Construction insolvencies increased more than 85%: Equifax

Notwithstanding the ‘highs’ reported in the September quarter, the Australia Bureau of Statistics (ABS) construction data for the December quarter has revealed building work done fell 1.6 per cent to $30.6 billion, down from $30.6 billion the previous quarter.

The lift in the September quarter followed a backlog of work built up after the extreme weather events that delayed construction in the first half of 2022.

The data also showed construction work done fell 0.4 per cent to $55 billion.

The ABS’s broad definition of a building is a permanent structure with an “intended purpose primarily to house people, plant, machinery, vehicles, goods or livestock”.

The fall in building activity comes as the number of construction insolvencies increased by more than 85 per cent in the first seven months of the 2023 financial year, according to ASIC data confirmed by Equifax.

Given this, confidence in the construction industry has plummeted with borrowers steering clear of locking into construction loans, according to broker Jaime Savory at Gippsland Finance Solutions.

“Unfortunately, like everywhere, we’ve had local builders that are in a position where they have had to shut down,” she said.

It’s been “terrible for everyone involved” from the local tradies to the “first home buyer in the middle”.

Construction activity to fall

ANZ economists have tipped construction activity is set to fall around 10 per cent through 2023 and 2024, as housing approvals fall, backlog works from the pandemic begin to clear, and insolvencies are rising.

The delays associated with labour and materials availability, as well as the sharp rise in material costs have impacted company cash flows and driven up insolvencies. The financial issues in the sector are flowing through to buyer sentiment, which is in turn weighing on new sales, economist Felicity Emmett said.

“We do, expect, only a modest decline in 2023 (3.5 per cent drop), before a larger fall in 2024 (8 per cent fall) as builders work through their pipeline of activity,” Ms Emmett said.

She also noted the “ramping up of immigration” will provide some support but on its own is unlikely to prevent a substantial decline in activity.

The ABS data also revealed that public works remained a growth driver (on increased investment by governments), up by 2.6 per cent in the quarter.

Private new dwelling activity was up by 2 per cent, while the private home renovation cycle appears to have turned down, after the surge in 2020/21, falling for a third consecutive quarter, down by -5.1 per cent.

Private business construction activity was down, with infrastructure falling by -0.8 per cent (coming off a 6.3 per cent lift) and commercial building fell by -7.5 per cent on the back of a revised rise of 5.6 per cent.

[Related: Construction space 'terrifying' for borrowers, broker says]