Event: Denita Wawn interview with Kathryn Robinson, ABC The Business
Date: Monday 3 April 2023, 8.45pm AEST
Speakers: Kathryn Robinson, host ABC The Business; Denita Wawn, CEO Master Builders Australia
Topics: housing industry, insolvencies
Kathryn Robinson, host ABC The Business: Master Builders Australia CEO Denita Wawn expects the fragility to continue for six months but says that insolvency figures are consistent with the ten-year average. She joined me earlier. Denita Wawn, welcome to The Business.
Denita Wawn, CEO Master Builders Australia: Thank you.
Kathryn: Denita, housing approvals, lending figures, house prices all out today. What picture do they paint for the industry?
Denita: It’s a concerning picture that we simply don’t have enough homes in the pipeline to be built to meet population demands, and that is a real concern not only for the building and construction industry but the community at large.
Kathryn: On Friday, Denita, we saw another builder, Porter Davis go under as well as Lloyd. They’re the latest in a growing number of builders collapsing. Why are so many failing?
Denita: Well, interestingly enough, the insolvency figures for the industry is consistent with the ten-year average. But there is a greater concern in the community than there usually is simply because it is affecting so many clients at a time we’re coming off very high demand. We saw a large surge of demand for new homes around 2021-22. And as a consequence, the impact on the community is higher than usual. So, it is devastating for everyone concerned with anyone that is going into liquidation, particularly when we are talking about people’s homes.
Kathryn: Experts are warning that Porter Davis is unlikely to be the last. How many more builders do you think could fail over the next six months to a year?
Denita: We know that there’s fragility and volatility in the industry because of fixed-price contracts that has then been exacerbated by the skyrocketing inflationary costs for building and construction coupled with interest rates. We see this fragility occurring for another six months and then it should decline. But as I said earlier, the average of insolvencies is pretty much where we are at the moment. Where we need to focus our attention is helping those clients and helping those businesses and helping subcontractors. But equally looking at how we can minimise adverse impacts in the future and that’s why MBA is so interested around looking at the implications of fixed-price contracting and the need for greater risk sharing particularly in these unexpected circumstances we’ve seen the industry face over the last 12 months.
Kathryn: So, is the industry on the brink of a crisis?
Denita: No, we don’t say there is a crisis. We simply say that we are adversely affected in a short period of time on terms of cashflows because we are seeing people building at no profit or even at a loss. And at the same time they are not seeing a huge increase in forward contracts because of the downturn in demand and the problems with supply. The industry actually looks really bright over the next 12 months to two years because we are having a surge in population. So that means we need more new homes, we need more new hospitals and schools, and more transport infrastructure. So things are looking good in the medium to long term but it’s just this short-term pain that is predominately due to the inflationary pressures plus interest rates that is really affecting the industry at the moment.
Kathryn: How do you fix the system? How do builders stay afloat amid headwinds of rising input costs; the difficulties in accessing labour and also access to finance?
Denita: Well we say that we need flexibility from clients. Whether that is governments right through to the mum and dad homeowner. If it can be achieved in terms of risk sharing of covering and sharing the cost implications over and above what was anticipated. That’s certainly a short-term issue. We ask that the banks are giving flexibility to the industry as they try and recover from cashflow pressures because we do know that demand will pick up. But our focus at the moment is very much on the supply constraints that is holding back an increase in housing activity for 2024 and beyond. And that’s the discussions we have to have with state and territory governments and local government around land use and also planning requirements that are curtailing housing supply in this country.
Kathryn: Denita Wawn, thanks for your time.
Denita: Pleasure, thank you.
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