Aspiring homeowners’ dreams crushed as Perth housing crisis deepens

For heavily pregnant Emma, the collapse of Home Innovation builders could not have come at a worse time. With her first-born only weeks away, there is no baby room, no child swings in the backyard and nowhere to lay a playmat. The home she was promised in a glossy brochure about 16 months ago is now just a steel frame on a concrete slab, set on a dusty block in Perth’s outer suburbs. As it did for many people, her journey began in late 2020, spurred by the promise of up to $45,000 in grants from the State and Federal stimulus grants, and set in motion by slick salesmen, immaculate display homes and a vision of the Great Australian Dream. “I feel betrayed that a company that knew someone was expecting their first child would do this,” said Emma, who is too scared to use her real name for fear of retribution. Emma and her husband are among hundreds of families now scrambling for Plan B in the wake of the liquidation of the company. Empty promises A quick perusal of social media shows that for many customers like them, as well as thousands with homes still under construction, builders have become Public Enemy #1. There are complaints homes promised within five months have taken 18 months just to get a frame, while one grant applicant does not even have a slab. There are accusations builders are operating like ponzi schemes, taking deposits from new clients to prop up other builds. Some want class actions, others want builders jailed. Much of the anger is being targeted at Perth glamour couple Yusuf Khan and Cynthia Lu - who run ModCo Residential - have are emerging as the unpopular face of builders in the current environment. The pair were targeted his week by a disgruntled ex employee, who graffitied a brick wall at a half-built home with the words “Modco not paying bricklayer”. While the pair claim all is well with the company, more than half a dozen individuals and former employees of the pair claim the couple’s previous company, Modco MC which is no longer trading, owes them a combined total upwards of $100,000 in unpaid bills. The vitriol aimed at builders across the State - within some quarters - is well-summed up by a recent social media post, which stated: “The director sent an email blaming the pandemic, blaming the supplier, blaming the East West corridor floods, blaming corridor flood, blaming government control of the forests - just not blaming themselves. And they still keep posting on Facebook that they complete homes in 20 weeks.” The anger is palpable, but is it fair? Supply and demand But Robert Shaw, director of Daly & Shaw, said the public does not understand what builders are going through, with many of them losing hundreds of thousands of dollars themselves. Mr Shaw, who met for crisis talks with Premier Mark McGowan on Wednesday, along with Master Builders Association’s Mike Van Dongeren and John Gelavis, said it is the worst crisis in the building industry of his 38 year career. It is due in part to the massive demand, which saw annual building approvals jump 96 per cent in 2020 alone. “It’s a hard one for consumers to understand because it’s a building boom,” he said. “How can you be going broke in a boom? “Because we can’t get supplies... so we can’t get our progress claims. “We are absolutely flat out doing nothing - except for going broke.” Mr Shaw explained that prices are traditionally negotiated with suppliers and tradesmen about six to 12 months before a job, and these prices are used to give the customer a fixed price contract. Builders pay for trades or supplies when they receive progress payments from customers, which are made at about four milestone points in construction, including when the slab goes down. The current crisis is all about cash flow, with the chronic shortage of trades and building materials pushing out the time to each milestone payment point. Meanwhile, the builder still has to cover ongoing overheads, like staff wages, insurances and rent. To make matters worse, while they are waiting for progress payments from the fixed price contracts, the cost of trades and supplies are continually rising. Mr Shaw said in pre-COVID times, negotiated prices did not change, but for the first time tradies and subcontractors are refusing to honour agreements, sometimes boosting prices part-way through a job. “If you say it’s agreed at $1.40 a brick they laugh at you, and tell you they can get $2.50 up the road, or $3.50 around the corner. “Some of our guys are getting four bucks a brick. “If you say no, they will walk. The next brickie will charge you more, and you might have to wait a month.” For his part, Mr Shaw said in the past two months he has been able to invoice only 40 per cent of what he would usually get. And while he and other builders wait for increasingly-expensive trades, supplies are also lagging, and rising in cost. This was due to a range of factors from offshore fabrication disruptions due to COVID outbreaks, the war in Ukraine, as well as competition from building booms all over the world. Show us the money The amount these prices have jumped is in dispute. The Cordell Construction Price Index collated by RP Data claims building supplies, and trades, in WA have increased only 12 per cent since June 2020. But figures from the Australian Bureau of Statistics, shows in the 12 months to December 2021, reinforcing steel jumped up 43 per cent, structural timber rose 40 per cent while steel beams and plastic and copper pipes and fittings increased 25 per cent. The same figures show plywood and board is up 17 per cent, while aluminium windows and doors are up 15 per cent and insulation has risen ten per cent. For his part, Mr Shaw said he is not drawing a wage for himself, and he is using his own personal savings to cover costs, including staff wages. But he counts himself as one of the lucky ones because he has savings, claiming those at the mercy of banks are not guaranteed survival. “That is the issue some are at with the banks, because banks are saying: Nah, they’re done,” he said. “I’ve had other builders say to me, we will put our own money in but we can’t see light at the end of the tunnel, so we’ll just call it. “They’ll just go into voluntary