Event: Denita Wawn interview with Glen Bartholomew, ABC News Radio
Date: Monday 9 January 2023
Speakers: Glen Bartholomew, host ABC News Radio; Denita Wawn CEO Master Builders Australia
Topics: building and construction; migration; skills; insolvencies
Glen Bartholomew, host ABC News Radio: Well hot on the heels of another home builder going into administration last week comes figures revealing a big fall in building approvals and news that the profits of some of our largest construction companies have fallen by more than 50 per cent. The rising costs of scarce labour and building materials continuing to plague a sector that’s been struggling to keep up with demand. Its forced some to the wall with Victorian home builder Hallbury Homes becoming the latest firm to go into administration with nearly $40 million in outstanding contracts. Master Builders Australia says today’s November quarter building approval numbers from the Bureau of Statistics reflect the latest string of economic pressures faced by the building and construction industry. Denita Wawn is the CEO of Master Builders Australia. Thanks for your time.
Denita Wawn, CEO Master Builders Australia: Good afternoon Glen.
Glen: How concerning is it that so many major builders are seeing their profits plummet right now?
Denita: It’s reflective of the problems that we’ve been experiencing for at least 18 months with massive rises in the cost of building materials coupled with significant skill shortages. Costs have escalated in time where most builders are working under fixed-priced contracts signed well and truly before these prices of this magnitude were even considered. So they’ve had a lot of activity but little or no margin which has meant that things have been pretty tough and we’ve seen the results that you outlined in your introduction.
Glen: How can say one firm’s profits fall 95 per cent but another company’s jump 130 per cent? Does it depend on those contracts like you mentioned?
Denita: It does. It totally depends on the contracts whether or not there has been any capacity to flow on the significant price increases to the client, what leeway the client has provided in meeting the time delays associated with the slowing of materials or the slowness in being able to get staff. So there are a multitude of variables that impact an individual builder depending on the type of contract they are dealing with and the relationship they have with the client. That is why we are seeing so many differences happening in the industry at the moment.
Glen: The one positive I guess out of all of that is that many look to be still very profitable despite these challenges.
Denita: That’s right. I mean certainly we’re seeing some difficulty being experienced by some builders but the insolvency rates are no different to what they were pre-pandemic. Demand has been exceptionally high and that means that we’ve still got some good activity for 2023. The building approvals that came out today are showing where the downturn will occur from about 2024 onwards and that’s where we’re focussed on. More of that medium-term and making the industry sustainable once this demand reduces.
Glen: Yeah the building approvals for detached houses and multi-units out today, falling by about nine per cent for that quarter. So what there’s lots of work in the pipeline to complete but the expectation is that will dry up in about a year as home sales slump and these interest rates start to bite?
Denita: Absolutely. We are really concerned about what 2024-25 looks like. Today’s ABS statistics are reflective of the forecast we put out about four months ago and 2025 in particular is a difficult year for us. Hence we are really interested and commend the federal government in their announcement on the Accord for housing announced last year which brings all the stakeholders together to focus on affordable housing. But we know that we are having a housing crisis. We don’t have enough homes that are fit-for-purpose. So we think there’s an opportunity there for that gap to be filled and making sure that enough builders have sufficient work to do because it is quite incredulous to think that we’re seeing builder numbers decline but yet everyone is screaming out for housing whether it’s owner-occupier or rental.
Glen: Well about that worker shortage. There’s a lot of focus and action on boosting apprentice numbers at the moment. Is a high rate of churn a problem there? They just don’t last the distance and usually become full-time staff?
Denita: The difficulty at the moment is significantly two-fold. We are having a large number of baby boomers retiring and leaving the industry coupled with the fact that the industry despite all good attempts are still seeing only about a 50 per cent completion rate of apprentices. So we’ve got to improve as all people involved in the apprenticeship area to see higher completion rates but also we need to look at alternative measures on solving those skill shortages. We’re focussed on the fact that around about 450,000-odd jobs will need to be filled over the next five years. That’s a significant number that can’t just be filled by locals and hence our push for the migration review to look at not only increasing the number of people coming into Australia but also being more flexible as to who can come to Australia so we can fill these skill needs.
Glen: Another home builder in Victoria went into administration last week. Nearly $40 million in outstanding contracts. About 50 homes in Melbourne affected. Hallbury Homes appointing Michael Caspaney of Menzies Advisory as administrator. Reports are that liquidation is pretty likely here. Mr Caspaney says Hallbury has suffered the same shortages as the rest of the building sector.
Michael Caspaney, Administrator, Menzies Advisory: The shortage of labour and a shortage of materials, Hallbury build times have been blown out way passed their contractual date.
Glen: So there’s that familiar story again Denita Wawn. Are you fearing that there’s more to come given the horror rate of failures last year?
Denita: Yeah we’re certainly concerned. We find that February/March are always the peak times when it comes to insolvencies depending on cashflow issues. They are correct, the product delays, product increases and skill shortages have meant that a general home that normally takes nine months to build is taking about 12 months. That has financial pressure not only on the builder but also the client of course. And it is, we’re seeing that those contracts that were adversely affected by the pandemic really hit home by the end of last year, early this year. We will keep a close eye on those numbers but as I said earlier the insolvency rates are no different from 2019. But it will be crunch time over the next three to four months. But then we will see an evening out. As we said, those building approvals are coming down and as a consequence there will be less pressure on both the industry as well as clients as we try and even out demand.
Glen: You said the building and construction industry is particularly impacted by the population challenges outlined in the government’s 2022 population statement released last week. Are we going to be able to keep up with the demand and house all of these people that we’re expected to have in the coming decades? There’s talk of us having another 10 million people in a decade’s time.
Denita: Well that is why we so desperately need more people but of course we’ve got to house more people. It’s a catch-22 isn’t it? But we certainly need to focus on building homes that are fit for purpose for the people in the areas that need it. And as a consequence, we need people to do that. The building industry is one of the biggest economic multipliers of any industry in the country. Every dollar spent in our industry is three dollars returned to the economy. And as a consequence, despite all these hurdles that we’ll face we need to be busy. That means the rest of the country is busy.
Glen: It’s going to be interesting couple of months and year or so. We’ll see where we go from here. Denita we’ll stay in touch. Thanks a lot.
Denita: Thank you Glen.
Glen: Denita Wawn the CEO of industry group Master Builders Australia. Taking a sense of what the temperature is like in that industry right now.
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