Construction firms are collapsing after a loss-making boom, and 'massive greed' is to blame
After witnessing four decades of boom-to-bust cycles in Australia's residential property industry, experienced Gold Coast developer Soheil Abedian puts the construction industry's current woes down to one simple reason: greed.
In fact, it's "massive greed", he says, that is a product of "the capitalist system that we have in Australia and the Western world — that everybody would like to have more and more profit".
He says the construction industry's current woes were created by too much government stimulus, short supply and unsustainable prices.
Crucially, the cost of key building materials, such as steel and timber, lifted by more than 40 per cent in one year, although big developers were able to negotiate better prices than the smaller players.
"Who is to blame? All of us," the Persian-Australian property developer, who co-founded ASX-listed Sunland Group, told ABC News in an exclusive interview.
"Every single person that is taking part in the industry.
"We increase the prices without understanding that, ultimately, it will backfire on every single part of the industry. And we see that [happening] now."
Mr Abedian has built tens of thousands of homes across the Gold Coast and is also behind some of the strip's most iconic developments, including bringing the first fashion-branded hotel, Palazzo Versace, to Australia.
Sunland Group is winding down by selling off its assets, but the family plans to continue to run a private development business.
Mr Abedian predicts more builders will topple over the coming months.
"Let me say that the collapse of construction companies has just started," Mr Abedian said.
"I think for the next 12 to 18 months, we will see a decline in production, we will see a decline in sales, and then we will go through a period — maybe we call it a stabilised period.
"I believe the second tier, third tier construction companies will be very vulnerable.
"And I think the first tier construction companies, they will survive, although maybe the margin will be smaller than what they thought."
Another industry heavyweight who fears for the residential construction sector is Meriton founder Harry Triguboff.
The 89-year-old Russian-Jewish real estate developer has seen the highs and lows of Australia's property market for almost 60 years. He built his first block of units in the Sydney suburb of Tempe in 1963.
When he is asked whether greed is behind the industry's demise, Mr Triguboff, who became known as "high-rise Harry" for his signature skyscrapers in Sydney and Queensland, is more subtle in his response.
He says, while he does not do pre-sales, too many builders locked themselves into this arrangement before material costs surged, and they were left out of pocket.
"They [builders] love to do it [building] — and so they go in and hope for the best," he told ABC News.
"And normally, prices do go up. So even if he [a builder] thought that he would make only a small profit, in the end, it turned out OK.
"This time, unfortunately, the price went down instead of up. So when he [a builder] had a small margin, he couldn't do it [make a profit]. This is the problem.
"I hope that as many [builders] as possible will remain. And I hope they learn not to work with such small margins.
"That is my advice to them as much as they love that business."
As supply chains became constrained and the cost of building materials shot up, builders weren't knocking back work.
They kept signing on new customers, even as they were asking existing ones for advanced payments to fund the higher build cost.
The HomeBuilder grant was one of the biggest stimulus injections the housing industry had ever seen, but for those who missed out, it created turmoil.
Consumers had flocked to the market because of ultra-low interest rates and stimulatory COVID-19 pandemic support measures, such as the HomeBuilder grant, in the hope they could finally build their dream home.
But suddenly, fixed contracts became a burden.
For many builders, some of which had signed fixed-price contracts and had not locked in their own prices for supplies, the loss-making boom has become too hard to manage. Some were driven to the brink and many have fallen over.
One of the many builders to recently collapse is Langford Jones Homes.
The company had gained a solid reputation over more than 45 years of building homes around the Bayside and south-eastern suburbs of Melbourne and nearby regional areas including Phillip Island, South Gippsland and the Mornington Peninsula.
But when it went under on June 30, it left many consumers, including San Remo resident Donna Taylor, in limbo.
"It's heartbreaking," Ms Taylor told ABC News, breaking down in tears over the home that never got built.
"It's just wrecked my life. And there's so many more people that are like me that it's just ruined."
Ms Taylor had sold her Wantirna home and purchased a block of land in San Remo in 2020.
She signed contracts with Langford Jones Homes in November 2020. They were contracted to build her dream house in 365 days.
