Hotondo Homes in Administration

https://www.abc.net.au/news/2022-01-20/ ... /100753440

"More construction companies will fold this year as lock-in contracts leave builders unable to pass on the rising cost of labour and supplies, the Master Builders Association warns."


"Two Queensland firms, Privium and BA Murphy, went into liquidation just before Christmas, with customers and subcontractors waiting to find out how much, if anything, they will get from the wash up."

Thanks for posting that very informative article.

This is a really big and real problem our industry is facing this year.

I know we have all been talking about material and trade price increases for the last 8 months or so, but I am not sure people realise just how bad it is at the coal face and why some builders are going to really struggle to honour contracts that were signed early last year.

I thought I should share a quick anecdote that happened to us last week which highlights just how bad things are.

We cut all our frames on site as we find the quality is significantly better then pre-manufactured frames, so this is typically a bit more expensive. Up until 12 months ago, we could frame a 400sqm home for between $55-65,000 with 90x45mm H2 treated timber.

We are currently building a home which is a double brick and concrete structure and the plan was to only use timber for the roof trusses.

Last week we received a range of quotes, cheapest being $58,000 most expensive $65,000! That is just for the roof trusses.

And it is not just materials that have gone up in price, we have noticed that a lot of trades have significantly increased their rates as there is simply so much demand at the moment.

The net margin for a project home builder would only be somewhere around 5-10%. I know of one big Sydney builder that works on a 4% net margin. But let's say builders average 10% for the ease of math. There is only $60,000 profit on a $600,000 contract, so when the timber prices are increasing by $50-60k on a job, and steel is going from $10k to $20k, and doors, and cabinets and taps, and painting all go up, it's not hard to see why we are going to have more builders in trouble this year unless they cancel contracts.

I don't have a solution for what people can do who are selecting a project builder as there is no way as a customer you can get an understanding of how healthy their books are.

As a smaller builder, we don't sign contracts 12 months out, our contracts are signed a couple of weeks before we start construction so that we can have up to date trade pricing, and we also have a design team that can get CDC's approved in 2-3 months for the clients who want to move quickly.

So in real terms, a home that we could have built for $650,000 in 2020 would now cost closer to $900,000 in 2022.

Anyway, I hope that sheds some light on the situation.

Good luck everyone

Simeon

You say that like builders haven't been running on razer thin margins to undercut their competition for years.

SA had how many builders go bust in 2018? 18? 20? and that had nothing to do with the pandemic or price hikes, every 2-3 weeks another one was in the papers.

Quite frankly I have no sympathy for builders who got themselves in hot water from underquoting and underbudgeting, especially when they leave subbies out of pocket hundreds of thousands to do it.

If the price had fallen through the floor you can bet your life the builders weren't going to pass on the savings.

If my builder goes bust now it'd be annoying and delay things, but with the insurance scheme it'd still get built.

Tasmania is the issue with no statutory scheme.

Don't get me wrong, I have no sympathy for the building companies who are idiotically running on razor thin margins either, it's the mums and dad's who get caught up in the mess that have my sympathy.

And you are correct, there have been builder's going broker on a regular basis far before COVID, it's just that this is the current situation which is why we are discussing it.

in terms of costs, do you see them dropping back pre-pandemic/pre-grant levels once the supply chain issues are over and the builders work through the backlog created by grants? or is it basically going to be "inflation" where they stay around the current level since people are happy to pay the inflated prices for the houses?

Strannik

That is a really good question. I think the answer to that is yes for some items and no to others.

Bricklaying prices are a reasonable gauge.

If you remember the insane prices that were being charged during the Sydney Olympics construction phase, at the peak of the village construction we were paying $1 per brick which was up from 70 cents or so.

A few years after that Sydney's market boomed again and prices went to $1.50 and then $1.80.

Then prices came right back down, and for the last number of years we have been paying between 80 cents to $1.10 for commons and maybe $1.20-1.30 for face. We are still securing bricklayers now for around $1.30 as this trade seems to be in good supply for the moment. Point being is that it's all about supply and demand.

Timber prices have already started to decline in the USA, so hopefully long term the same will happen here.

One thing we really started noticing at the end of last year was the number of tradies who were leaving construction completely because the stress of too much work, uncertain prices and lack of labour was too much to take.

We had a long term concreter who shut his business down to take up a job in a transport company, we had a carpenter shut his business down as he was struggling to get materials, a large painting crew who now refuse to do new builds due to being overworked, another painting crew who simply cant get labor.

So in summary, I think things will eventually settle down, but I think 2022 is going to be tough.

Be patient with your builder when they need some more time, and if your favourite tap is out of stock, be reasonable and choose a different one. We all have to work together to get through these crazy times.

cheers

Simeon

I was at Home World the other day, I see some builders have promotion for 18 months price lock, if I am not wrong, it is McDonald Jones Homes, I don't think it's purely because of material cost rises. This is just my little thought.