Why Australian Builders Are Failing Every Day

Eight construction companies are collapsing every single day across Australia. We're looking at 2,832 construction companies that entered insolvency in the 2023-24 financial year alone.

That's not a statistic you can ignore if you're financing, investing in, or advising on Australian property deals.

While government infrastructure projects keep rolling along, residential construction has hit a brick wall. And it's not just affecting small operators - we're seeing substantial developers and established builders going under.

The financing model that worked for decades has fundamentally broken.

Here's what's happening. Traditional lenders are demanding high pre-sales percentages and locking builders into fixed-price contracts. Since COVID hit, construction costs have surged 31.1% according to the ABS, with residential construction prices jumping 40.8%.

Builders are absorbing this entire risk. When steel prices spike or labour shortages hit, they wear the difference. Many simply can't stomach it anymore.

The Risk Concentration Crisis

The current system dumps all project risk on the builder's shoulders. Cost overruns, material delays, regulatory changes, weather delays - the builder carries the lot.

This worked when costs moved predictably. When a fixed-price contract actually meant something. Those days are well and truly gone.

I'm seeing abandoned projects that were land-banked for years with outdated approvals. When developers finally moved to construction, their original feasibility studies had become complete fiction.

Construction costs had doubled while their budgets stayed frozen in 2019 pricing.

The fixed-price contract model has proven disastrous during this period. Many builders signed contracts for permits approved before demand and costs increased, then got caught in an impossible squeeze.

Alternative Capital Steps In

While the Big Four banks retreat from construction lending, non-bank lenders are filling the gap. Qualitas has nearly doubled its funds under management to A$8 billion since mid-2022.

These alternative financiers are bringing different models to the table. Equity funds offer higher returns with more risk. First mortgage funds provide lower returns but greater security.

International pension funds are backing these plays in a big way. Dutch pension fund APG just completed a $600 million mandate with MaxCap Group, with another $300 million option ready to deploy.

Smart institutional money sees genuine opportunity in this chaos.

Risk-Sharing Models Emerge

A completely new approach is taking shape. Instead of builders carrying all risk, we're seeing it distributed among developers, construction companies, suppliers, and financiers.

Cost-plus percentage models are replacing fixed-price contracts. Builders get profit-sharing opportunities instead of bearing unlimited downside risk.

Modern construction methods like "design, manufacture and integrate" can reduce development costs by 20-30% and build times by 50%. The maths starts working again.

These changes substantially improve investment returns and can revitalise stranded projects that looked hopeless under traditional financing structures.

Innovation Meets Institutional Resistance

The solutions exist and work at scale. Multiple large projects have proven the model works. Yet industry-wide adoption remains frustratingly slow.

Established developers struggle to abandon practices that brought them success for decades. The institutional memory runs deep, and change is hard when you've got billions on the books.

Smaller, more agile firms are better positioned to embrace innovation. They may well emerge as new industry leaders as this market continues evolving.

We're watching classic disruption dynamics play out in real time.

The Digital Financing Revolution

Australia's construction crisis reveals deeper structural issues that technology and new business models can solve. The industry desperately needs platforms that connect global capital with local projects efficiently.

The future belongs to companies that can integrate innovative construction methods with practical financing solutions. Those that can standardise, globalise, and simplify what has become unnecessarily complex.

Eight companies fail daily because the old system demands they carry risks no single entity should bear. The new system distributes that risk intelligently across all stakeholders.

From where I sit, having spent 25 years in financial services and technology, this crisis represents the biggest opportunity we've seen in Australian commercial real estate financing.

The question isn't whether change will come. It's who will lead it.

References

1. The Canberra Times. (2024). The crisis in Australian construction: eight firms collapse daily. Available at: https://www.canberratimes.com.au/story/8785159/the-crisis-in-australian-construction-eight-firms-collapse-daily/

2. Australian Bureau of Statistics. (2024). Insights into building construction prices. Available at: https://www.abs.gov.au/articles/insights-output-building-construction-prices

3. Australian Bureau of Statistics. (2024). Home building through the pandemic. Available at: https://www.abs.gov.au/articles/home-building-through-pandemic

4. Investing.com. (2024). Private credit sees opportunity in Australia real estate as banks hesitate. Available at: https://www.investing.com/news/economy/private-credit-sees-opportunity-in-australia-real-estate-as-banks-hesitate-3222494

5. MaxCap Group. (2024). APG completes $600 million MaxCap agreement. Available at: https://maxcapgroup.com.au/apg-completes-600-million-maxcap-agreement/