But the company went into liquidation nearly 20 months after she'd signed on, owing more than $20 million to more than 400 creditors, of which around $7 million are loans made to the business by the Langford-Jones family.
On Monday, the liquidators from RSM Australia Partners said "it's not clear there will be enough money to pay a dividend to creditors".
Company founder Bruce Langford-Jones and his two sons are among the creditors.
Now, all Ms Taylor is left with is a rotted timber frame that needs to be pulled out, and mounting debts and sleepless nights.
At 53 years of age, Ms Taylor was hoping she could start to wind down.
But now she's got to keep two jobs and take on a new mortgage to fund the extra build cost. She's looking for a new builder to do the job from scratch.
While builders warranty insurance covers her for the money she had already paid Langford Jones Homes, Ms Taylor says she's still left out of pocket because the cost to build with someone new has increased significantly since 2020.
"The first quote I've already had (indicates) I'll be out of pocket $180,000 just to finish the build," she said.
"I just feel like there's just no justice … I've just wasted two years waiting and I don't have the house that I wanted, and I have to start again.
"It will take another two years probably [to finish off the build]."
Like Mr Abedian, Ms Taylor also thinks greed is behind the building industry's current woes.
She paid 45 per cent of her original contract price of about $365,000 for completion of frame stage, with a remaining $210,000 left to pay.
She says she got an email from Langford Jones Homes in January 2021 requesting that she pay for her upgrades within 7 days or face a 15 per cent penalty, in her mind, this indicated that "they were definitely in trouble".
The builder requested she pay for upgrades again in February, but she declined, given the frame had not gone up at that stage.
She says the company finally started the frame later that month and completed it in April 2022.
"I think a lot of companies have known they've been in trouble for some time and have just kept … signing more customers up and taking their deposit funds," she said.
"It just seems wrong that they can ruin so many people's lives, and nothing gets done. They just get to walk away."
Langford Jones Homes founder Bruce Langford-Jones told ABC News in a written statement that the company's customers were covered by warranty insurance.
"Our family have lost everything — my son has lost his house. My wife and I have lost our family home and holiday house," Mr Langford-Jones said.
The problem, he argues, was that "the government's fuelling the market with grants [and this] is creating a demand/supply issue".
He says, with labour and material shortages, costs had gone up by 30 to 40 per cent but contract prices received by builders were fixed.
"Builders throughout Australia are just hanging on," Mr Langford-Jones said.
He also added that the company lost $2 million when it was the subject of a cyber attack in December 2019 and January 2020.
Since the end of last year, the list of builders going under, across the nation has been growing.
The desire to make housing more affordable also needs to address the worrying flip side: falling house prices for many Australians.
Some of the big names to fall include: Probuild, PlanBuild, Condev Construction, Hotondo Homes Hobart, Willoughby Homes, BA Murphy, Inside Out Construction, Home Innovation Builders, Privium, Dyldam Developments, ABD Group, New Sensation Homes, Next, Pindan Group, Pivotal Homes, Waterford Homes, Snowdon Developments, Solido Builders, Langford Jones Homes, Affordable Modular Homes, Statement Builders, Blay Builders Wulfrun Construction, Westernport Constructions, FSA Services Group and Blint Builders.
Other companies have held on by a thread, thanks to cost-cutting and/or state government support.
Construction giant Metricon was teetering on the edge of collapse in May before being lent a hand, and last month sacked about 225 out of its 2,500-strong national workforce in a restructure.
The demise of builders happened as shipping costs soared amid pandemic delays and the price of building materials and labour skyrocketed.
ABS data shows reinforcing steel prices jumped 42.2 per cent over 2021/22, structural timber by 40.7 per cent, steel beams and sections by 37.6 per cent, plywood and board by 35.6 per cent, timber windows by 31.4 per cent, timber doors by 27.9 per cent and terracotta tiles by 26.5 per cent.
At the same time labour costs have jumped by almost 10 per cent across all trades.
The Housing Industry Association's (HIA) trades report found over 2021 to 22 the highest increases were for the cost of bricklayers (up by 16.4 per cent), carpenters (up by 12.5 per cent), painters (up by 12.2 per cent), plasterers (up by 10.6 per cent), joinery specialists (up by 10.2 per cent), electricians (up by 9.5 per cent) and plumbers (up by 8.8 per cent).
