Alyssa Luc and her partner Xuan Tri Mai are among many Australians who wish they hadn’t rushed into building a home.
It was the end of 2020 when the couple purchased a block of land in Catherine Field, a growth area suburb south-west of Sydney.
Their block cost about $500,000, and they spent another $700,000 to enter a contract with what they thought was a reputable volume builder.
The couple moved into their new home in July 2023 and, just days in, Ms Luc says they started finding alleged defects, starting with a blockage in their toilet.
“If anyone would like to go build a new house, please think carefully,” Ms Luc warns.
“Think about the economy … think about the builders at the moment.
“I mean, they [people] can see that so many builders [have] collapsed in the past few years. They should know now that the industry is vulnerable.”
It was supposed to be the end of what building industry pundits have labelled as a “property cyclone”.
But even if the eye of that cyclone has passed, savage storms continue to wreak havoc on Australia’s $270 billion construction sector.
Each month across Australia, on average more than 200 building and construction companies go under.
The building industry is still reeling from one of its most tumultuous periods in history — a loss-making boom that eventuated soon after the pandemic.
Consumers — lured with tens of thousands of dollars of grants under the controversial HomeBuilder scheme — were sold on fixed-price contracts that builders then struggled to honour as the cost of building materials and labour soared.
The effects of that are still playing out.
Call to better protect subcontractors and consumers
Statistics from corporate watchdog ASIC show that for the current financial year so far, to March 17, there have been 1,987 insolvencies in the building industry. This is up from 1,495 a year earlier and just 782 in 2022.
More horror stories are emerging of subcontractors and suppliers waiting to get paid but at risk of never seeing a cent, and consumers left with half-built homes or major defects.
“With the [Home Builder grant] stimulation, we went from a very low point to boom time, and we weren’t ready for that big upswing,” says industry veteran and the founder and director of Satterley Property Group, Nigel Satterley.
The Perth developer has worked in the industry for more than 50 years, including advising governments on housing policies, and sees better times ahead.
“We have moved out of the cyclone — I really believe the worst is over.”
But while consumers are back making enquiries about building a home, Australia’s volume builders warn many remain nervous about signing on the dotted line.
They say consumers are holding back both because of high-interest rates and cost-of-living increases, as well as fears they might end up with a dodgy product or a builder that’s at imminent risk of collapse.
Mr Satterley is calling for a fundamental rethink of laws regulating the industry so that subcontractors and consumers are better protected.
“We need a lot more corporate regulation around directors that trade — the building companies — that know they can’t pay the bills, or they’re insolvent,” Mr Satterley says.
“For example, you could start ‘John Smith Homes’ with working capital of $200,000, and be building 500 homes a year, because these are what we call capital-light businesses that run on cashflow. And when the cash flow stops, they go bust.”
Some builders are asking customers up-front for deposits of 5 per cent or more.
Mr Satterley suggests these be placed into a regulated trust account, which already happens in the case of developers, but usually not with builders.
“If you [the builder] takes money from the trust account, you go to jail,” he says.
“I think these types of regulations need to be [implemented] across the home building industry.”
Another issue politicians constantly raise with him is how to better protect subcontractors in the industry.
“I think there should be serious regulation [if a contractor] is not paid,” Mr Satterley suggests.
“Our industry pays on the 15th and the 30th, generally of the month, so give a couple of days, if they’re not paid, they should be able to lodge an immediate complaint for protection.”
He also believes governments should do more to help build the pipeline of skilled workers needed to meet greater housing demand over the next few years.
‘It’s been very stressful’
Ms Luc agrees there are not enough consumer protections and, to try to get a resolution, they’ve had to use the legal system.
Her main concern, especially while she’s been pregnant, has been finding traces of silica dust throughout her home.
Silica dust can be toxic. It’s commonly used to make products across the home, especially for stone benchtops in kitchens and bathrooms.
Safe Work Australia says that when workers cut, drill or grind products that contain silica, dust particles are generated that are small enough to lodge deep in the lungs and cause serious illness or disease.
It’s been such a big issue impacting workers in the industry that, at the end of last year, Australia became the first country in the world to ban the use of engineered stone following a surge in workers developing lung disease silicosis.
Ms Luc says they had an expert do a report for them that suggests that traces of the dust they have been finding throughout their home may be dangerous to their health.
“We did ask them [the building company] to come out immediately because of health concerns — and so far, we’ve only had people come out to do cleaning,” she says.
Ms Luc says there are also other alleged defects around the home, and she’s lodged a complaint against the building company that will be heard by a tribunal.
“[It’s been] very stressful — it took a lot out of me. It takes a lot out of both of us. Mentally I try to be strong for myself, for the family and my baby.”
Fears of a ‘catastrophic failure’
Even for those who don’t build, but buy off the plan or opt for homes that have been recently built, significant problems have emerged.
Toplace was once one of Australia’s largest privately owned development and construction companies, which claimed to have built 30,000 properties across Sydney.
But the developer went into administration in July 2023, owing hundreds of millions to creditors, and its founder Jean Nassif went overseas despite being wanted on fraud-related charges.
