Accountant Explains: Why So Many Construction Companies are Going Bankrupt

Looking for stress-free, fixed-fee accounting services? Book a FREE consultation with us: boxas.com.au/b...
Need cloud accounting software?
Sign up for Xero: xero5440.partn... (this is an affiliate and I will make a small commission at no extra cost to you)
Over 700 construction companies have gone under in just 3 months, with what looks like more on their way out.
So what's happening? It's not just interest rate rises or inflation, it goes DEEPER. And it might have started with one simple government incentive...
I break it down in this video, and give my perspective as an accountant.
-
Thank you for watching this video. I post videos on this channel to provide the latest and most frequently asked business questions. Please take a second to say hi in the comments below. Also, if you enjoy the video and find it valuable, subscribe to the channel, like and share it with anyone who you think might find my channel useful!
-
► Subscribe to my channel here:
/ daviemach
-
Davie has over 10 years experience in advising businesses in management accounting and taxation issues. He heads up a passionate team at Box Advisory Group who are dedicated to offering proactive and outstanding service to our clients.
Davie’s extensive experience in providing tax and consulting advice and astute business knowledge has paved the way for success for many businesses.
He is a member of the Chartered Accountants Australian and New Zealand, a member of the Australian Tax Practitioners Board and holds a Bachelor of Commerce degree from the University of New South Wales.
-
Follow Me:
LinkedIn: / davie-mach
Instagram: / boxas_syd
Facebook: / boxadvisory
Website: boxas.com.au/
TikTok: / boxadvisory
Disclaimer:
This video is for informational purposes only and should not be considered financial or legal advice. This video does not take into consideration your personal circumstances. Consult with a qualified financial planner, tax advisor or legal consultant before making any decisions regarding investments.

[@shaneyule3484]

I'm a contract plasterer and painter. The day I gave up new project homes was the best day of my life. Dodgy builders trying to live the hiigh life with a building full of office workers instead of visiting sites and paying the actual workers to do a good job. I now do my own reno, private and bespoke work. $100 an hour, 10hr days, 4 days a week. All the wanna be high rollers can be up themselves as much as they want. In the end who do they call when they have dramas with there building.

[@mrmr1964]

My step son has his own business as a painter. Best thing he ever did was pull the plug on project/volume homes. Now has a full order book doing bespoke and private work.

[@jasonr3165]

this is what you get when you have no manufacturing.

[@monkeydog1436]

6:50 Yes, fixing defects adds time and costs to a project, that's why it's so important to get things right the first time! Doing a decent job adds five minutes in some cases, or nothing at all, if you know what you're doing!

[@JanetWilkins-y3z]

The tradies not taught by old school tradies, older houses were built properly not slapped up with defects, building inspectors had to abide by the rules regulations. Now it's about squeezing as many homes on a once was one house block as quick as can on the cheap.

[@scottcarlyle3502]

This is a mith. Old houses are crap too. Why do you think there are so many knock down builds happening? I do renos, most people have zero idea how shit their house is

[@Clluthu]

The ones riddled with aspestos?

[@shelbytops]

Does anyone know a builder that knows the building regulations and Australia Standards??? I have not come across any for years

[@msrcoldrooms8754]

This is the world it is what it wasn’t

[@Scourgewor]

Having been a Porter Davis customer once I can tell you nothing of value was lost. That company was everything that was wrong with the building industry. Once the building started the facade of professionalism disappeared and you were at the mercy of whoever they managed to hire at the lowest rate. Some trades were great and some were terrible. There was no minimum standard in their eyes and if someone came back to redo something they be sure to make you wish you hadn't bothered. If you called their office no one ever answered. It's amazing what they got away with.

[@mamasita65]

I did a lot work for them henley homes here went broke years ago there back again metric doing ok eight mile homes was ok lots gone broke because short cut and workmanship not done properly its worse now I notice I wouldnt build a house unless was private builder

[@harrylo2316]

Fixed pricing shouldn't matter given thst most of these builders take short cuts, using cowboy trades to build homes that don't even comply with engineering plans half the time and then signing off their own work as 'compliant'.

[@peterjames5473]

Hi Davie, Great video! Agree with all your points. I was building throughout this period. Managed to get out in 2023 by the skin of my teeth. Here in SEQ, another factor was incessant rain. I reported actual rain days compared to historic rain days from the nearest BOM weather station - I experience about double the number of rain days. This helped me avoid liquidated damages from delayed practical completion date (must be stated in the contract). But this must have added cost to many other builders. Also, on several big projects my contacts are doing (a hospital and a university building and an arts building) the projects experience extensive mold outbreaks, I reckon this was caused by a mixture of materials being stored outside and generally damper conditions.

