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Construction companies crumbling amid COVID-19 chaos

  • Building and construction sector is not in the death throes yet, but many are struggling amid pandemic.
  • 1,930 insolvencies are expected to occur in the industry by 30 June this year.
  • Soaring costs, a skilled labour shortage, and COVID-19 are exacerbating the problem.

Insolvencies in the construction industry could rise this year as rising costs, labour shortages, and COVID-19 decimate the sector despite many hot pockets of activity.

The Building Industry Credit Bureau (BICB) has predicted more problems the building and construction industry will face. It forecasts the estimated 1,690 construction industry insolvencies in 2021 could increase to as many as 1,930 by 30 June 2022.

Australian Securities and Investment Commission (ASIC) insolvency figures reveal that for the 12 months to August 2021 in New South Wales and Victoria alone there were more than 720 building and construction insolvencies recorded.

According to CreditorWatch, the construction industry has been the most behind on payments with its Business Risk Index in November ranking the sector at 12.6% – more than double the health care and social assistance sector’s score of 6.2%.

While BICB does not expect a tidal wave of insolvencies in 2022 ongoing blowouts in costs and completion dates are significantly affecting new builds for the builder and the homeowner.

A nation-wide shortage of building materials such as timber, as well as skilled trades, have been amplified by COVID-19, which has implications for the supply chain, exacerbating the problem.

Master Builders Australia has said the country faces a timber deficit of 250,000 house frames in 15 years, and an urgent national plan is needed to grow timber plantation estate.

Materials such as timber are in short supply and prices are on the rise. For example, the cost of treated pine, which is the standard external timber with many uses, has gone up from A$2.20 a metre to as much as A$5.70 a metre … if you can get it.

Compounding the issue in Western Australia at least is the September 2021 directive from the state government banning native forest logging at the end of 2023, which will slash commercial supplies of jarrah, marri and other native hardwoods, as reported by Grafa.

According to the Australian Financial Security Authority, between November 29 and December 12, 2021, some 396 people entered into a new personal insolvency of which 96 were involved in a business. The most common industries were construction, other services, accommodation and food services, as well as retail trade.

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