Construction firms may still collapse as industry remains weak, economist warns

The top performers in the building industry may have increased their number of housing projects in the past year, but the industry is struggling and smaller players could still collapse, one economic expert warns.

The comments come as the new Housing Industry Association Housing 100 report on the country’s biggest home builders and residential developers has found BGC, run by billionaire Len Buckeridge, has kept its title as the most active builder of the year with 4,392 starts.

“But without stimulus measures and the old issues surrounding land planning and delays in development, then you are going to run the risk for a further loss of businesses from the industry,” HIA economist Harley Dale warns.

The Alcock/Brown-Neaves Group and Metricon Homes followed in second and third places respectively, with 3,526 and 3,214 starts. Hickory Developments was the country’s largest multi-unit builder with 1,274 starts.

Dale says the industry is definitely improving, with the number of housing starts among the largest 100 companies increasing by 22.8%, from 49,360 in 2008-09 to 60,590 from 2010. It was the highest number of yearly starts since 2004-05.

But that result isn’t necessarily a free pass for the industry, Harley warns. He says the report represents a time when interest rates were low and stimulus was high – and conditions have changed.

“In one sense you’re looking in the rear view mirror for this report. Now, you don’t have low interest rates, you don’t have stimulus, and although we may have a better year in 2010-11 than we did in 2009-10, it will only be a moderate increase.”

“We certainly believe the 2010-11 year is going to be difficult, more difficult than the last. And as long as these old issues like land supply and planning are floating around, then there are going to be issues in the industry.”

The report notes that although there were 11,230 more homes built by the largest 100 builders during the year, compared to the previous 12 months, the number of multi-units actually fell.

Starts for flats, units and townhouses came in at 8,988, down from the previous year’s total of 9,413. Harley says this represents a severe issue of restricted finance, along with problems around labour, planning, taxation and regulation.

Dale says the issues plaguing smaller developers in 2009 will only be worse in 2010-11. He points to a number of collapses in 2009, when several smaller companies fell under, even when stimulus was available.

“Some builders just couldn’t survive. That’s the harsh reality, businesses lose their livelihood in times of near-recession. Stimulus prevented a lot of companies from going under, but the stimulus is gone and businesses are still struggling with those same issues.”

“We have plenty of issues to deal with like delays in finance, planning approvals and so on. These are issues we’ve dealt with for some time, and with the weak industry and lower amounts of stimulus, we do run the risk of more businesses collapsing in the industry.”