[@LeonieHall-c4o]

Mold. I am looking for a property but i haven't found that were not moldy and i am allergic to mold.

[@shanerobertson6267]

Hi Peter - chippy/builder it rained for 9 months in 22. I paid to go to work , totally disheartened after the plandemic.

[@Nabraska49]

Back in the 1970,s you could buy a house for $3000-$4000 on the outskirts of Sydney.. just goes to show how much the dollar has become so worthless in 50 years

[@XC-Z-cv8qw]

Lol blaming the NSW government, when in fact building companies realized they can just take clients' money, start a dodgy build without intending to finish most of them just to have a "good faith" argument, and then claim insolvency due to rising costs attributed to inflation and interest rates. It's not only happening in NSW. It is happening in QLD and VIC as well. Builders pay third party vendors whom they know and whom can't be prosecuted. Then builders file for voluntary administration. No one can recover funds. Builders then set up a new company rinse and repeat. This video then presents "statistics" of profits but don't dive deeper into where the costs are going. The video just mentions oh no things are bad. Bro, those measly profits are measly precisely because of the "third party vendors" whom are essentially the builders' buddies. This isn't a new thing in construction. Plenty of construction companies in other countries do the exact same thing. It's a trillion dollar game they play.

[@DavieMach]

Did you finish the video or just watch the intro and think that I just blamed the government? I listed over 5 reasons but you just drilled into one. I also mentioned dodgy builders which is exactly your argument too 😅

[@XC-Z-cv8qw]

@@DavieMach That's called misdirection. When the presentation of bulk of your argument does not highlight the true cause of the problem but merely points it out as an aside, then the implication is that it's majorly due to government. That's my point. Hence why you point out the mind-blowing low profit figure around the 10:00 mark - because of government. I agree that government is also to blame as they allow all of this to go on, but the government should be blamed correctly. Government should be blamed for allowing this modus operandi by builders, and not for the cop out reasons of inflation or interest or immigration.

[@DavieMach]

@@XC-Z-cv8qw ok 👌

[@XC-Z-cv8qw]

@@DavieMach My bro this isn't against you personally. This is for your video. Your channel won't be able to grow if you just parrot media's "sUpPlY aNd dEmAnD iSsUe" and "iMmIgRaTiOn qUaLitY iSsUe"

[@DavieMach]

For shizzle my bro ✌️

[@aussie8114]

Clients shedding tears when their builder goes under yet those same clients would be jumping and screaming if they had to pay the increased material costs on their home build. I’m just glad I’m out of the trade after decades of dealing with clients. Sure some were good but most only looking for cheap prices.

[@deanwing2866]

client is sold underpriced building to win the work

[@billbrown1255]

I get that, but unfortunately when rates went up many clients simply could not borrow any more as they stretched themselves too much iin the first place. Those could were often offered the opportunity to pay extra and did

[@mikldude9376]

In the end, it comes back to cost for business, we used to have a motor industry in Australia, and decade after decade politicians policy disadvantaged out manufacturing and made it easier for imports every single year . And here is a statistic. Every major car maker in Australia either went broke or left for greener pastures. The building industry….. rinse and repeat.

[@DavieMach]

I'm hoping that doesnt happen with the building industry... that will be disastrous for the Australian economy

[@aaron4387]

Nothing the government did or didn’t do would have saved car manufacturing in Australia. “For those of you who want to make this into a political football, it’s not a lack of government support that killed this industry. $4.5 billion over the past 12 years - with both sides of politics kicking the tin - that’s more than enough time and money to float just about anything, no matter how decrepit and how much water it’s actually taken on.” It’s what the manufacturers don’t say that gives this game away - Holden, Ford and Toyota got the product wrong. Aussie buyers increasingly don’t want what these clowns decided to make.” John Cadogan Auto Expert. “It cost the taxpayer $2.2 billion to see Commodore sales fall from 88 thousand in 2002 to 27 thousand last year.

[@reddysteddy2195]

​@@aaron4387 the 3 tiers of aust government have a turnover of more than 75,000 vehicles per year. They were propping up the car industry with tax credits etc but had no mandate to buy Australian made vehicles - they were replacing vehicles with foreign made vehicles instead of Australian made ones. Quite simply, the most obvious way they should've supported Australian vehicle manufacturers would be to ensure they were buying Australian made first. But our govt was too busy making deals and taking bribes from foreign manufacturers to bother with supporting 'Aust first' common sense approach.

[@aaron4387]

@@reddysteddy2195 I think it’s more a case that very few Australians wanted to buy Australian made cars. Can’t expect the government to endlessly prop up a failed industry. Even every day Aussies didn’t want to buy them. Given the options ppl preferred to buy small, cheap and fuel efficient Asian brands instead- can hardly blame them.

