated. Well-intentioned government grants were hastily announced to assist home buyers. But the $25,000 Homebuilders Bonus with a further $20,000 Building Bonus proved to be a disaster. To qualify for the government grants required work had to start within three months of approval and, suddenly, commencements skyrocketed back to 25,000.
The fragile industry in tentative recovery but with still diminished capacity was suddenly confronted by a tidal wave of demand. Having lost 40 per cent of its workforce during the long slow years of decline, there was no hope that the houses could be built in a reasonable time. The three months to start rule went out the window and was extended into months and then years.
In previous booms, prices rose about 5 per cent a year but now prices escalated about 25 per cent a year and the straitjacket of the Home Building Contracts Act meant every builder started losing money because it prevented fair price increases from be passed on.
Builders had no choice but to try to absorb massive price rises often imposed without consultation by suppliers. Labour costs soared; builders resorted to selling assets and banks refused credit quoting accumulated losses which simply added to the financial pressure.
The wrongheaded view that the Act protected the home buyer gave way to the realisation that unfinished homes, spiralling costs, inadequate insurance and builders collapsing was the worst of all worlds for everyone — especially the homebuyer.
Builders resorted to contracting new work at much higher prices and then prioritised these new, profitable jobs to effectively pay for these loss-making jobs.
The result was a perfect storm.
The completion of older, government stimulus houses are trickle fed, stretching completion dates out many months and then years. Homebuyers waiting for homes and often repaying home loans clog the rental market where fewer homes mean skyrocketing rents and, at the bottom end, homelessness is at never-before seen levels. In another aggravation, Airbnb took a further slice out of the rentals that might otherwise have been available.
Today, everyone is worse off. Families are waiting for their homes to be completed; builders struggle to finish them knowing they will lose money on each one and, inexplicably, the Federal Government announces absolutely unrealistic plans to build another 1.2 million homes. In WA, builders can’t finish the homes they have started and there’s no capacity to take on more orders.
There were no winners from the boom that ended up being a massive bust and the Government needs to step up to take responsibility by taking measures to:
- Review and amend the Home Building Contracts Act which is not fit for purpose.
- Reintroduce the abandoned SME Recovery Loan Scheme.
- Direct any further Government stimulus through the industry.
- Develop an industry assistance package that addresses legacy and loss-making contracts resulting from the shortcomings of the Act.
- Restructure trade training to produce skilled workers quicker.
The alternative is an even worse home-building crisis with builders unable to build homes that buyers cannot, in any case, afford and rents at stratospheric levels. Homelessness will worsen to become an even bigger problem than it is now and the industry will take years to recover.
Jason Janssen is chairman of the Home Builders Action Group.