- New report reveals that residential builders continue to face an uphill battle
- Many sub-$100 million residential building companies have demonstrated resilience and adaptability
- Labour shortages and declining mental health among builders have emerged as significant concerns
Rapidly rising prices and labour shortages are conspiring to hit builder’s margins and continue to make life difficult for the construction industry, according to a new report.
The State of the Residential Construction Industry (SORCI) Annual Report, found that residential builders have had to deal with material price increases, supply shortages and rising labour costs that began in 2021 and continued throughout 2022 – putting extreme pressure on margins.
However, despite the headwinds, 57.7% of builders reported that the majority of their projects were delivered on time.
In Australia, the situation has been even more challenging with builders operating with fixed-price contracts without cost escalation clauses putting builder’s margins under pressure, while extreme weather across the country has also been causing widespread delays.
The report said these pressures have been the main cause of the failure of a significant number of construction companies, resulting in millions of dollars owed to creditors. Although the spike in building company failures has mainly been occurring in Australia so far, the trend will spread to other countries in 2023 as rising interest rates hurt consumer confidence and reduce borrowing capacity.
Smaller companies more nimble
Despite these challenges, many sub-$100 million residential building companies have been able to adapt quickly to the changing environment, side-stepping the issues that have plagued larger counterparts. As a result, a number of these builders have reported record revenues, gross profits and net profits, the report said.
While, labour shortages have also emerged as a major issue throughout 2022, as employers struggled to attract high-quality staff given the extreme level of demand. The situation has also been made worse by high levels of absenteeism in the workplace, forcing many building company owners to take on onsite duties themselves to keep projects moving forward.
The report reveals that a significant number of builders reported feeling exhausted, burnt out and anxious, with one in four survey respondents admitting that their mental health had deteriorated.
Good operators to survive
As supply chains return to normal and unemployment rates rise to healthier levels for businesses, builders will face new challenges in 2023. Rising interest rates will require builders to rely on effective marketing strategies and repeatable sales processes to generate sales.
The report said that the best operators will continue to grow profitably, but larger building companies with depleted reserves and average builders lacking effective marketing strategies will face an uncertain future.