[@aaron4387]

@@reddysteddy2195 where’s your evidence ppl in government were taking bribes from foreign vehicle manufacturers??

[@seanyeejiunfa]

Bro your shirt is as tight as the construction industry's budget

[@DavieMach]

In the current climate, I cant afford new shirts :(

[@FelixRisingOriginal]

🤣

[@TienNguyen-wv1ys]

😂 nice way to show your pecs.

[@bpositive8551]

There are no penalties to going bankrupt. There are no incentives for making good decisions.

[@DavieMach]

I don't think going bankrupt is a good idea for anyone. But I do agree that there are alot of bad players in the construction industry trying to rort the system.

[@bpositive8551]

@@DavieMach I don't see how anything will improve for customers or employees until there is accountability at the management level.

[@028TuvaluanHero]

There are penalties for bankruptcy.

[@bpositive8551]

@@028TuvaluanHero You are right, I should have said Liquidation which is specific to companies rather than individuals.

[@raven4475]

Tired of "supply chain issues"... Apparently Australia doesn't produce any Timber, Concrete, Steel, Glass, Copper. Like cmon!! I'm not believing this shit !

[@Clluthu]

I guess you must know something everyone else in the industry doesn't know? You know more stock creates competition? When your only stock is local what do you think supply numbers would be and the prices for these?

[@raven4475]

@@Clluthu At the rate these builders are going insolvent says to EVERYONE.... 1) Most don't know how to operate a business...

[@Clluthu]

@@raven4475 did you watch the video?

[@berniestar1490]

Correct, everything is made in Ukraine

[@jonathanrabbitt]

Quite a bit of construction lumber was supplied from Russia.​@@berniestar1490

[@TheJakem24]

I was/am a carpenter, but I got out before the crisis. Even then builders would use the cheapest materials, labour prices were too competitive and cut throat, and the large volume homes were still making little profit. I’d go back if I was paid what I was worth, but it wasn’t profitable enough before the price hikes. There are enough qualified tradesmen in Australia, but we all leave mostly for higher wages in less skilled and labour intensive positions.

[@TheEvdoggy]

Which “less skilled and labour intensive” roles do builders go to?

[@TheJakem24]

@@TheEvdoggy most go into heavy industries, eg Fifo, oil and gas, of shore, earthworks, windfarms even traffic management. I for example became a rigger. Much better on the body, less skill required, and it’s about twice the average carpentry yearly income.

[@incolink]

@@TheJakem24 offshore oil and gas has totally gone to shit My pay declined steadily for the last 10 years i make the same in town now at a plant .. i think the good money is on these infrastructure jobs tunnels level crossings bridges etc .

[@TheJakem24]

@@incolink Totally agree. In the last 4 years I’ve spent 3 of them in oil and gas, and I’ve just got back to it. In the year I had off I went to a windfarm project, (windfarm pay is in decline too) but I kept my toes in the domestic trades also. Although I’ve just come back to oil and gas, I jumped straight into hectic hours and I could never make what I have as a domestic carpenter in the last couple of weeks. I’d say they are both in decline but oil and gas has more financial wiggle room to breathe still. They are trying to negotiate for less pay (re-classification) or get a new company in. The large projects are definitely the go. The money those boys make is another level.

[@glennpitman6161]

it’s law that domestic construction contracts are fixed price. There is also a progress payment system that builders must adhere to. very simple minded to say builders chose to do fixed price contracts when they have no choice

[@StalinsGhost]

You can put in a lot of provisional sums but yea overall the client really has to agree with it, not something easy to do before covid. With progress claims we managed to convince banks to go with a lot more progress claims to help keep builders above water.

[@TrevorWilliams-fq8mg]

In the UK it is not law, but it is an insistence by most Client's. The HS2 contract is not a fixed price contract, rather a cost plus contract.

[@louisraubinger2558]

My thoughts are that the big players in the building industry ran a kind of a Ponzi scheme. They needed to get new customers to finish off the existing builds. Always undercutting the smaller builders.

[@BKWilliamsJnr]

Like China

[@mojojojo560]

It's exactly this. Everything in this video is technically accurate, but none of it would have amounted to this if these building firms only took on work that they could actually finish. They had cart blanche to take everyone's money in exchange for a wink and a promise and when it came time to deliver our government just let them ride off into the sunset. Absolute joke.