The owner and founding director of the Toplace Group building licence was suspended for 10 years in 2023 by NSW Fair Trading and Toplace’s licence was permanently revoked.
IT worker Patrick Quintal says his life has been destroyed by buying into one of Toplace’s troubled developments – Vicinity Apartments in Canterbury, in Sydney’s inner south-west.
When asked if people should buy off-the-plan or newly-built apartments, he says: “Don’t. Just don’t do it, you are playing Russian roulette with your life basically.
“In fact, I think you might actually have better odds playing Russian roulette than this.
“It is crazy how poorly the government is ensuring people can actually safely buy property. You’re expected to be a lawyer, the building engineer, all of that on top of your nine-to-five job. It’s draining.”
Mr Quintal purchased a unit with his wife in May 2021 for $685,000 but now may be up for hundreds of thousands of dollars more to fix serious defects.
Within months of moving in Mr Quintal had an engineer do an expert report, which he says described the entire building as a “death trap”.
A report from the NSW Building Commissioner identified major issues with the slab and beams in the basement of Vicinity Apartments.
Mr Quintal says the entire building is now being held up by temporary steel structures and worries with increased building activity around the area — including a metro station – the whole structure could one day collapse.
“It’s not really safe,” Mr Quintal says.
“The building as it stands, could not support any kind of movement that was similar to a seismic activity. [It could mean] catastrophic failure … resulting in the building basically collapsing.”
Mr Quintal is still fighting for the council or government to pay the cost of fixing the defects, but in the meantime says he’s financially and emotionally devastated.
The Department of Fair Trading has estimated the total cost of the repairs to be about $50 million.
With 276 units, that means owners like Mr Quintal are looking at a cost of at least $180,000 each, but possibly more as construction costs remain elevated and time drags on.
At the same time, he says quarterly strata levies have jumped from $900 a month to about $4,000.
“For me, the financials are quite, quite dire,” Mr Quintal says.
“We were planning on having a family shortly after we got the place. And I feel like I’ve just been in such a mental rut that I don’t think I could afford to have kids, or whether I’m even mentally ready to have kids simply because I have to deal with the stress of this building, day-in day-out.”
Mr Quintal says the onus shouldn’t be on the owners to fix defects that weren’t of their doing. He also wants the law changed to better protect consumers.
“My hope is that the government will come in and take responsibility for basically the issues that they’ve created,” he says.
“It’s not just this building. It’s many apartments that we’ve seen over the last couple of years … They’ve all got similar problems.”
New home builds in decline as the cost of building rises
The quality of building is one issue that’s kept consumers wary of taking the leap into building.
The soaring cost of building is another. Metricon chief executive Brad Duggan says the builder is still working through a pipeline of post-pandemic boom loss-making jobs, but when it comes to getting people to commit to new home builds, now things are much tougher.
In 2022, Metricon was in financial crisis talks but was thrown a lifeline from its financier the Commonwealth Bank, which kept it from facing the same fate as many other builders.
Mr Duggan says there’s been a 40 per cent increase in enquiries from would-be buyers this year but that a “lack of confidence” is holding people back from signing a contract.
“There’s such pent-up demand [but] people don’t want to take that step [of signing the contract],” Mr Duggan says.
“It [the fear to sign a contract] comes from two places, one lack of confidence about the affordability, and also a lack of confidence in building.”
Mr Duggan hopes the RBA will soon signal when they will be cutting interest rates so that more would-be buyers will take the leap into building.
However, he also warns that building costs could go even higher now that changes to the National Construction Code, designed to make more homes energy-efficient and accessible, have taken force.
New requirements under the code include increasing minimum energy-efficiency standards for new houses and apartments from six to seven-star ratings, and more stringent accessibility standards, including step-free entry to dwellings, a toilet on the entry level, accessible doorways, and reinforced bathroom walls.
The Housing Industry Association says these changes could increase the cost of building by about $20,000 to $25,000, depending on the type of build.
While Metricon generally supports the new NCC requirements, Mr Duggan questions “whether it’s the right time to be looking at it now”, while there’s a housing affordability crisis.
“It won’t be an insignificant [price] increase.
“I think there’ll be a number of builders that may not be able to go to market because they don’t have NCC compliant homes, which may mean that there is a lack of supply for the market, which could have some impact (on supply).”
Not enough workers to build 1.2 million homes
Australian Bureau of Statistics (ABS) data shows Australia’s record level of immigration is easily outpacing new construction.
The ABS latest building approvals data released on Thursday, found that total dwellings approved in February fell by 1.9 per cent, to 12,520.
Attached dwellings drove the decline, down 24.9 per cent to 3,771. This was the weakest monthly result since 2012.
Total dwelling approvals are running at 163,099 annualised, a level well below Australia’s underlying dwelling requirement.
As demand for housing increases, the industry warns there are just not enough workers to build the 1.2 million homes (about 240,000 dwellings a year) the Albanese government wants to see built over the next five years.
There are industry estimates this target requires an increase in the building trades workforce of 90,000 people, but Mr Satterley believes it might be even more.