Union and peak trade association representatives from across the construction industry have been calling on federal government to do more to protect the payments and livelihoods of subcontractors before they face collapse.
And the word from insolvency and industry analysts is that many more small and medium sized business will fall over in the coming months, particularly in construction.
In July, research firm IBISWorld forecast that enterprise numbers across the home building industry would fall by 9 per cent in 2022-23, "contracting for the first time in a decade" by thousands.
"We expect that [more builders going bust] to probably play out over the next 12 months, particularly for the small and medium-sized firms," BIS Oxford Economics senior economist Maree Kilroy said.
She says the sector is facing a "double whammy" of high demand amid tight supply and that "builders have a backlog a pipeline of activity to get through".
"The books will be full for at least the next 12 months," she said.
"But then you'll find the effect of the rising interest rates and build costs causing demand destruction.
"We don't expect that impact to happen until next year.
"On the supply side, we expect the cost to build a home to rise in double digits next year as well."
But she also thinks that long-term migration will underpin the construction sector's growth in the future.
Meriton's Harry Triguboff believes rising interest rates could cause further industry chaos.
He wants the Reserve Bank to tread more carefully, and goes as far as suggesting they cut interest rates.
But he believes even if they move aggressively, a recession won't last long.
"If there'll be a recession, it will only for a very short period. So who knows?" Mr Triguboff said when asked whether higher rates could tip us into one.
"The Reserve Bank is trying to go in step with America. America is in huge trouble, much bigger than ours."
As interest rates rise, more people could default on their home loans, creating financial system instability.
But Mr Triguboff — who has to date completed an estimated 50,000 residential dwellings — knows the reality of Australia's political system, that politicians both state and federally never let the property market tank.
To that end, he says whatever happens, Australia's housing market will need to be supported by all levels of government with easier and faster planning approvals and more migration.
"Now the government wants the price to go up – because if [prices] don't [go up], they [governments] don't get stamp duty, they don't get all the money that we pay them," Mr Triguboff said.
"We are the main source of income for the state governments. Now they can't afford to lose that forever."
Regulators also know that moving too hard on rates could tip borrowers like Queensland couple Stacey and Anthony Ashton into financial stress.
The couple's journey to build their dream home has been an ordeal, starting in late 2019 when they bought their first home in Cedar Creek.
They contracted builder PlanBuild in 2020, but the company went into insolvency in April 2021. It happened the day before their wedding.
"It was quite stressful and quite upsetting – there were a few tears," Ms Ashton said.
"And then our honeymoon was essentially ruined, because we were just trying to find a new builder as soon as we could to get our home started."
Mr Ashton says building prices had escalated and they were in a rush to find a new builder so they could get the $25,000 HomeBuilder grant available at the time.
In the end the new builder they chose (who they do not wish to identify) was not their preferred option, but Mr Ashton says they made their decision based on price.
The couple are now having to pay extra to fix what they claim are building defects.
And their application for the $25,000 grant also ended up being rejected by the state revenue office, as they subsequently learnt that while the new builder held a builder's licence when they contracted to build, he did not when their grant was assessed.
"The whole build process was extremely taxing on us emotionally," Mr Ashton said.
They still owe a big mortgage on the land and house, and with rising rates they might have to sell.
"We're having to budget quite tightly, and we don't have a cent spare each week — we're living pay cheque to pay cheque at the moment," Ms Ashton said.
Mr Ashton urges Australians to be careful when signing contracts.
"I would just say there's no gentlemen's agreements anymore," he said.
"There's no pride in people's work. All you can rely on is contracts these days.
"And that's the sad thing about the market at the moment. Every promise is broken.
"So, you fall back onto your contract. Rely on that and budget with money for legal fees, because unfortunately when things go wrong, that's all you have to rely on."
Ms Taylor also urges people to be careful and hold off building for now if they can. She fears that as the carnage unfolds, more consumers will suffer.
"I just wish there was more out there to protect us, you know, some sort of governing body that kept an eye a closer eye on businesses, before they went into all this debt and left all these people in trouble," she said.
"Because it just does doesn't seem right that we have to cop the brunt of it."
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