[@mikedavison4313]

I disagree. IMHO The problem with a lot of these companies is self inflicted. 1. they are limited liability entities where the owners have been taking out great $ in the form of dividends etc during the many good years but refuse to put money back in during the bad years. 2. they sign up too many fixed price contracts without having a robust hedging strategy for materials and skills, believing that the good times will roll on forever. 3. how many of these companies closed up purely to walk away from debts and phoenix themselves.

[@billbrown1255]

The best summary of what happened I have heard by a long way. Well done.

[@rogercooper2546]

Fixed price contracts have a price threshold eg $1 million. Class 2 building (apartments) defects is a big concern. RBA went too far with cash rate at 0.10 and held it there too long.

[@stephenpercy4643]

Ther biggest expense increase is Labor not labour!

[@jfern6673]

you are a funny kid.. since when did wages go up in australia?

[@joshuajackett6371]

The message here is clearly the Builders were caught in an environment that gave them zero chance of survival.

[@fullcircle4723]

Could call it a scam maybe?

[@outdoor75]

If a contracted builder has quoted a job and signed the contract at a certain price for a client. Why don't they work with the client and say look we can protect ourselves from rise and fall, agree with the client to purchase all materials upfront and have them stored or agreed with the supplier to have it stored at their premises till required. It is basically like getting paid upfront for materials onsite. The only things that cannot be stored would be concrete. But rebar, masonry, timber, roofing materials, sanitary fixtures, HVAC can all be purchased at the time of signing to lock in the prices. I know this will only work if the client can pay materials onsite up front.

[@DavieMach]

Im no builder but i assume some materials need to be made to order in certain stages. If you order everything up front then you have to be sure there are no changes/adjustments

[@vtgaming9204]

​@DavieMach not only that but as a lowly constructuon worker I can tell you space on these small blocks of land for houses do not even have the room to store roofing materials for a few weeks, let alone storing an entire house worth of materials on-site, just isn't going to happen with the size of them anymore

[@vtgaming9204]

I've worked on jobs that require us to move roofing materials from a block away

[@outdoor75]

@vtgaming9204 yeah I guess there will be a lot of double handling but I wonder how storage fees plus additional handling fees would compare to 30 to 40% increase in material costs. Maybe this is something that can be done for the higher blade items like windows and doors and FFE and HVAC

[@cameronwall1842]

I do not see why medium to large construction firms cant purchase futures contracts on materials to protect themselves from rising material costs. I would guess the penalties for bankruptcy are too lenient for these firms to care enough...

[@robmyers8948]

Cash buffers are low, where did it go when times were good. In the pockets of management and company owners. Then when it’s not profitable, let it crash…

[@DavieMach]

problem is that the construction industry will impact the whole Australian economy. Its just going to get tougher for more aussies.

[@robmyers8948]

@@DavieMach it’s bit of a catch 22. Inflation is up due to labour shortage in the sector, but immigration creates more demand on property, COVID lockdowns put us so far back when we already had a shortage I don’t see how the industry is going to recover.

[@ICONFESSONEBAPTISM]

​@@DavieMachYeah I am in the lawn mowing Contractors Australia group, I tried to explain the basic principles and got laughed out the door by everyone. Regarding hutchinson I explained if you spent 31 thousand to build someone a shed and you only got paid 31 thousand plus 12 dollars and 7 cents it would be totally pointless and you'd be closing down, they didn't understand the basic analogy. That's what it's like for hutchinson. But oh no, they made "a lot of money", "there is plenty of growth", etc.

[@vivianxwei]

what an informative video - thanks davie! love the ducks in the office setup background haha

[@Clluthu]

Government too busy relying on the "tried and true" policies that have got us into this mess in the first place. They are not doing what needs to be done to fix the actual underlying issues. This was actually a good to the point video without over politicising the issue like some other KZbinrs who just end up creating an echo chamber of nitwits.

[@Alex-oy6ci]

The morale of the builders looks like its dropped, just by viewing inspections. The quality across the trades has dropped. Foundations, painters, brick layers, window installers. Companies might be pushing their employees to get a job done in far less time to try squeeze their pay. If a dodgy inspector gives it the tick, then the customer might have to deal with the final consequences. This was seen in NSW.

[@DavieMach]

agreed, they quality of some builds have been atrocious

[@markbrzezinski8889]

This is correct except you have to look immigration as well. We can only build at a certain rate meaning we can only cut down trees at a sustainable rate and mine minerals at full capacity so immigration needs to be set at the long term average not the currently ridiculous level. Also the people making these policies are negative or in reality positively gearers. Normal by law public servants have to disclose but these public servant are not telling us who "they are" and what they "own" and politicians are also benefitting from this as well. Just listen to our elected prime minister defending everything they do to benefit themselves.

