NSW budget: $500m housing plan to worsen construction crisis amid collapse in industry

A multimillion-dollar plan to fix the housing crisis has been announced – but an expert claims the “Band-Aid fix” will actually make things worse.

NSW has announced a $500 million plan to tackle the state’s housing crisis – but an industry insider claims it’s little more than a Band-Aid fix that will create bigger problems down the track.

Under Premier Dominic Perrottet’s plan, more land will be unlocked for development and planning approvals will be fast-tracked in a bid to ease housing supply and affordability pressures.

The state government claims it will help the problem by adding hundreds of thousands of new homes to parts of Sydney, with a whopping $300 million allocated to accelerating the delivery of “shovel-ready” infrastructure projects.

Almost $90 million will go towards cutting red tape and unlocking more homes sooner via faster planning assessments, and $69.8 million will accelerate the rezoning of key housing precincts in Sydney and regional areas.

Meanwhile, the NSW government has also announced a $780 million shared-equity scheme to address housing affordability for frontline workers, single parents and older single people.

Under the scheme, the state government will contribute up to 40 per cent of equity for a new home, or 30 per cent for an existing property.

But Russ Stephens, co-founder of the Association of Professional Builders (APB), told there was a major problem with the plan.

‘Band-Aid fix’ lashed

Mr Stephens said while the industry would welcome plans to cut red tape and fast-track assessments, the shared equity plan would simply “create higher demand” – and cause more issues later.

“The shared equity scheme will simply create more demand, which will lead to higher house prices in the longer term, like any government stimulus,” he explained.

“It’s a Band-Aid fix that will create more problems in the longer term.

“And who will build these homes? The big building companies still have a backlog of loss-making contracts that need to be cleared first. I’m not sure this will lead to an explosion of new builds, just a backlog.”

Mr Stephens said the sector was already grappling with a perfect storm of issues, including the former Federal government’s HomeBuilder scheme, supply issues and skyrocketing costs.

He said the HomeBuilder stimulus measure – introduced by ex-PM Scott Morrison back in 2020 to prop up the struggling construction sector during the Covid pandemic – created a massive spike in demand which led to big building companies signing up to four times as many contracts as they normally would, before prices soared to almost unsustainable levels.

“They’ve still not worked through those contracts that are now loss-making contracts. They need to either renegotiate the price with the client or refund deposits, and unless they sort that first I don’t see how they will be in a position to take on more contracts,” he said.

“In the case of big building companies, they signed so many contracts over that period of time they are only just starting on contracts signed 18 months ago. But prices have gone up since 2021 and they are losing so much money.

“They are all affected, but it’s the really big companies that are really hurting because their sales teams went out and signed more contracts.”

Mr Stephens said about 80 per cent of building companies had experienced a loss on a single project over the last 12 months, requiring them to “dip into their own pocket” in order to complete it, but for the majority, it didn’t affect their overall profits too severely.

However, he said 30 per cent of building companies had experienced a loss overall in the past 12 months, meaning they didn’t make a profit, which has then eroded their equity.

The stresses plaguing the industry has caused the collapse of multiple large and small builders to collapse across Australia in the last six months, and Mr Stephens said there “absolutely” would be more to come.

“The risk is that for big building companies, all this risk is on the books, and also small builders who don’t understand their financials. That’s why we need compulsory financial education for builders,” he said.

But he pointed out it wasn’t all doom and gloom, with many building companies taking action quickly in 2021 by renegotiating contracts and opting not to overextend themselves.

Four huge ‘red flags’ to avoid

With the construction industry in crisis, Mr Stephens said it was now more important than ever for customers to do their research to ensure they choose a builder who will still be around in 12 months time to finish the project.

He said there were four glaring red flags to be avoided at all costs.

“One red flag is availability – instant availability to start a job should be considered a red flag, although it’s not a complete disqualifier as there could be a reason. But at the moment builders are generally booked up to 12 months ahead, so if there is availability, you need to explore why,” he said.

“Another red flag is quoting the lowest price – be very wary of the cheapest quote.

“Look at their sites as well, they should be active, clean and tidy and if they’re not it could be another indicator of a poorly run building company.

“And check their past clients as best you can, and read reviews and case studies online.”

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