Home builders are suffering a post-pandemic boom hangover, so just how big a headache will that cause for the rest of us?
, housing and rental affordability concerns, and we need more [housing] stock, the fact that the construction sector is under pressure is really concerning.”As far back as May last year,that another home-building giant, Metricon, was potentially in strife, economists and construction industry experts predicted a “major correction” for the construction sector.
Lending has also collapsed. The number of home loans issued by banks and their smaller rivals to build or buy a newly built home more than doubled from 5837 in June 2020 to peak at 12,809 in February 2021, before collapsing to just 4267 by February this year. “It’s an unfortunate perfect storm, COVID had a material impact thinning out the balance sheet of these builders. They don’t have the funds to absorb the costs, and they cannot pass them on to fixed-price purchasers,” Shepard says.
The big question is what happens next. Economist Chris Richardson says the sector is experiencing “a lot of pain” that will worsen before it improves. But he does not believe the situation is dire. “There is massive haemorrhaging in our industry,” says team leader Bernie Nolan. “The reality is most building companies are operating on 1 and 2 per cent profit margins.”“The industry is deeply worried about the zombie companies that have made their way through COVID with government support,” he says. “People rely on cash flow to keep themselves afloat but at some point in time they work out that there’s not enough in the bucket to pay everyone.
He agrees with the forecasts predicting the medium-term fundamentals for the industry are positive, with the need for new houses as strong as ever.
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