[@speedsoftaustralia8685]

Immigration is what is artificially propping up the GDP and stalling the recession we need and would else wise already be in

[@timjones9962]

The standard of so called tradesmen has dropped so low that anyone buying a new home gets 50% of what they've paid for.

[@jfern6673]

yeh most tradies get paid peanuts.. When people cut your money you obviously need to find your own payrise and it will be in the form of less materials, less time on the job, and less care..

[@geekswithfeet9137]

Number 1 reason is material price gouging

[@Mike-id7bh]

We have the most expensive tradesmen and land in the world. Both factors in squeezing the margins for building companies. Let's also understand that these are building companies not technically the people who build your house but the company that organises all the contractors to build your home and hold all the risk for a very small margin overall.

[@AustralianBushman]

The building industry is a national disgrace. Shame on everyone involved.

[@Spacemonkeymojo]

Anyone involved in building and real estate in Australia is corrupt and need to be deported.

[@michaelfung4629]

The inflated prices have created a fake reality for trades people. They actually"believe" their labour and "skill" is worth the extortionate prices. Even corporates look fair compared to this criminal mindset.

[@mattyk82]

As a carpenter who has worked in other fields, I can say i've had jobs/careers that are a lot easier and pay better with little front up cost to me than what I do now. I like what i do and thats why i do it, but domestic trades in general are still quite underpaid when you compare it to other industries. Theres also supply and demand, society requires skilled trades people to function, they are allowed to charge for their time and work accordingly.

[@barbarahotham8533]

In the 1960 /70 s government contracts included rise / fall contract calculations conditions, today it is all about fixed lump sum price. What is better for Government, provide conditions to share rising costs or an industry that is collapsing and with all builders unsure where the market is going. Fair contracts should be the lead by Government as the commonwealth wants to build billion of dollars in social housing, but a shortage of builders will not resolve this problem! Fair contracts for all to share the burden. GH, retired after 50 yrs in the building industry.

[@willeton]

This is all deliberate, to understand that, you need to do research on your political leaders here. They do not have your best interests at heart.

[@tahliamobile]

Also, the Director ID which was enforced a few years ago, has seen many shady people exit the industry. That, and the crack down on money laundering through property. Australia isn't the easy target it once was. You need to look at the bigger picture.

[@EdL2814]

9:06 - this stat is NUTS

[@DavieMach]

IKR

[@allanrendell]

Great video Davie. Breaks down what is happening in the market, very informative. Thanks

[@DavieMach]

Thanks, Glad you enjoyed it

[@BKWilliamsJnr]

The real problem hasnt even started yet. There is products in commercial and private construction right now that has a shelf life and once that expires...Buildings will crumble overnight!

[@drinno8900]

Bunnings could not hold a quote for 30days, let alone in 13weeks when you need it

[@DavieMach]

Exactly, those fixed fees contracts in the building industry just doesnt work in this climate

[@TBird89]

Timber in the US went up during Covid but went back down as more timber filled shelves. But Bunnings on the other hand lifted the prices and never lowered them. That’s why Wesfarmers profits jumped. Believe it or not during Covid there were 11 ships filled with timber off Port Kembla and then stored telling everyone there’s not enough timber !!!

[@shelbytops]

Does anyone know a builder that knows the building regulations and Australia Standards??? I have not come across any for years Building design being done offshore with total disregard to and standards And government agencies struggling to regulate Builders are running a muck

[@woodmandu8011]

All well and good to say fixed price contracts are to blame for them going bust… but lets be honest, how many actual home buyers who aren’t major corporations can go the bank and say “hey, i all of a sudden need to get another 150-200 thousand dollars to finish this house because builder changed the price on me”

[@Clluthu]

In the current environment people are already borrowing beyond their means to secure a house.

[@loveandpeace5413]

I just have a feeling that government has allocated too much resources to non-necessary groups and ignore the real needs and factors to booster the economy in terms of input on R&D, support innovation and reformation in our business structure in a national level. It's not practical to aim profit just in real estate industry which is too risky and too centralisation.

[@DavieMach]

oh man, I 100% agree with this. Take the $3 billion hecs bail out... There are industries and businesses suffering right now. Sure it helps the cost of living but its such a minor help. I am not a big fan of the govt policies recently.

[@SkyRiderJavelin]

Australian govt use Housing to prime the economy with first home owner grants, Europe prime the economy by making cars cheaper to buy. Govt should make it easier for people to be Owner builders, i.e. more courses on how to build houses with more license options and instead of introducing more regulation they should roll back the regulation and have more inspectors with more inspections. This will motivate more people to get involved and if equipment hire was cheaper and more abundant there would way more construction. Leaving the high rise stuff to building companies

[@WillyWanka]

Privium Homes, Porter Davis, Urbanedge (nearly)

[@haivt508]

I am unsure about the current situation, but previously, banks would not approve loans if the contract was not stable (fix). If an individual can only afford to repay a one million dollar loan, but the loan amount increases to $1.2 million, where will they find the extra funds?