liquidation, or they’ll just quietly shut.” He said some of the builders “doing the right thing” by putting their own savings in were at the end of their careers, and the money was coming directly out of their retirement funds. For his own part, Mr Shaw does not see any relief coming this year, and he wants customers to know that builders are not “pulling the wool over their eyes.” While the circumstances are undeniably unprecedented, are all builders blameless? Or did some, blinded by dollar signs fuelled by the building grants program, greedily take on more work than they could handle? Greed factor After all, some builders were actively advertising for new customers in late December 2020, just before the final deadline for the full $45,000, claiming they still had the capacity to take on more clients. Mr Shaw agrees some took on more jobs than their track record suggested they could handle, though he believes they are the exception, not the rule. He said most simply miscalculated their ability to gear back up to their usual level following the building downturn, especially as no-one could have foreseen the trade’s and supply shortages. It has been a sudden turn of events for the industry, which hit its lowest point in 2019, and the industry has struggled to adapt to its changing fortunes and power shifts. Less than one year ago a senior manager at Pindan hit the headline with a crude homemade “Wheel of Fortune” to taunt subcontractors over whether they would get paid. Pindan managing director Scott Davison put the company into administration, owing up to $100 million to creditors, including about $30 million to 500 subcontractors. The matter highlighted the years of massive financial losses incurred by subcontractors at the hands of some big builders. Dog eat dog State secretary of the construction union, Mick Buchan said the dynamics in the sector had for many years been skewed in favour of the building company. Mr Buchan claims subbies were pitted against each other to compete for contracts at the lowest price, literally told to “sharpen your pencil” when their initial quote was deemed too costly. It was a race to the bottom, Mr Buchan said. He described some builders and contractors in WA “like rats who got into a barrel of grain”. “They gleefully ate all the profits that should have actually been reinvested in our industry,” Mr Buchan said. “So now all the grain is gone and they’re trapped in the bottom of an empty barrel. And they’re trying to eat each other.” The dog-eat dog approach is rearing its head again, with subcontractors racing out to half-completed homes to rip out their supplies when a builder goes bust. Sometimes it is done in a bid to recoup costs, but sometimes is purely vindictive, carried out by angry tradies who know they will not get paid. Building broker Tristan Kirkham, from New Home Building Brokers, claims there is no doubt the current challenges will force more builders than usual to go under this year. Mr Kirkham claims there are a raft of things government can do to ease the bottom line for builders, like reducing the red tape required to get a home on site, which add to costs and delays and erodes margins. He also believes builder’s indemnity insurance should also be increased above $100,000 and called for more resources for the watchdog, Building and Energy, to conduct more regular health checks on companies. What crisis? But while the State watchdog, an agency called Building and Energy, recognised the State is in unprecedented circumstances, acting executive director Sandy Randall does not appear to see it as a crisis. Ms Randall cites “simultaneous global, national and local building activity, coupled with corresponding demands for similar materials and skills” but astonishingly, she says the State is on track to record no more than the regular 20 insolvencies this year, out of its 4000 registered builders. “Although there are particular pressures facing builders and their clients in the current environment, data for 2022 to date suggests that a similar number of insolvencies will be seen this year compared to the average,” she said. To date, nine companies have gone under this year, and there are serious questions over a further two. The five residential businesses go under this year, include Candor Contractors, DND Building Company, Home Industry Builders (also known as Home Innovation Builders) and New Sensation Homes, owned by John and Danny Coyne, pictured. January also saw the surprising collapse Consortium Builders, a Swedish company which had ambitious plans top 30 construction companies in the world by 2030. A creditor yesterday filed a wind-up application against Subiaco-based residential builder Maxgrande, which has disconnected its office telephone. Modco is fighting claims it can’t pay its bills, despite spending tens of thousands on a launch party. A further four companies have gone under in the commercial sector, including ACN138 294 185 Pty Ltd, Associated Shopfitters, Linebay Holdings, Probuild Constructions (Australia). As explained by Chris Palandri, the head of one of the biggest builders in the State, Multiplex, both the residential and commercial sectors are inextricably linked, with subcontractors working across both. Who has all the answers? It raises the question as to how confident can customers be that their homes will get built. Is anyone checking on their continued viability? Ms Randall said builders must all undergo regular checks when they renew their registration every three years, which requires them demonstrates they have the capacity to meet debts as and when they fall due. There are other triggers for a further review by Building and Energy - which are by all accounts a stringent and thorough assessment - including a poor or deteriorating risk profile on a credit database; reports about unpaid debts; concerns raised directly or indirectly from consumers, subcontractors, suppliers and others; or an increase in complaints about inactivity or unsatisfactory building work. Premier Mark McGowan did not respond to several questions for this feature, but earlier this week told reporters that there was little that could be done to help victims of the home building companies that had gone into liquidation.