Building sector hit hard as state government pushes 'construction-led' recovery

As reported in The Examiner on Friday, Tasmania insolvency data from the Australian Securities Investment Commission has once again begun to increase after a historic lull during the pandemic.

The increase has been attributed to the rising costs and logistical pressures impacting businesses in combination with the removal of concessions and support brought in under the pandemic.

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The resurgence of insolvencies is not isolated to the state, however, with Insolvency Australia noting a rise nationwide as debt obligations begin to his businesses around the country.

Taking a sector-by-sector look at the data, Insolvency Australia director Gareth Gammon noted some surprising finds.

"We were expecting a slightly bigger rise in hospitality and retail [insolvencies], but they have weathered the storm so far. The big one we're seeing is construction," he said.

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That trend has also been seen in Tasmania, with notable companies in the sector like KAM Joinery collapsing in recent months.

Smaller operators also appear to be suffering, with Bagdad-based MLM Property Constructions also filing for liquidation earlier this year. Disruptions to construction companies could have widespread effects, according to Mr Gammon, given the interconnected nature of the sector.

"Construction has so many ripples because there's so many contractors involved in the construction cycle. So when one of the bigger boys goes, that has an impact all through the supply chain, which eventually comes down to the sole traders who are supporting the bigger contracts," he said.

Commenting on the pressures facing the industry, Tas City Building director Steven Simeoni outlined a slew of issues facing the sector.

"There've been massive delays in materials and transport and one of the major issues is finding capable tradespeople," he said.

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Given the volatility in material prices and transport timing that have continued to plague the construction companies since the onset of the pandemic, Mr Simeoni said contractors could easily get caught in contract issues.

"Unfortunately, the builder is hurting at the moment [...] If you've signed the wrong contract and prices go up or work is delayed you're potentially not gonna make any money on the job," he said.

Mr Simeoni went on to caution that the vast majority of his clients have understood the issues facing construction companies but he had encountered issues with one local client.

"We've had so many great clients that understand but a local project management group has stuck by the letter of the law with no no leniency. That was devastating," he said.

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Looking forward, the fast rising price of constructing a house has led Mr Simeoni to forecast a looming fall in the residential building.

"Cost of building has skyrocketed and there's less consumers out there building a house now," he said.

To combat these issues, the state government has championed a "construction-led" recovery backed by significant infrastructure spending and a recent MOU with key building and construction industry stakeholders.

The MOU hopes to address the challenges in delivering the state's infrastructure program and was welcomed by Master Builders Tasmania and other sector representatives. Mr Simeoni noted the increased public works could help to keep tradespeople employed amid a slump in the residential sector.

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