[@Spiderwebsider]

Berejiklian shut down the NSW economy and mandated a medical treatment because of a sniffle. For some reason construction was labelled “high risk”, workers walked off the job, supply chains were disrupted, and prices skyrocketed. Our build increased by $30,000 in timber costs alone, while insulation was almost unobtainable. Builders on fixed price contracts were building for zero profit or at a loss. I now despise all these politicians, Liberal and Labor, because I know that a Minns Labor government would have done the same thing just like that maniac in Victoria. A completely avoidable disaster brought to you by the so-called “party of business”.

[@Clluthu]

Workers walking off the job cause they weren't getting paid for months by dodgy labour hire companies

[@kimriley5655]

Good video. Years of running manufacturing in all sectors using Just in Time methodology that only worked to limit the inventory / storage costs of manufacturing sector to give greater shareholder dividends. This system only works when there is no disruptions. When disruptions comes, Financial or Like Covid then it takes years for JIT business to recover. Is there any fast way to move from this Manufacturing methodology. The answer is No short / medium term fix likely. Businesses stuck with their low margins and Increasing their Capital investment are constrained by other Banking and financial pressures. Shareholders lived the high life for a long period and now the free ride is over well for a while to come.

[@Spacemonkeymojo]

It’s pretty crazy how sensitive all our systems are. If something small goes wrong things can go pear shaped real quick.

[@mathewwaszak8582]

Really well explained Davie, cheers.

[@DavieMach]

Thanks!

[@boris9331]

@Davie Mach thanks heaps for this video. Please consider making another video on how we can begin fixing this issue e.g how to train more people into the workforce (hint hint the able bodied people that govt pays to live?????, if not that something else?), economics side of it etc. Thanks. Lot of housing demand now is 1 person who just needs 4 walls and a roof, people are paying to use small bits of land just to park their car on don't need 4 beds and 2 baths.

[@spitlim]

A good analysis that links govt policies, market forces and consumer behaviour. It always easier to criticize the causes in hindsight but your video gives a fair balanced view... the swirl of causal factors came really fast and very rarely would businesses plan for the absolute worst case scenario. The covid times were feel-good times with cheap free money and most ppl wouldn't be negative in that climate. Unfortunately in today's debt lifestyle, what we desire we can get with debt. Granted there are situations where debt is a necessity, but those FOMO buyers in bidding wars wouldn't think much of the old school adage of cutting your cloth by your means. Not wanting to virtue signal, we prudently saved our money and bought our house with cash. Now many brokers are asking us to leverage our house to invest in another property. We politely told them no.

[@deanwing2866]

And yet nomention that if you paid your insurance through HIA and HBF thee clients are covered to have their houses built/

[@mulllhausen]

10:40 actually it was very predictable. This always happens after interest rates go up and towards the tail end of a housing bubble.

[@JimBob-qh8gl]

Good Times - 25K to build, 20k from super and 40K Job keeper x 2 with a partner and bam, New House for 160K at 1%. What could go wrong

[@Dude-etiquette]

Cause they pocket it, don’t pay the sub contractors, declare bankrupt to wipe their debts and start a new company

[@rinkbawa4599]

All good and informative videos. Can you make an video sir on podium as you make on xero and quickbook.

[@rinkbawa4599]

You didn’t reply brother

[@CineTechGeek]

the problem is people can no longer afford houses at the prices they are now. so for the construction industry to pick up. a lot of land needs to be released by the land bankers sinking house prices enough so they can afford to build. so don't expect housing to improve for the foreseeable future... but if the gov stops all the distortions to keep prices up. yes then it should pickup. but all the boomers and wealthy will be against the gov doing this as it greatly reduces their wealth. but as costs are going up faster then wages, we are all going backwards and are in no position to build. get used to shared living.

[@DavieMach]

100% agree with this. The cost of living crisis is real here and what can help solve this issue is if construction industry builds more houses... But it just doesnt seem like this is going to happen anytime soon.

[@RenegadeRanga]

​@@DavieMachcutting immigration to 20k a year.

[@stephenbrickwood1602]

If the client carries the risk of rising costs the the client could go bankrupt. And downstream impacts start from one step higher. The builder is just part of the total problem.

[@craiganstiss8087]

I am not sure about other states but in Vic projects below $2 million must have a fixed price contract.

