If you have been keeping up to date with news headlines over the past year there is no doubt that you would have heard of a number of high-profile construction companies going under.
These stories can understandably stir a large amount of unease and anxiety if you are looking to build a new home.
But, by assessing the performance differences between larger building companies and smaller home builders during this time of turmoil, it is evident that smaller, boutique builders offer a much safer option.
Why are the Big Builders Going Bust?
The recent collapse of a number of large building companies have debunked the idea that big builders are stronger and more resilient. Instead, these large construction companies have been the first to fall, showing that they don’t always have the ability to confront the ever-changing construction environment.
But, why is this the case?
When the Government introduced a large number of stimulus packages in 2020 to help support the construction industry, the number of contracts being signed skyrocketed. Many volume building companies jumped on the opportunity to sign as many contracts as possible, with some companies signing twice as many and some as many as four times the contracts as the year before. The majority of these contracts being fixed-priced contracts.
2021 then saw the unprecedented rise of material prices, shipping and labour shortages and thus rendered many contracts signed months prior no longer profitable to the builder.
This dire situation forced many large construction companies to decide between delivering at a loss or uncomfortably renegotiating fixed price contracts with their clients.
Due to the number of the large building companies going bust it is evident that a lot of them neglected the necessary communication with clients and ignored the reality and severity of the situation, choosing to bury their heads in the sand and continue construction on their loss-making contracts.
According to ASIC figures for the 2021-2022 financial year, there were over 1200 construction company collapses. This has resulted in thousands of homes being left incomplete and just as many devastated families without their promised new homes.
But, What About the Small Builders?
The recent challenges experienced by the building industry have hit all builders, no matter the size. It is clear that smaller boutique builders have been able to face these disturbances head on and have come out more triumphant than their larger counterparts.
There are many factors that have played a part in this particular outcome. One being the fact that larger building companies have been shown to take more risks. For example, after the Government released its schemes to promote access to home building for new home builders, it was large construction businesses who took on 100-300% more work than normal compared to the 50% more work taken on by smaller building companies (SORCI Report, 2022).
This risk did not pay off for the large building companies when the majority of those fixed price contracts became unprofitable when changes in the building market occurred.
Additionally, smaller builders generally have a greater rapport with their subcontractors, allowing them to experience greater productivity and reliability in terms of communication and payments. This loyalty allowed smaller building companies to better navigate the challenges of price hikes in materials and services and continued the progress of each project.
The smaller builders who limit the number of homes that they build are the ones who are in a better position to manage their constructions projects and keep the show on the road.
Although, it can be daunting when you are thinking about building a new home, it doesn’t have to be. It is imperative that you select a builder who you feel safe with and who you are confident in to be honest and transparent from the very beginning.
If the recent disruption of many large building companies teaches us anything, it’s that boutique builders are the much safer option to ensure that they are around for the long haul to bring your new home to completion.
