Just when it looked like things were turning around for the battered construction businesses, new results have revealed that insolvencies are on track to record their worst year ever.
Despite building costs and tradie shortage seemingly easing in recent months, the Australian Securities and Investment Commission (ASIC) found that a whopping 3000 construction companies have been forced to shut up shop this financial year, forcing tradies to down tools on thousands of unfinished projects across the county.
According to a recent credit insight report by financial advisor Alares, the dire figures at the end of June are on par with full-year totals for licensed building businesses in 2018 and 2019.
With five months left on the clock, Alares Director Patrick Schweizer warned that the worst might be yet to come.
“The full-year projection for 2024 is expected to well exceed historical highs,” he said.
Business recovery and personal insolvency specialist firm Jirsch Sutherland pinned the insolvency spike on creditors, like the ATO and the big banks, playing catch-up on their debts as payment leniency shown to struggling businesses post-pandemic comes to a grinding halt.
Construction costs sit about 40 per cent higher than they were pre-pandemic, with skilled labour and material costs still putting the biggest dent in builder budgets and forcing those able to open their doors to tighten up profit margins.
Lingering tradie troubles
However, there is some light at the end of the tunnel for builders that can weather the sh#tstorm. The latest Trades Report by the Housing Industry Association (HIA) found that there were signs the acute shortage of skilled tradies that sent prices soaring was coming to an end, but the road to recovery would be slow going.
“As the number of new homes under construction continues to decline builders are reporting fewer difficulties scheduling skilled trades workers on their jobs, although availability of skilled workers remains worse than prior to the pandemic,” said HIA Executive Director Geordan Murray.
“The improved availability of trades workers is largely contained to the two largest east coast states where the larger declines in home building activity have occurred.
“Demand for skilled workers remains strong in Western Australia, South Australia and in Queensland, primarily in the capital city markets in these states.”
Tradie shortages were responsible for pushing the price of skilled trades up by 5.5 per cent on average across the 2023/2024 financial year.
While demand might ease some pressure on builders bank accounts, Murray warns that the tough financial conditions may force massive downturn in apprentice numbers and doom the industry to repeat the cycle all over again in the coming decade.
“The trades workers who employ apprentices are typically running small businesses and their livelihoods are susceptible to the volatility of cycles in industry activity,” said Murray.
“They are very conscious of the risk of committing to employing and training an apprentice for four years when there is uncertainty about the pipeline of work ahead.
“As a consequence of the rising uncertainty, the number of apprentices commencing apprenticeships in a construction trade has dropped sharply.”
The latest data shows that construction trade apprentice commencements are already down 17 per cent when compared to 2023.
Murray says the future of the sector is now in the government’s hands and called for greater measures that would support training and employing future apprentices or risk sending more businesses down the drain.
“While the government should be looking at ways to enable the industry to use the skilled migration system to address skill shortages, creating training opportunities for local workers should be the priority.” he added.