“Australia can only complete, annually, around 130,000 dwellings per annum, maybe just a few more,” says Mr Satterley.
“What the prime minister is saying he wants is 200,000 completions a year, that is impossible to do.
“We would need somewhere in the order of 400,000 qualified tradesmen this calendar year, and next year.”
But as baby boomers leave the industry, there are fewer young people coming in to learn trades.
Data from Master Builders suggests that over the year to September 2023, a total of 42,333 new apprentices started in the building and construction industry — this represents a 25 per cent reduction on the previous 12-month period.
“This country is being held back through not enough people to do the work,” Mr Satterley argues.
“And what we’re seeing is the tradespeople are making more money and working less. So production is slower because the tradies are working less hours for more money.”
Will more builders go under and job losses rise?
Insolvencies in the building and construction industry are predicted to continue to spike over the coming months and overtake pre-COVID highs and possibly even top post-global financial crisis highs.
That will mean more job losses.
HIA’s managing director Jocelyn Martin says she feels for those consumers who are left with those half-built projects when builders collapse, but it’s been hard for builders to manage cash flow.
“There are no winners out of the insolvency situation,” Ms Martin says.
“One of the biggest challenges we have in the industry is working with fixed price contracts — where the builders have had to lock in price for their customers, well in advance of supply of supplies, and then supply prices have increased.”
She hopes there will be fewer horror stories going forward, noting that there are already “changes happening” in the way the building industry is regulated.
“I think there is an improved regulatory system,” she says.
“There are certainly more detailed inspections around properties. There is much education for builders, in terms of repercussions for builders that have gone broke or into administration.”
The building and construction industry remains one of Australia’s largest employers, employing roughly 1.3 million Australians.
And, despite the calls for more workers in the sector, there have already been job losses off the back of failed building companies.
Others have had to take pre-emptive action and announce redundancies.
It was almost one year ago when Simonds Homes boss Rhett Simonds had to make the tough decision to cut 10 per cent of the company’s workforce.
“You’re going through and you’re adjusting to economic environments, those hard calls have to be made,” Mr Simonds tells ABC News.
The family-run builder’s decision to cut costs has paid off.
Simonds Homes, which is now listed on the ASX, earlier this year delivered a $100,000 quarterly profit, its first step into the black in two years.
“Let’s not deny it has it’s been a tough period for the industry for the last probably two to three years,” Mr Simonds says.
“We are coming through the other side of what has been … a shaky couple of years in the industry.
“As we start to see the stabilisation of interest rates and ultimately, hopefully, down the track, some small decreases in interest rates, that’s definitely going to play a major factor in consumer confidence.”
Mr Simonds hopes the industry will be given support, including enough skilled tradesmen, to build the homes needed.
“We do have a housing shortage and that is something that will continue to be a challenge for our economy and our country,” Mr Simonds says.
A new report shows NSW land values fell in 2023 despite house prices rising throughout the year.
Key points:
- Interest rates, construction and inflation are behind land values falling behind
- Meanwhile, house values rose by over 11 per cent in Sydney in 2023
- Researchers predict land value records could tick up again next year
The NSW valuer general, who sets land values for rating and taxing, found an overall decrease of 1.6 per cent in the year to July.
The report attributes the decline to interest rate rises, inflation and increasing construction costs.
However, CoreLogic data shows home values rose 11.1 per cent in Sydney and 2.4 per cent in regional NSW across 2023.
So, how is the discrepancy explained?
It comes down to when the data was captured, according to Chris Martin, a senior research fellow at UNSW’s City Futures Research Centre.
The valuer general’s report straddles the second half of 2022 and the first half of 2023.
“[The report] reflects that there was a decline in the market generally after the RBA started its series of interest rate increases in May 22,” Dr Martin said.
He said it followed a couple years of “very strong” house price growth during the pandemic.
“As it happens, prices have started increasing again through the most recent calendar year, so we’ll probably see in next year’s report higher land values recorded.”
What can property owners expect?
With the valuer general’s figures used to apply council rates, can ratepayers expect any reprieve?
Not unless values fall for a few years in a row, said Shanaka Herath, a senior lecturer housing economics at UTS.
“Usually, the council rates are calculated on a rolling basis, on three averages,” Mr Herath said.
“If we see, for example, land values declining in the next two years, then that will be reflected in lower rates.”
According to the valuer general, all NSW councils are using July 2022 land values for setting rates.
But Mr Herath said the 2023 reduction in land values would be reflected “at least partly” in land tax rates.
“[That is] because we didn’t see any consecutive increase of three years,” he said.
“But it won’t be substantial. To see a substantial reduction in rates, then we will need to see [lower land values recorded] next year, and probably the following as well.”
Property owners are exempt from paying land tax on their primary place of residence, and it only applies to properties where the land value exceeds a certain threshold (currently $1,075,000).
Dr Martin said most NSW landlords do not pay land tax.
“It’s about one in six,” he said.
Mr Herath said people should not get too excited about land values reducing for just one year because values are cyclical.
“If you look at the five-year, 10-year average, those will certainly tell us that there’s a significant upward trend,” he said.
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