[@vinow6]

Excellent summary

[@brettwainscott1165]

Consideration should also be given to the effects on the housing industry by property investors (both by Australian and overseas investors), especially those participating in hospitality rentals (i.e. with companies such as airbnb, etc). This mass movement severely diminished property available to homeowners and renters alike and helped drive demand and prices through the roof. A lack of simple leadership foresight (over multiple governments - on both sides) is responsible for the current housing and construction debacle.

[@otayga]

they should create the mortgages in build stages, NOT as a complete end product. That way, all the utilities and concrete is poured and IF the market shits itself. The home owner would still have access to funding, and find smaller builders and and other tradies to complete the house at the rate. Something along this theory

[@aeasthouse316]

easier said than done. You can't simply take over another contractors/sub contractors work. There is risks/insurances and liabilities that the 2nd contractor takes over at great risk. That's why the construction cost of completing a house half build by another builder nearly doubles.

[@otayga]

@@aeasthouse316i understand that part, but they are defaulting on the build due to prices, so i guess what im saying is if. Each aspect of the build is broken into the cost through contract. Each Trade specialist is apart of the build. Traditionally, the building subs all that work out or does himself. But if its fragmented, each aspect of the build can be isolated and the owner can find other tradies, and to be honest, it would be cheaper, Internal linings, painting, roofers, brickies and so on. Im saying this a outside the box way of mitigating market price changes, especially when it comes to off the plan builds. That model works in right financial conditions but fails horribly when external market forces are applied.

[@otayga]

@@aeasthouse316 or another model when it comes to products, create a new financial futures product on materials...thats getting a tad smarter, it would at least create options.

[@step1drag1dwnunda]

Red tape is not always a bad thing as it is made out to be. It is supposed to protect workers and customers. This is a business point of view video. Customers and workers have rights to you know.

[@Chris-xu6wy]

great video and thanks for the explanations .

[@DavieMach]

Thank you

[@kevinkwok7626]

Well what you are just going through the topic that it is impossible for anyone to predicate/even prepared this situation. If builders do not have fixed pricing, everyone will point finger to them for fluctuate prices, if they do then they are going broke(in this current economy status). I can understand one or few builders gone broke, however there are that many have gone down obvious it is system let them down. So until top level government who proposes policies, and central bank together with other state and local governments are streamline with their plans and contingency, and work for the good of people, then everything should be fine. I think rather our finger should be pointing series of policy makers.

[@scottcarlyle3502]

Builders have to have fixed price contracts by law in QLD

[@noelkelly4354]

ROTFLMAO. Homebuilder was exactly what the Building Industry peak bodies asked for at the time, except the Libs gave 'em 'only' $25K instead of the $50K they asked for. Some of the land developers increase block prices by up to $30K.

[@whitty75]

Can't still blame covid and supply chain costs 4 years later. Surely as companies go bust labour can't still be short and we must be through all the fixed priced contracts. So why are they still going bust ?

[@DavieMach]

I think it’s the fact that the building industry kept getting hit by too many issues like supply chain issues, covid lockdowns, govt red tape, labour shortages, interest rates, inflation and supply cost increases. During COVID the govt released grants and concessions to keep business to stay a float and as a result created zombie companies. The cash has dried up for these companies. I also agree with some of the comments that it allowed bad players in the industry to rort the system too.

[@AbdulKhan-cy3vq]

Let's be real the interest rate is f this country up. People are in way too much debt. Hard to pay up. Sending people into stress and enxity

[@Ravioligreen180b]

As adults we all have choice and look at risk. Anyone who thinks interest rates would stay low didn’t do their homework. GFC, the 80s the 70s. The average interest rate in Australia over the last 100 years has been between 4-9%. Nobody held a gun to anyones head to borrow so much at the historically low and unusual interest rate. Money in shares, property, anything, is risk

[@SJ-qs2gj]

Fantastic video with crisp explanations

[@DavieMach]

Thanks for watching

[@j3ngel]

If you have fixed price contracts, you should have fixed prices / secured prices for your supplies. simple as that. They were too greedy to sign as many contracts as possible not signing ones they could safely execute.

[@tjdoss]

The biggest market opportunity in the next 5-10 years is going to be "fixing the houses they build now"

[@hassanfarhat1568]

Construction at like health system Random slow and running by stupidity

[@DavieMach]

It’s running even slower now

[@jolediko]

Davie, Anytime the government steps in and injects money to bring about stimulus, we see this happening. I run a building company and from a real perspective I agree with all you comments. Fires, Floods, and the pandemic also played a huge role in this. The rise in demand, was a huge win for sub-contractors who were able to barter from a position of strength, this also affected cost. Timeframes affected contracts affected profitability. Those companies that go broke, suffer from a range of reasons, not always bad management or shonky agendas. In NSW the government controls Warranty Insurance so if you’re not a safe bet, you will be restricted with your ability to build in quantity, and contract size. I agree survival is paramount.

