Maria Tupou was having dinner with her husband, Sio, in April when he delivered some bad news.
Sio had just learned they could lose the $30,000 deposit they paid to construction firm Porter Davis to build their "forever home" in Wollert, a suburb in Melbourne's outer north.
They signed a contract with Porter Davis in November 2022. Then, in March this year, before construction had started, the firm collapsed.
It was a huge blow for Maria, training to be a nurse, and Sio, who works in the construction industry. The couple had believed the insurance in their contract covered their deposit.
"[But] when we attempted to make the claim, we were told there was no policy," Maria tells ABC RN's Life Matters.
"Porter Davis never took out the insurance on our contract or build."
The construction collapse has not only delayed their dream to build their own home. It's also caused the couple to, reluctantly, put a pause on plans to expand their family.
"I just remember sitting there crying in the middle of a busy restaurant," says Maria. "I'm still emotional about it."
Maria and Sio are far from alone. Porter Davis is just one of dozens of building companies to collapse in the last 12 months.
Phil Dwyer, president of the Builders Collective of Australia and builder of 40 years' experience, says the insolvency crisis in the construction industry is a "nationwide problem".
So what's causing it, and how can it be fixed?
Rising costs and fixed-price contracts
Dwyer says, currently, "there's a great escalation in insolvencies".
The data bears this out. According to ASIC, 1,709 construction companies entered administration between July 2022 and April 2023, up from 1,284 in the same period 12 months earlier.
Dwyer traces the current insolvency crisis back to the HomeBuilder grant, which was introduced by the Morrison government in June 2020 as part of its economic response to the COVID-19 pandemic.
The program offered a $25,000 grant to owner-occupiers who signed eligible contracts between June 4 and December 31, 2020, or a $15,000 grant for eligible contracts signed between January 1 and March 31, 2021.
As a stimulus measure, it worked — too well.
As Tim Lawless, research director from CoreLogic, told ABC Melbourne's The Conversation Hour in 2022, HomeBuilder became "over-subscribed" as people rushed to sign contracts before applications closed.
By February 2023, the scheme had received 138,000 applications and distributed $2.52 billion in grants.
Dwyer says introducing the HomeBuilder scheme into an already "heated industry" created a volume of work that has proved unmanageable for the nation's builders.
"[The government] should never have done it," he says.
Two years on, supply chain issues and inflation caused by factors such as COVID-19, Russia's invasion of Ukraine and labour shortages have created a crisis.
Builders operating on fixed-price contracts who cannot pass on increased costs to customers have been hardest hit.
With the price of raw materials such as steel and timber increasing between 40 and 50 per cent during the pandemic, many operators have simply run out of money to finish projects.
"It's devastating for the building industry [and it's] devastating for consumers … We're in a lot of trouble," Dwyer says.
Caught in an 'inflation bubble'
Michael, a residential builder based in Melbourne, has recently finished work on a project he took over in 2021, after the owner discovered the previous builder was trading insolvent.
"This is the third job I've completed where the previous builder has gone broke or gone missing," he says.
The completed work was substandard and underinsured, creating problems for the owners, including a $400,000 budget blowout.
"[The owners have] got two young children; they're living with their parents. They're struggling financially, too," Michael says.
These days, it's a situation he's seeing more often.
Recent price rises are a problem for large construction firms operating at low margins of 7 to 8 per cent, Michael says. These figures mean there's no buffer when costs increase.
"A lot of builders who are going broke … are office-based. They pay people to manage the jobs — they have an accounts team; they have a marketing team," which amounts to "a lot of fixed costs", he explains.
These large firms, who might do up to 90 jobs at a time, now face a perfect storm of raw material price hikes and expensive delays, due to labour shortages, lockdowns and bad weather.
"This is where they're getting bitten," Michael says. "If you're a large or volume builder, you're really caught out in this inflation bubble."
He says adding a rise and fall clause to standard building contracts allows the sum of a fixed-price contract to increase or decrease in line with fluctuating costs, which could take the pressure off construction firms and reduce the number of insolvencies.
"At the end of the day, no one wins when a builder goes broke — builders, the Tax Office, subcontractors, and, obviously, home owners," Michael says. "It's just heartache."
A call for better regulation
Maria and Sio sought advice from the Victorian Managed Insurance Authority and the liquidator, Grant Thornton, who told them no help was forthcoming.
The couple joined hundreds of Porter Davis customers affected by the construction giant's collapse in a protest on the steps of the Victorian parliament on April 16.
On April 20, Victorian premier Daniel Andrews announced a $15 million compensation scheme for the 560 families who, like Maria and Sio, had discovered they had no insurance despite paying a deposit to Porter Davis.
For Maria and her family, who moved in with her mother to try to save for another deposit, news of the scheme was a welcome relief.
However, she is still waiting for information about how to access the compensation and, indeed, even if they are covered.
"We haven't been told anything," she says.
Phil Dwyer from the Builders Collective of Australia says stories like Maria and Sio's speak to broader systemic issues in the construction industry.
State-based bodies are responsible for regulating the construction industry and issuing building licences.
He says there are different degrees of oversight in different states.
"There are a lot of builders that don't have the skills that they should have to hold a licence," he says.
Dwyer claims regulators are failing to investigate and respond to complaints of misconduct and non-compliance.
"We … need more checks and balances," he says.
"We're talking the biggest investment of a person's life when they enter into building a home or a renovation. It's not $10 or $20, it's tens of thousands of dollars."
Last-resort insurance not up to scratch
Dwyer is also a critic of mandatory building insurance required in all states and territories outside Queensland.
Under these "last-resort" systems, customers can only submit a claim if the builder is insolvent, has disappeared or died, or has had their building licence suspended due to a court order.
"If you have a bad builder and have defects and problems within the building, you can't make a claim — you can't make the insurance company even look at it," Dwyer says.
"If there is an insolvency, for a non-completed home, you only get 20 per cent of the original contract value … Even if you can make a claim, you're not going to have enough money to finish the project."
Dwyer says a better alternative is Queensland's "first-resort" insurance scheme, which allows a customer to lodge a claim while the builder is still trading.
In Victoria, the Builders Collective of Australia is calling for an overhaul of the entire regulatory system, including a switch to first-resort insurance, increased scrutiny of surveyors who sign off on building work, and more consumer protections for apartment owners.
"We want the whole [system] changed so that builders become more accountable," Dwyer says.
"Building a new home should be a joyous occasion. It shouldn't be a nightmare."
RN in your inbox
Get more stories that go beyond the news cycle with our weekly newsletter.
If you're unable to load the form, click here.
