Business

Australian Construction Market Outlook

Challenges of rising construction costs and fixed price contracts leaves Australian builders under immense pressure

The Australian construction industry was undoubtedly shook-up in 2023 as some of the biggest names among home builders collapsed which included Porter Davis and the Lloyd group which left a significant number of consumers holding feathers in their hands due to increased costs, holding expenses and delays.

Although as of 2024, the construction industry is seemingly recovering and poised to expand by 2026, the distrust that have been formed between buyers and builders that revolve around project stability still lingers on.

Although it is evident to consumers as to why these insolvencies occurred (The Pandemic, Russia’s invasion of Ukraine – all of which that lead to price fluctuations of construction materials and heavy machines, supply chain disruption and many other issues), there is still lack of confidence although the Australian construction industry stabilised as early as January 2024.

The stabilisation was attributed to a wide variety of factors which included government intervention and new strategies applied by construction companies which included renting construction equipment instead of buying them.

As an example, a 15T low end excavator easily costs more than AUD 50,000 with high end models selling for more than AUD 100,000, at the same time taking a 13T or 15T excavator for hire would cost an approximate AUD 75.00 per hour and in most case scenarios, these excavators are used for only about 4 to 5 hours per day which equates to an average AUD 350.00 per day and this cost becomes lower if the excavator for hire is used for longer periods and the weekly rates are even lower.

Such strategies have allowed many builders to remain afloat due to the fact that they are able to keep their working capital intact and cash flow healthy. Apart from that such strategies also minimise ownership costs significantly due to the fact that costs such as transportation, maintenance and storage of heavy machines are significant and all of these costs are completely avoided.

The fact that apart from the strategic steps taken by home builders to lower overheads and remain afloat, property owners are still pretty much in limbo as there are no systems or regulations that protect invested buyers or provide insurance in the event a construction company goes bust, and this is among the primary reasons as to why buyers are sceptical about builders that requires quick remedy if the industry is to expand further than to where it is currently.

The truth is that costs are stabilising and if there is a way to restore Australian consumer confidence levels, nothing must be spared to regain it. Consumer confidence will naturally support working capital and this would in turn reduce the possibility of construction entities from asking more money to keep projects running.

Given the current industry marking and benchmarks, things are improving within the construction sphere in terms of costs and applied strategies. Analysts see fewer companies collapsing and more are on their path to recovery as seven out of ten projects are completed at the agreed fixed price and on schedule.

Christopher Stern

Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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