[@moviesynopsis001]

Damn bro you look fly. Dig the hairstyle.

[@FreeEagle126]

When the traditional method of building no longer sustainable. "Out with the old, in with the new."

[@col2959]

Who was more hated. Morrison or Albanese? I personally hate them both equally. Slimy nerds

[@interceptor7905]

Crisis by design continues

[@generalbuildingco]

Great video Davie

[@DavieMach]

thank you!

[@ccd119]

But then you can argue the main fault was actually the fixed pricing of projects, not the stimulus in response to covid cause the economic forces of inflation and rising labor costs are not solely due to the stimulus

[@SigFigNewton]

Treating low supply by increasing demand isn’t NOT abominable

[@therooffairy5979]

Only a fool would build now...these old Art Deco brick, hardwood and Iron homes are gonna go through the roof.🎉

[@vivianoosthuizen8990]

Can they just start new companies?

[@Clluthu]

They already know the industry is f'ed.

[@douglachman7330]

Where is the accountability with builders and financers? Compounding causes and consequences with human nature always wins. What's going to happen in 3 years when the problems become too large and new purchasers will lose funds.?

[@tonicreal4853]

Cheap foreign so called tradesman under cutting and qualify of work.all my mates in different trades say the same.just have alook on a building site

[@Clluthu]

It's the difference between having somebody or nobody. The industry is in desperate need of bodies and will take any Joe Blow.

[@ntino21]

Big companies can manipulate profits and losses through triangular companies

[@JaseMelb80]

Hi David, My understanding was that under the law the builders have very limited scope to vary the price i.e. the fact their costs go up on a lump sum contract is their problem. And on the other side, in a competitive market, the consumers are said to be very price sensitive. So if they increase their profit margin to cover the potential for materials & labour price increases then they may not win very much work. Also, you aren't speaking to the role of government. The building industry is famous for being a 'capital light' sector. The builders don't really build anything. They are principally marketing and project management companies and use sub-contract labour for all works typically. This structure to the sector is not a new phenomenon. In other sectors where there is systematic risk to the financial system / society by their failure we implement rule for their capital holding (or insurance). For example, the capital holdings of the banks. Fool me once shame on you, fool me twice shame on me. Isn't that really the role government should be playing to protect both the industry and consumers?

[@robertgregory8964]

Govt intervention always creates unintended consequences. Planned economies end up a total disaster. Just wait for the next wave of house building incentives managed by Federal & State governments.

[@TomWeir-v5o]

You are and accountant . Here is an excerise . These figures tell a story. For a typical new home put a figure on all the taxes together and most importantly with all the fees. Their are a lot of fees starting with building approval fees and the fees for connecting all the services. Requires a lot of digging to expose them all. That will tell a storey.

[@shanerobertson6267]

Half is tax yep- follow the money

[@Tracertme]

It just shows how poor the management teams are leading these business, the first cold wind and they go tits up..

[@whatcouldgowrong7914]

There is no “housing shortage” what there is a shortage on regulation to stop wannabe investors hording 10+ properties which drives up sale prices then gouging rents to pay off mortgages they cannot afford themselves…

[@newto4361]

Interesting video,thanks,that music is unnecessary and annoying though,cheers.

[@DavieMach]

Thanks, I'll keep that in mind for the next videos

[@text067]

How are there labour shortages when so many companies have gone bust and let go their staff. Not making any sense in your logic

[@007tj5]

The new migrants have an attitude to build a Taj Mahal at the cost of a cottage, which contributed to the fall in quality and the broken industry.

[@Clluthu]

And where is all the compliance checks? The industry was allowed to sign off on it's own work. Very dodgy.

[@romeoandjuliet6522]

Builder made lot of profit before let them bankrupt

[@keithchapman1477]

How many were freemasona, just a thought.

[@RenegadeRanga]

Most politicians that matter belong to a grand lodge.

[@keithchapman1477]

@@RenegadeRanga yep.

[@colinshaw3326]

All designed by the higher ups to do just this,only attracts the ignorant of heart.

[@RoyRenelt]

Dude we’re your hi vis and hard hat

[@mamasita65]

dodgy builders are not qualified destroying everything I work as a pest controller I seen the lot its crazy there good tradesmen and there bad its nothing about save money its many just have a abn number off they go and a mate help someone recks the houses I seen the lot now getting worse inspectors whaat happen them they strict before what about now

[@Jake.steve3658]

Its corruption

[@RibZe1]

Thank you Liberal Party.